An Introduction to First-Time Homebuyer Programs

Here you are, ready to embark on an American tradition: purchasing your first home. It’s an often-sought-out goal, one that is implanted in our minds early on. All that aside, how do you actually go about it? It seems daunting; there are all of these expenses, ratios, and procedures you need to follow before you can even consider purchasing a home, so where do you start? 

For many people, coming up with the cash for a down payment and closings costs is the biggest hurdle to homebuying. Luckily, there are many different avenues to find assistance with your first home purchase. While we are going to touch on just a few popular national programs, you should know that there are many (geographically specific)  government and charitable organizations that can help.

Let’s start with government home assistance programs. Except in the case of some Veterans Affairs (VA) loans, the following government agencies don’t provide the mortgages themselves, but the loans are backed/guaranteed by the government. This gives the mortgage lender/broker piece of mind that the loan is safe.

Federal Housing Authority (FHA): This loan allows borrowers to purchase a home with as little as a 3.5% down payment and a credit score of 580 or more. Or, it allows a borrower with a 500 credit score to get a loan as long as they have a down payment of 10%. There are other benefits to going through the FHA loan process. Just keep in mind that like with many other loans, when you put less than 20% as a down payment, you will have to pay private mortgage insurance (PMI) monthly.

Veteran Affairs (VA): This is a great loan for qualified military members, veterans, and surviving spouses. This housing assistance program is run through the Department of Veteran Affairs and can require no money as a down payment without having to pay PMI. There is usually a funding fee, but this can often also be rolled into the loan.

United States Department of Agriculture (USDA): This is another loan that may not require any money as a down payment. However, there are more restrictions associated with it. For starters, you can only get a USDA-backed loan in eligible areas that are classified as rural. Your income must also be below a certain level to qualify. 

If you work in the public sector, you should check if there are any programs offered by the federal government or your state government for housing assistance. For example, the Good Neighbor Next Door program gives law enforcement, emergency personnel, and teachers a 50% discount off the list price of certain homes offered through the Department of Housing and Urban Development (HUD).

Outside of the government-sponsored programs outlined above, you also want to check for down payment assistance programs and down payment grants. These are typically available to low and medium-income individuals/families, as defined by the Adjusted Median Income (AMI) of the area you’re looking to buy in. These programs and grants can end up being free money to use as a down payment on a home. 

Believe it or not, your employer may have or participate in an Employer Assisted Housing program (EAH). Again, there are limitations to all the different types of housing programs out there. For example, an EAH may only qualify certain professions and geographic locations near the workplace. But, it’s important to know that these different types of programs exist.

Other popular first-time home buying programs come from non-profit organizations. The preeminent example is the Neighborhood Assistance Corporation of America (NACA). This organization offers low-interest rates to qualified individuals with no money needed for a down payment. 

Overall, it’s important to know that programs exist specifically to assist first-time homebuyers. Take time to not only research the programs mentioned before but also other opportunities in your local municipality and state. You may be surprised by how many options are available. Keep in mind that any assistance will come with eligibility requirements and actions you may have to take to satisfy program requirements.