First-Time Homebuyers: How to Qualify for Loans, Programs and Grants

Quick Answer

To qualify for first-time homebuyer loans, programs and grants, follow these steps: Learn about first-time homebuyer programs in the city or town where you’re aiming to buy, contact the housing authority there for eligibility information and then meet any local credit score, income and finance course requirements.
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Saving for a down payment, closing costs and other expenses can create a real hurdle for new homebuyers. In some cases, it might box you out of the process entirely. That's where first-time homebuyer programs and grants come in. If you qualify, it could help ease the financial burden of buying a house. Here's a guide to how they work.

What Is a First-Time Homebuyer Program?

There are lots of first-time homebuyer programs. Each works a little differently, but they're all designed to eliminate the barrier to homeownership. Some home loans are designed specifically for new homeowners and have low down payment requirements. Other programs offer low- or no-interest loans that can be used to cover your down payment or closing costs. State and local governments can be another great resource if you're buying a home for the first time.

Types Of First-Time Homebuyer Programs

There are several major types of first-time homebuyer programs to choose from.

Government-Insured Mortgages

The following home loans are backed by the federal government and can be ideal for first-time homebuyers:

  • FHA loans: These loans have looser borrowing requirements when compared to conventional mortgages. You can also get approved for an FHA loan with a down payment as low as 3.5%.
  • USDA loans: These are low-interest home loans that don't require a down payment. USDA loans are geared toward low-income rural and suburban homebuyers.
  • VA loans: If you or your spouse are service members or veterans, a VA loan may be worth exploring. Interest rates tend to be lower—and no down payment is required.

Low Down Payment Mortgages

You may qualify for a conventional mortgage with a low down payment. Below are some options for first-time homebuyers:

  • Fannie Mae Standard 97 Loans: With this type of conventional mortgage, you can buy a new home with a 3% down payment. To qualify for a Fannie Mae standard 97 loan, you must be a first-time buyer. You'll be required to purchase private mortgage insurance but a strong credit score can help reduce your overall loan costs.
  • Certain conventional loans: Some mortgage lenders offer conventional loans to first-time homebuyers who can make a 3% to 5% down payment. Just keep in mind that credit score requirements may be stricter.

Programs That Offer Discounted Mortgage Rates

Some loan programs require low down payments and offer mortgage rate reductions to qualifying first-time homebuyers. Fannie Mae's HomeReady Mortgage, for example, is designed for creditworthy low-income homebuyers who can put 3% down. It also offers low mortgage rates and reduced mortgage insurance costs.

Down Payment Assistance Loans

If you need help with your down payment, you can consider taking out an additional loan that's separate from your mortgage. These types of loans generally fall into one of three categories:

  • Deferred payment loans: You don't need to repay this type of loan unless you refinance your mortgage, sell your home or move.
  • Low-interest loans: This works like a second mortgage, with repayment typically beginning right away.
  • Forgivable loans: These are usually interest-free loans. Payment won't come due unless you move before paying off your mortgage.

No-Closing-Costs Loans

Closing costs typically range anywhere from 2% to 5% of the home price and are due when you're finalizing the sale. You may be able to fold these costs into your loan, which will reduce your upfront fees—but it also means paying interest on your closing costs. Some mortgages have no closing costs at all, excluding taxes. Just be sure to read the fine print. You may be charged other fees or a higher interest rate.

State or Local First-Time Homebuyer Programs

Check to see what resources are available in your state. Some offer secondary loans to help first-time homebuyers with their down payment and closing costs. Some examples include the California MyHome Assistance program and Tennessee's Great Choice Plus program.

Employment-Based Homebuyer Programs

Home-buying assistance may be available through your employer. The Good Neighbor Next Door program, for example, is open to law enforcement, primary school teachers, firefighters and emergency medical technicians. Qualifying homebuyers can get 50% off the list price of a home that's in the program's database if they live there for at least three years.

What Is a First-Time Homebuyer Grant?

Unlike loans, grants don't have to be repaid. They can provide free money you can use to buy your first home. Grants can be available through state and local governments, as well as nonprofit organizations.

Types Of First-Time Homebuyer Grants

  • Down payment assistance grants: The National Homebuyers Fund offers a down payment assistance grant worth up to 5% of the loan amount. It's available to low- and moderate-income homebuyers, whether or not it's their first home purchase.
  • Grants for closing costs: The National Homebuyers Fund grant can also be used for closing costs. Your mortgage program might be another resource. If you purchase a property through Fannie Mae's HomePath program, you could be reimbursed for up to 3% of your closing costs.
  • Grants for home repairs and renovations: Every grant is different, but some can be applied to home inspections and rehabilitation costs.

How to Qualify for First-Time Homebuyer Benefits

Eligibility criteria can vary from one program to the next, but there may be requirements around the following:

  • Income: Some first-time homebuyer programs are designed for low- to moderate-income buyers.
  • Residency: Your state or local government may offer resources to residents who are first-time homebuyers.
  • Credit: Credit score requirements vary from one program to the next, but most require at least a "fair" credit score (580 to 669 for FICO® Score models). To qualify for an FHA loan with a 3.5% down payment, you'll need a minimum credit score of 580. The HomeReady program, which allows you to put 3% down, requires a credit score of at least 620.
  • Employment: Certain benefits are reserved for homebuyers who work in specific industries. Those who apply for a conventional mortgage or government-backed home loan will also need to provide their employment history.

To find specific grants and benefits, start by searching online for first-time homebuyer programs in your state. You can also find state-specific resources through the National Council of State Housing Agencies or by connecting with a HUD-approved housing counselor.

Frequently Asked Questions

  • A first-time homebuyer is generally defined as someone who is buying a primary residence and hasn't owned a residential property during the last three years. Some assistance programs are open to those who aren't first-time buyers.

  • It depends on the program. Homebuyers generally need a credit score of 500 to 700 to qualify for a mortgage. Grants offered through nonprofit organizations may have higher or lower standards.

  • The Downpayment Toward Equity Act—also known as the $25,000 first-time homebuyer grant—is a bill that's meant to help low-income Americans purchase their first home. If it becomes law, eligible homebuyers could receive up to $25,000 in cash. The money could go toward a down payment, closing costs or discount points to reduce your mortgage rate.

The Bottom Line

A first-time homebuyer program could unlock a grant or loan that allows you to purchase your first property. Resources are available from state and local governments, nonprofit organizations and certain mortgage lenders. Taking the time to apply may be well worth it in the end.

A healthy credit score could make you a more attractive applicant. Start by reviewing your credit report and credit score for free with Experian.