First-Time Homebuyer Programs and Loans
Updated: March 11, 2024
Who Qualifies as a First-Time Homebuyer?
You might be surprised to learn that you could qualify as a first-time homebuyer even if you’ve owned a home in the past. (And of course, if you’re purchasing for the very first time, you could qualify.)
Many lenders and homebuyer programs follow the U.S. Department of Housing and Urban Development’s definition of a first-time homebuyer. The agency states that as long as you have not owned a principal residence in the three years prior to closing on a new home, you can be considered a first-time buyer. A single parent who has only previously owned a home with a former spouse would also be considered a first-time homebuyer, as would those who have only owned a home that didn’t sit on a permanent foundation (such as some manufactured homes).
As a first-time homebuyer, you would have the same considerations as other buyers when it comes to figuring out how to pay for a property: You may need a down payment, and you’ll likely need to make regular mortgage payments as well. That’s where these helpful programs come in.
Down Payment Assistance (DPA) Programs
If you haven’t saved up an adequate down payment and don’t think you’ll be receiving a gift from family or friends to close the gap, a Down Payment Assistance (DPA) program may be for you. Assistance might come in the form of a grant or a loan; sometimes mortgage loans are forgivable over a number of years if you continue to live at the home. In addition to being a first-time homebuyer, you may need to meet other qualifications, including being within a certain income limit or purchasing in a specific geographical area.
Most DPA programs are offered at the city and county level. Many work only with particular lenders, but most programs will work with FHA loans (popular with first-time homebuyers thanks to lenient credit requirements and a low minimum down payment).
Some programs allow you to use the money they provide to cover closing costs, while others do not. Many require homebuyer education courses. Consider these options:
Conventional Home Loans with Low Down Payments
You’ve probably heard the rule of thumb that homebuyers should put down 20% up front toward the cost of their new property. This is certainly ideal, but things are considerably different for most first-time homebuyers. On average, the typical down payment for a first-time homebuyer in 2023 was 8%, versus 19% for a repeat purchaser, according to the National Association of Realtors®.
Many lenders will loan to first-time homebuyers who put down as little as 3%, provided the borrower has a good credit score and meets other requirements, such as purchasing private mortgage insurance (PMI) to temper the risk for the lender. Some loans also qualify for the Federal Housing Finance Agency discount, which debuted in early 2023 and automatically provides for a mortgage rate discount for eligible first-time buyers.
Take a look at these home loan options that have low down payments:
| Program | What it is | Minimum Down Payment | Typical Qualifications | Typically Offered By |
|---|---|---|---|---|
| Conventional 97 | This loan, with guidelines established by Fannie Mae, allows first-time homebuyers to put only 3% down and finance the other 97% of their purchase. It is a fixed-rate mortgage with a term not exceeding 30 years. | 3% | • At least one borrower must be a first-time buyer. • Home must be borrower’s primary residence. • If all borrowers are first-time owners, a homeowner education program may be required. • No income limits. • Credit score of at least 620, although it takes a score of 680+ to qualify for all features of this loan. |
Many lenders offer this type of mortgage. |
| HomeOne | This fixed-rate loan is backed by Freddie Mac and can be used for purchases or no-cash-out refinancing. | 3% | • No income limits. • At least one borrower must be a first-time homebuyer. • Homeowner education is required if all borrowers are first-time homebuyers. • Credit score of 620 or better. • Manufactured homes are not eligible for this loan. |
Many lenders offer this option. |
| Home Possible | Also backed by Freddie Mac, this loan stands apart for allowing co-borrowers who do not live in the home the opportunity to sign on to a loan for a one-unit property. It also allows borrowers to have another financed property, good news for those who need to sell a home they already own. And it allows adjustable-rate loans. | 3%; borrowers have the ability to source their down payment from employer-assistance programs, family members, secondary financing, even sweat equity. And buyers who share their home with a tenant can use rental proceeds as qualifying income for her mortgage. | • Borrowers are not required to be first-time buyers. • Must be within 80% of area median income for the census tract where the home is located. • Credit score of 660 or better. |
Many lenders offer this option. |
| HomeReady | This Fannie Mae program has many of the same features as the Conventional 97, including the option to put just 3% down on the price of a home. HomeReady, however, is designed for those in the low- to moderate-income bracket. | 3% | • Borrowers are not required to be first-time buyers. • If all borrowers are first-time owners, a homeowner education program may be required. • Must be within 80% of area median income for the census tract where the home is located. |
Many lenders offer this option. |
Government Programs for First-Time Homebuyers
Loans backed by the U.S. government are appealing for many first-time homebuyers because they may require a low down payment (or none at all) and have more lenient standards regarding borrowers’ credit scores.
If you’re already starting to feel like there are as many types of loans as there are types of homebuyers, you’re not wrong. Use this chart to determine which government-backed loans you might want to explore further.
| Program | What it is | Minimum Down Payment | Typical Qualifications | Typically Offered By |
|---|---|---|---|---|
| FHA Loan | The Federal Housing Administration (FHA) insures mortgages for single-family and multifamily properties, making relaxed credit requirements possible. FHA loans usually have lower rates than comparable conventional loans. New in 2023: It is now possible to add income from an accessory dwelling unit (ADU) to a borrower’s possible income for the purposes of qualifying for a mortgage. | The minimum down payment is 3.5%, however those with a FICO® credit score between 500 and 579 will need to put down 10%. The down payment can come in the form of a gift or grant from a government or nonprofit homebuying program. | FHA loans require an upfront mortgage insurance premium (MIP) of 1.75% of the base loan amount, which can be rolled into the loan. As of March 2024, monthly MIP for new homebuyers is 0.15% to .75% — most often 0.55%. High and low earners may apply for an FHA loan, but they must have at least two established credit accounts. | Approved private lenders. |
| VA Loan | VA loans are available to active-duty military members, veterans, reserve members, National Guard members, and certain surviving spouses. | There is no down payment required. | • To receive a VA loan, a veteran, service member, reserve member, National Guard member, or surviving spouse first has to apply for a Certificate of Eligibility. • Most mortgage lenders will want to see a FICO credit score above 620. • The home you wish to purchase will need to be appraised by a VA-approved appraiser. • No private mortgage insurance is required. |
Approved private lenders. |
| USDA Loan | This fixed-rate loan program is for low- and moderate-income buyers living in rural areas. It allows for the purchase of a new home but also allows borrowers to wrap some renovation costs into a home purchase. The loan can be used for modular or manufactured housing. | There’s no down payment for those who qualify. | • Median household income of the borrower cannot exceed 115% of the median income in the area where you are buying. • You must occupy the home. • There is no minimum credit score but applicants must “demonstrate a willingness and ability to handle and manage debt,” according to the USDA. |
Approved private lenders. |
| Native American Direct Loan | If a veteran or their spouse is a Native American, they may qualify for a Native American Direct Loan (NADL) to purchase, construct, or improve a home on federal trust land.The VA issues these 30-year, low-fixed-rate loans directly to borrowers. | There is no down payment required in most cases, and private mortgage insurance is not required. | • As with a typical VA loan you must apply for and receive a Certificate of Eligibility from the VA. • You must also meet the VA’s credit standards, although the agency does not specify its threshold. • Your tribal government needs to have an agreement with the VA spelling out each party’s responsibility in the loan. |
Work directly with a NADL coordinator to apply for this loan. To make an appointment, email [email protected] or call 888-349-7541 (TTY: 711). |
| Energy-Efficient Mortgage | The Federal Housing Administration’s Energy Efficient Mortgage (EEM) program helps families finance energy efficient improvements with their FHA-insured mortgage. The idea is that lower energy costs will help increase the funds available for mortgage payments. The energy loan is capped at the lesser of: 5% of the property’s value; 115% of the median area price of a single family dwelling; or 150% of the conforming Freddie Mac Limit. | The minimum down payment is 3.5%, however those with a FICO credit score between 500 and 579 will need to put down 10%. | Qualifications are the same as for an FHA mortgage (see above) with the following adjustments: • A buyer will only have to qualify for the base amount of the mortgage, not including the cost of efficiency upgrades. • The home and plans for the energy efficiency upgrades will need to be assessed by a qualified energy assessor. |
Approved private lenders. |
| Good Neighbor Next Door | With this U.S. Department of Housing and Urban Development (HUD) program, single-family homes in areas targeted for revitalization are listed for sale exclusively to eligible buyers, who can receive 50% off the price of the home and roll renovation costs (within certain limits) into their financing of the home purchase. | If the purchase is financed with an FHA loan, you can put as little as $100 down. | • You must be employed full-time as a law enforcement officer, firefighter, emergency medical technician, or pre-K through 12th-grade teacher (public or private school). • Buyers must make the home their primary residence for at least three years. • HUD requires borrowers to sign a second mortgage for the discounted amount, although you will pay no interest or principal as long as you stay for three years. • There are no income limits or credit requirements for this loan, although buyers using FHA financing will have to qualify for an FHA loan. |
You may finance this loan through any lender, but for maximum benefits you’ll want an FHA-backed loan. |
| HomePath Ready Buyer Program | HomePath gives buyers purchasing their primary residence a chance to make offers and purchase Fannie Mae-owned foreclosed properties before they’re available to investors. First-time buyers of these properties who complete Fannie Mae HomeView, an education course, may receive up to 3% in closing cost assistance. Many buyers combine this program with a HomeReady mortgage. | See HomeReady mortgage, above. | Anyone can purchase a HomePath property. | See HomeReady mortgage, above. |
First-Time Homebuyer Programs by State
Many first-time homebuyer programs are managed at the state or local level. Find options for your state under “State Homebuyer Programs” in the chart below. It’s also always a good idea to look at your state housing finance agency’s site for information about its programs (find yours under “State Housing Agency,” in the chart below).
The Department of Housing and Urban Development also lists some local and state assistance programs.
Yet another way to look into local programs you might qualify for: Ask your loan officer about down payment assistance grants and loans. The loan officer will also know which programs the lender can accept.
Relocating? Learn more about the cost of living in your chosen state.
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Nonprofit Programs for First-Time Homebuyers
Several nonprofits offer financial assistance to homebuyers. Some are national while others work only in certain regions. Many focus on lower-income homebuyers, and they often include financial literacy and home ownership training among their services. Here are just a few of the nonprofit programs for first-time homebuyers:
Neighborhood Assistance Corporation of America
The largest HUD-certified nonprofit organization, NACA provides a mortgage with a below-market fixed rate with no down payment, no closing costs, no fees, and no private mortgage insurance. It focuses on low- and moderate-income people and communities and partners with particular large lenders.
Habitat for Humanity
Individuals and families who demonstrate a need for safe and affordable housing, and who are willing to put in “sweat equity” may contact their local Habitat organization for information.
National Homebuyers Fund
This nonprofit organization offers a down payment assistance grant of up to 5% of the mortgage loan, or a second mortgage loan with 0% interest that is forgiven after three years. The National Homebuyers Fund provides financing through FHA, USDA, VA and conventional mortgages. You’ll need to work with a participating mortgage lender. FICO score requirements and allowable debt-to-income ratios are flexible.
Employer-Sponsored Programs for First-Time Homebuyers
Some companies help employees buy homes by offering direct down payment assistance, investing in affordable housing for workers, or guiding employees to government-sponsored grants and low-interest loans. Walmart, for example, offers mortgage assistance programs for qualifying associates. Johns Hopkins University and Hospital, as well as the Chicago Public School District, also offer programs for their employees. Check your employee benefits policy to see if you’re fortunate enough to work for a company or organization that provides this benefit.
The Takeaway
Many programs exist to make home ownership possible for first-time homebuyers, but you will have to do some work to research your options and take advantage of them. The good news? You may qualify as a first-time buyer even if you have previously owned a home.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
FAQ
What is a first-time homebuyer?
A first-time homebuyer is someone who has never owned a home, as well as anyone who hasn’t owned a principal residence in the last three years. Certain other groups, including those who have only previously owned a home with a former spouse, also qualify.How do you buy a house if you have no money?
The VA and USDA have programs that make it possible for eligible applicants to purchase a home with no money down. Some state and nonprofit programs also provide down payment assistance. You will, however, still need to be able to make payments on a home loan.What is Biden’s $25,000 Downpayment Toward Equity Act?
The Downpayment Toward Equity Act would provide $100 billion in direct assistance to help first-time, first-generation homebuyers purchase a home. The funds would reduce mortgage rates and also help cover down payments and closing costs. As of early 2024, the Act has not passed in Congress.What is the new California program for first-time homebuyers?
The Dream for All program provides down payment assistance in connection with a mortgage for first-time homebuyers. The program was paused for new applicants shortly after it debuted in early 2023 because funds were quickly exhausted.Does Michigan have a down payment assistance program?
The Michigan State Housing Development Authority offers a $10,000 down payment assistance program for low- and middle-income homebuyers. Applicants must complete a homebuyer education program to qualify.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
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