Guide to First-Time Home Buyer Programs, Grants and Loans

How to qualify for first-time home buyer loans and grants

Buying a house is a lot to wrap your head around, especially as a first-time home buyer. But if you know what to expect, it doesn’t have to be stressful or confusing.

This first-time home buyer guide will help you figure out how much house you can afford and how to finance it, which are the first two steps to buying a home.

In this article (Skip to...)

• First-time home buyer programs
• First-time home buyer loans
• Nonprofit loan programs
• Employer-sponsored programs
• Student mortgage programs
• Essential worker loan programs
• FAQ

>Related: How to buy a house with $0 down: First-time home buyer

What is a first-time home buyer program?

First-time home buyer programs aim to simplify the financial challenge of buying your first home. They can provide benefits such as competitive mortgage rates and lower down payments, along with financial help for closing costs, making the path to homeownership accessible and less intimidating.

Who is eligible for a first-time home buyer program?

Qualifying as a first-time home buyer can differ from program to program. However, in general, most people define a first-time home buyer as someone who has either never bought a property or hasn’t owned one in the previous three years.

Types of first-time home buyer programs

It can be difficult to navigate the costs of being a first-time home buyer, but there is good news. A variety of loan programs and grants are available to help you with your down payment and closing costs.

Whether it’s through non-profit aid or government-backed mortgages, help is closer than you think. Tax incentives at both the local and federal level can also ease the financial sting, and a variety of educational programs are available to guide you through every stage of the home-buying process.

Let’s explore some of the most sought-after loans and grants for first-time home buyers.

Government-backed first-time home buyer programs

Government-backed loans offer a lifeline to first-time home buyers by providing more lenient eligibility criteria compared to conventional loans.

With features like no down payment requirements, reduced interest rates, and more forgiving credit score requirements, these loans—insured by entities such as the FHA, VA, and USDA—reduce the barriers to homeownership. They aim to build a bridge over the financial gaps that often discourage or disqualify newcomers from taking their first step onto the property ladder.

Down payment assistance

Down payment assistance programs (DPAs) are financial aids typically offered by state or local governments to help first-time home buyers manage the upfront costs associated with purchasing a home.

These programs provide first-time home buyer grants or loans to cover a portion or even all of the down payment and closing costs, making the move towards homeownership more financially attainable.

Down payment assistance programs offer real savings for first-time home buyers. One study estimated that buyers using down payment assistance saved almost $6,000 at closing, on average, and another $11,000 over the life of their loans.

Down payment assistance loans

While DPAs come in a variety of flavors, all are designed to support home buyers in meeting the upfront costs of purchasing a home.

• Low-interest loans are additional mortgages with reduced interest rates that are paid back in installments over several years.
• Deferred-payment loans are interest-free second mortgages that are repaid when the homeowner sells, refinances, or pays off the primary mortgage.
• Forgivable loans are a type of second mortgage that does not need to be repaid, provided the homeowner remains in the home for a predetermined period and maintains their mortgage payments.

Down payment assistance grants

First-time home buyer grants are essentially monetary gifts to assist with the initial down payment or closing expenses. Generally speaking, these grants are given to borrowers with low to moderate earnings.

They also vary in size and availability depending on where you live. There are also different requirements to qualify for assistance, including a minimum credit score or income limits.

Down payment savings match

A down payment match program offers matched funds up to a predetermined amount. The funds are exclusively intended for your down payment and closing expenses.

One example of a down payment match program is the Homebuyer Dream Program (HDP) offered in certain parts of the U.S.

The HDP provides matching funds up to $7,500 for down payment and closing costs for eligible first-time home buyers. The program typically requires participants to complete a homebuyer education course and meet specific household income limits and purchase price limits.

Closing Cost Assistance

Closing costs can surprise new buyers with extra expenses when buying a home. But the good news is that closing cost assistance programs can significantly reduce the out-of-pocket costs that buyers face, which can include a variety of fees such as appraisals, title insurance, and loan origination fees.

This help means you might have extra money to decorate your new home or save for the future.

Homebuyer education courses

Homebuyer education courses are like a roadmap for buying your first home. They teach you all the steps, from the types of home loans to finding a good deal. For those stepping onto the property ladder, homebuyer education classes can be the difference between a shaky start and a solid foundation when buying your first home.

Mortgage Credit Certificates

Mortgage Credit Certificates, or MCCs, allow new buyers to claim a tax credit for a portion of their annual mortgage interest. Tax credits like these make more available money accessible to qualify for a home loan and help with monthly mortgage payments.

An MCC can be the difference between a property that’s just out of reach and one that’s a good financial fit.

First-time home buyer loans

Conventional loans

Conventional loans are a popular choice for first time home buyers because they offer flexibility. They’re not backed by the government, which means there’s a variety of loan options out there. For buyers, this means more competitive interest rates and different down payment requirements, which can be as low as 3%. But you’ll pay private mortgage insurance if you put less than 20% down. However, you can drop PMI once you build enough equity in the home.

These loans often require a stronger credit score, but for those who qualify, they offer a straightforward path to homeownership.

Fannie Mae HomeReady

The Fannie Mae HomeReady program is tailored for first-time home buyers with moderate incomes. HomeReady offers low down payments — as low as 3% — and you can even use money from gifts, grants, or community assistance for your down payment and closing costs.

This program also considers the income of everyone living in the home, not just the borrower. That means a buyer could qualify for a loan using income from parents or roommates.

Freddie Mac Home Possible

Freddie Mac’s Home Possible is a first-time home buyer program that helps low-income borrowers get a mortgage. With down payments as low as 3%, Home Possible aims to help those who might struggle to save for a larger down payment. Moreover, it offers flexibility with sources of funds, meaning down payment money can come from various sources including family, employer assistance, or even sweat equity.

FHA loans

The Federal Housing Administration (FHA) offers FHA loans that are popular with borrowers who have smaller down payments or credit issues, which require extra underwriting flexibility. The biggest appeal of this loan is that buyers with below-average credit can get mortgage-approved.

FHA loans allow buyers with credit scores as low as 580 with 3.5% down, and 500 with 10% down. However, low credit scores must not be the result of recent bad credit history.

FHA mortgage rates are often lower than conforming mortgage rates. But because all FHA loans require mortgage insurance premiums (MIP), the overall cost of an FHA loan is sometimes higher.

FHA mortgage insurance costs:

• Upfront Mortgage Insurance Premium (UFMIP): 1.75% of the loan amount for recent FHA loans and refinances
• Annual Mortgage Insurance Premium (MIP): 0.55% of the loan amount most FHA loans and refinances

FHA mortgage insurance must be paid for the life of the loan. But borrowers can refinance into a new loan type to cancel those premiums down the road.

In addition, the home you buy using an FHA loan must be your primary residence. You cannot purchase a vacation home or investment property with this loan option. The same goes for other government-backed loan programs, including VA and USDA mortgages.

VA loans

The Department of Veterans Affairs offers the VA loan to eligible active-duty servicemembers, veterans, and some surviving spouses. VA loans offer 100% financing, simplified loan approval standards, and access to the lowest mortgage rates available.

In addition, VA loan rates consistently beat rates for all other common loan types. VA mortgage rates can often be as much as 40 basis points (0.40%) lower than rates for a comparable conventional loan. In terms of mortgage affordability, the VA loan is hard to beat if you’re eligible.

USDA loans

Available in rural areas and low-density suburbs, the U.S. Department of Agriculture offers its USDA loan as another no-money-down mortgage you can use to finance a home. This loan option features lower mortgage rates, zero down payment, and cheaper mortgage insurance to borrowers with low to moderate income.

The only catch? The home has to be in a designated rural area according to USDA standards. That usually means it has to be located in a city with a population of less than 20,000.

Good Neighbor Next Door

Good Neighbor Next Door is a unique program aimed at helping teachers, firefighters, police officers, and EMTs become homeowners. It offers a substantial 50% discount on the list price of homes located in revitalization areas. For first time home buyers in these professions, this can mean a much more affordable entry into homeownership.

However, there’s a commitment: buyers must live in the property for at least three years. This program isn’t just about providing housing; it’s about investing in and revitalizing communities, which is why it’s such a valuable opportunity for both the buyer and the neighborhood.

HomePath Ready Buyer Program

The HomePath Ready Buyer Program is perfect for first-time buyers looking for a deal on a foreclosed home. Offered by Fannie Mae, this program gives you up to 3% in closing cost assistance if you complete their educational course and buy a HomePath property. It’s ideal for buyers looking for a lower-priced home and willing to put in a bit of work.

Energy-efficient mortgage (EEM)

An energy-efficient mortgage (EEM) is great for first time buyers interested in making their home more energy-efficient. If a home needs upgrades like new insulation, windows, or solar panels, an EEM lets you roll the cost of these improvements into your mortgage. This means you only have one payment and you can start saving on your energy bills right away. It’s a forward-thinking option that can lower living costs over time.

Native American Direct Loan (NADL)

For first time home buyers who are either Native American or married to one, the Native American Direct Loan (NADL) program is a valuable resource.

NADL offers special terms: low-interest, no down payment, and no private mortgage insurance required. It’s specifically for buying, building, or improving homes on federal trust land.

State and local first-time home buyer programs

The U.S. Department of Housing and Urban Development (HUD) offers a directory of first-time home buyer loan programs by state. For more information, see our complete guide to first-time home buyer grants and loans in your state.

Nonprofit first-time home buyer programs

If your income is on the lower end, you might be able to get help from charities or nonprofits when you’re looking to buy your first home. These are groups that aren’t part of the government, but they can give you help with learning about homeownership and with the costs involved in buying a home.

These nonprofits often have rules about how much money you can make to be eligible and other specifics about who they can help.

Neighborhood Assistance Corporation of America

NACA is a nationwide group that assists households that might not have stable finances. They offer advice and education about mortgages. They also connect low-income people with participating lenders that are open to working with them.

One of the big benefits of NACA loans is that they don’t need a down payment or closing costs, and they don’t look at your credit score. This approach can provide a more tailored way to look at buying a home.

Habitat for Humanity

Habitat for Humanity is a well-known group that helps build affordable houses for families with limited incomes. Volunteers construct the houses and, once the house is yours, Habitat doesn’t make any money from it. This helps keep the cost much lower than you’d find otherwise.

Employer-sponsored first-time home buyer programs

Some companies offer help with buying a home through employer-assisted housing (EAH) programs, often in neighborhoods close to where you work. This help might include a loan that you don’t have to pay back if you also take a class on owning a home.

EAH programs usually focus on certain jobs, and there might be other rules to follow, like being a first-time buyer, working there for a certain amount of time, or household income limits.

Speak with your manager or HR representative to discuss your options and find out if your company provides assistance with closing costs or a down payment.

First-time home buyer loans for students

If you’re a recent college graduate, there are programs that may assist you in buying your first home. Take Maryland’s “You’ve Earned It!” initiative, which provides interest rate discounts on mortgages, as well as down payment assistance, to recent graduates who have earned a degree in the past three years.

Just like many graduate-focused homeownership programs, this initiative encourages you to stay in the state by requiring you to live in the home for a certain period, ensuring that the support is benefiting local communities and keeping educated professionals in the area.

First-time home buyer programs for doctors, nurses, and educators

For those in the healthcare and education sectors, stepping into your first home has been made easier through specialized programs catering specifically to doctors, nurses, and educators. These initiatives often feature perks like down payment assistance and preferential mortgage rates, specifically acknowledging the critical contributions of these professionals.

• Educators may explore teacher home loan programs that offer guidance and financial benefits tailored to their needs.
• Nurses can take advantage of nurse home loans that may provide benefits such as relaxed credit score requirements or special grant opportunities.
• Similarly, doctors might find that physician mortgage loans offer unique advantages, like no private mortgage insurance and higher loan limits.

Each program is tailored to help those who give so much to our communities to establish their own homes within them.

First-time home buyer interest rates

First-time home buyers don’t get lower interest rates just because they’re new to the market. Today’s rates for first-time home buyers start at % (% APR) on average.

*Rates are provided by our partner network, and may not reflect the market. Your rate might be different. Click here for a personalized rate quote. See our rate assumptions here.

As a first-time buyer, your interest rate is determined by the same factors as everyone else’s:

• Your credit score
• Your loan type
• Your down payment amount
• The overall interest rate market

Your goal as a mortgage borrower should be to find the lowest interest rate possible. This will keep your monthly payments affordable, and reduce the amount of interest you pay your lender over the life of the loan.

One way to lower your interest rate is by improving your personal finances before you buy. Saving a bigger down payment or increasing your credit score — even by a few points — can make a big difference when it comes to your mortgage rate.

The other important thing is to shop with multiple lenders before you choose a loan. All lenders calculate their rates differently. Some may have lower rates for FHA loans, for example, or for borrowers with less-than-perfect credit. By shopping with more than one mortgage lender, you can find the one that’s most friendly toward your situation and can offer the best deal on your home loan.

FAQ: First-time home buyer loan programs

Check your home buying eligibility today

The easiest way to find out whether you qualify for a first-time home buyer program is to check if you’re eligible for financing.

You can get started below. Getting verified by a lender is free, and it only takes a few minutes to begin.