Loan Programs for First Time Buyers

To be eligible for one of the many First-Time Home Buyer programs, the buyer may not necessarily have to be purchasing their first home. It's possible to qualify as a first time buyer  if you have not owned a home in the past three years.

There are various state and federal programs created to assist First Time Home Buyers with down payments and closing costs. 

Additionally, many First Time Home Buyer programs offer interest rates that are equal to or below market rates and are willing to accommodate buyers with imperfect credit.

First Time Homebuyer Eligibility for FHA Loans

The Federal Housing Administration (FHA) offers assistance to many first time home buyers across the nation. It is not necessary to be a first time home buyer to receive an FHA loan, but FHA loans offer several benefits to first time buyers:

• Low down payments – Many first time home buyers do not have funds saved for a large down payment. In general, lenders require 20 percent down to purchase a home. FHA loans allow borrowers to pay down as little as 3.5 percent of the home’s purchase price.

• Low closing costs – The cost of closing a traditional mortgage loan can be 5% or greater of the purchase price. In contrast, FHA loan closing costs are smaller, meaning the home is more affordable to purchase.

• Easier credit qualifications – Borrowers with credit scores below 640 may still qualify for an FHA loan, something which is very difficult to do with a traditional mortgage lender.

• Mobile & Manufactured - The FHA also assists qualified borrowers in purchasing manufactured housing and mobile homes. Reverse mortgages for seniors are also available.

FHA Down Payment and Mortgage Insurance

For down payments of less than 20 percent, the borrower is required to purchase mortgage insurance. Mortgage insurance costs approximately 1.15% of the final loan amount. 

The FHA used to remove the mortgage insurance requirement after the borrower had made mortgage insurance premium payments for at least five years or the home has accumulated a certain amount of equity. 

Now, borrowers have to pay mortgage insurance for the life of the loan.

FHA Loan Requirements

To qualify, borrowers must meet special income and credit requirements. Borrowers may not have had any negative accounts placed on their credit during the past 12 months. In addition, borrowers who have foreclosed a property in the past will face special restrictions.

Who is the ideal candidate for an FHA loan?

First time home buyers, low-to-moderate income home buyers, students, recently married couples and others who do not have significant savings to draw on for a down payment are all ideal candidates for FHA loans.

To learn more about FHA loan programs, including eligibility requirements, visit the U.S. Department of Housing and Urban Development website.     

First Time Homebuyer Eligibility for VA Loans

Home loan benefits are available to current and discharged military veterans from The Department of Veteran’s Affairs. Program eligibility is based on the number of times a veteran served and the type of discharge they received.  VA program benefits include:

• Low or zero down payment
• No monthly mortgage insurance required
• 15-day late payment grace period
• No pre-payment penalties
• Assumability – another person can take responsibility for your VA loan if they meet credit eligibility requirements

Qualifying for a VA Loan

Before applying for a VA loan, veterans must obtain a Certificate of Eligibility (COE) from the VA. The VA recommends all military employees and veterans check their VA eligibility status and request a COE from the VA ebenefits.gov site.

Who is a VA loan right for?

Current and discharged military veterans are the intended recipients of the VA loan program. In certain situations, spouses of deceased veterans may qualify. Requirements vary depending on the year of service and whether the discharge was honorable or not. VA loans do not require any down payment which is a major benefit. 

VA loans are funded by conventional lenders but guaranteed by the Department of Veteran Affairs.

First Time Home Buyer Eligibility for Housing Finance Authority Program

First time home buyers can also benefit from the Housing Authority Program in their state. Typically, in order to qualify as a First Time Home Buyer in these state programs, the buyer may either be purchasing their first home or have not been a homeowner for the previous three years. 

Program benefits vary, but often include:

• Low down payments –  In some states, buyers may put down as little as $1,000
• Fixed interest rates
• Reduced credit requirements – In some states, buyers with credit scores as low as 580 may qualify for a mortgage loan

Who is a Housing Finance Authority Program loan right for?

First-time home buyers, low-to-moderate income borrowers, and others with minimal savings or imperfect credit scores are ideal candidates for Housing Finance Authority Loan Program mortgage loans.

States fund Housing Finance Authority programs through the sale of tax-exempt mortgage bonds to investors, meaning state dollars are generally not used to fund these programs. 

Interested first-time home buyers should contact their state Housing Finance Authority to learn more about the benefits of their state’s first-time home buyer program and to find out if they qualify.

Gretchen Wegrich

Gretchen Wegrich is an editor at Lender411. She specializes in mortgage basics, personal finance and green living. She graduated with a bachelor's degree in writing from University of California, San Diego and previously worked at the Santa Cruz Sentinel. Contact her at gretchen@lender411com.