First-Time Homebuyer Loan Programs That Warrant Consideration


Buying a house is a monumental event for anyone, let alone the average first-time homebuyer. Prices have appreciated to the point they were at prior to the Great Recession, inventory is tight, and competition is mounting just in time for the spring real estate market. For all intents and purposes, far too many obstacles exist between first-time homebuyers and their dreams of leaving the tenant life behind.

Fortunately, there are programs in place to make the transition to homeownership less of a hassle. Government programs, for that matter, have made a conscious effort to make the dream of homeownership a reality for most Americans, even if their credentials are less than perfect.

Let’s take a look at some of the best real estate financing programs made available to first-time homebuyers, and how they can turn dreams into reality:

First-Time Homebuyer Loan Options

The Federal Housing Administration (FHA)

As an integral component to the United States Department of Housing and Urban Development (HUD), the Federal Housing Administration (FHA) has helped respective buyers make the transition to homeowners for the better part of a century. Since 1934, the FHA has insured loans for otherwise “questionable” buyers; so that they too may be considered for better deals by lending institutions. Essentially, loans backed by the FHA are less risky, allowing lenders to take a chance on borrowers that would otherwise be unqualified.

It isn’t necessarily the borrower that is capable of eliciting a better loan option, but rather the insurance that comes with a mortgage backed by the FHA. That said, loans with FHA insurance are typically offered more attractive interest rates and more flexible underwriting.

What’s more, FHA borrowers don’t have to front the entire downpayment from their own savings. It is entirely possible to use gifted cash from family members or a grant from a down payment assistance program. It’s not uncommon for first-time homebuyers to take advantage of FHA loans in order to capitalize on this unique feature.

It is important to note that the FHA isn’t a lender, but rather an insurer. Those who choose to commit to an FHA loan must work with an FHA approved lender.

While FHA loans are intended to help those with less than pristine credit scores, there are still credit requirements that must be met. However, if you are intent on purchasing a home with as little as 3.5 percent down, you must have a credit score no less than 580. If, for one reason or another, you have a credit score between 500 and 579, the minimum down payment on an FHA loan will reach 10 percent.

To find out if you qualify for an FHA loan, I encourage you to reference their website. One thing is for certain: first-time homebuyers that qualify for an FHA loan will have access to one of the best tools in today’s housing industry.

The U.S. Department of Veteran Affairs (VA)

Not unlike the FHA, the U.S. Department of Veteran Affairs (VA) helps individuals make the American dream a reality. However, unlike the FHA, VA loans are intended to help Servicemembers, Veterans, and eligible surviving spouses become homeowners.

VA Home Loans are made possible through the use of private lenders, and are therefore typically offered by banks and mortgage companies. However, much like the FHA insurance I alluded to earlier, the U.S. Department of Veteran Affairs guarantees a portion of the loan, making it less risky for lenders to lend to people with less than great credit scores. In mitigating the risk that may come with lending to some borrowers, the VA makes it possible for people seeking a mortgage to receive better terms.

VA Home Loans do have one distinct advantage over FHA backed loans: those that qualify for a VA loan will not be required to put down money upfront or pay private mortgage insurance (PMI). Other advantages of a VA Home Loan include:

  • No down payment will be required if the sales price doesn’t eclipse the home’s appraised value.
  • VA stipulations protect borrowers from paying too much in closing costs.
  • In fact, closing costs may be paid by the seller.
  • Lenders are in no way permitted to charge you for paying off the loan early.
  • VA may provide assistance in the event you fall behind on mortgage obligations.

While VA Home Loans are incredibly beneficial to first-time homebuyers, they are by no means limited to those that have never purchased before.

Single-Family Housing Guaranteed Loan Program

It may surprise a lot of people to learn that the United States Department of Agriculture Rural Development (USDA) has a loan program that first-time homebuyers can take advantage of; provided they aren’t as selective with their living arrangements as most others. This program, otherwise known as the Single-Family Housing Guaranteed Loan Program, “assists approved lenders in providing low- and moderate-income households the opportunity to own adequate, modest, decent, safe and sanitary dwellings as their primary residence in eligible rural areas.”

Those eligible to receive assistance from this program have the option to either build, rehab, improve, or relocate a home in predetermined rural areas. Much like the other options on this list, the Single-Family Housing Guaranteed Loan Program makes less-qualified borrowers more attractive to lenders. In providing a 90 percent loan note guarantee to approved lenders on behalf of qualifying borrowers, the USDA gives lenders peace of mind that there will not be a significant default. Borrowers, in return, are awarded the opportunity to relocate to specified rural areas.

According to the USDA, “this program helps lenders work with low and moderate income families living in rural areas to make homeownership a reality. Providing affordable homeownership opportunities promotes prosperity, which in turn creates thriving communities and improves the quality of life in rural areas.”

First-Time Homebuyer Upgrade Programs

First-time homebuyers are awarded the opportunity to take advantage of some great loan programs offered by the government. However, those benefits don’t stop at loans; some programs allow buyers to purchase more home. Let’s take a look at a few programs first-time homebuyers can take advantage of:

The Energy Efficient Mortgage Program

The government, not to mention environmental advocacy groups, have been stressing the importance of energy efficiency for quite some time. However, the Energy Efficient Mortgage Program allows them to put their money where their mouth is. As its name suggests, this program improves the borrowing power of first-time homebuyers that select houses with energy-saving improvements. Not surprisingly, it emphasizes the importance of green home features, and rewards those who are willing to commit to them.

HUD 203(k) Loans

First-time homebuyers intent on acquiring a “fixer-upper” may be excited to learn that their efforts don’t have to go unrewarded. In fact, special loan insurance may be extended to those looking to acquire a home that needs a lot of work. According to the HUD website, “Section 203(k) insurance enables homebuyers and homeowners to finance both the purchase (or refinancing) of a house and the cost of its rehabilitation through a single mortgage or to finance the rehabilitation of their existing home.”