First-Time Homebuyer? What Kind of Programs Are Available?

Young family unpacking boxes after they moved into new house

According to an Apartment List survey of 24,000 people in 2016, around 80 percent of millennial renters want to buy a property but are unable to afford the mortgage & down payment combination.

The largest obstacle is unquestionably coming up with a 20 percent down payment. This is the magic figure because it ensures you avoid Private Mortgage Insurance, receive a reduced interest rate, and increases your chances of approval. For example, millennials in Houston need almost 11 years to save the down payment while in Denver, the length of time increases to 16 years

It isn’t all bad news, however. Almost half of home sales in 2015 went to first-time buyers according to Zillow. On the flip side, 62 percent of these purchasers had a four-year college degree; since only 33 percent of Americans graduate from college, it is clear that a large proportion of Americans have a hard time affording a new home. Fortunately, there are a number of first-time buyer programs designed to help you out. Here are three of the most popular.

  1. FHA Loan

The Federal Housing Administration (FHA) insures this type of mortgage, which offers the possibility to purchase a home with a down payment of just 3.5 percent. Here are the eligibility requirements:

  • A credit score of at least 580. You can apply with a score of 500+ but the down payment increases to 10 percent.
  • You must choose an FHA approved lender. Remember, the FHA only insures the loan; the money still comes from a financial institution.
  • You can only purchase a manufactured housing unit, 1-4-unit family home, or a condo with the loan.
  • Show proof of consistent employment for at least the last two years.
  • Your monthly repayment cannot exceed 30 percent of your gross monthly income.

As well as the extremely low-down payment, other advantages of FHA loans include lower closing costs and reduced mortgage rates.

  1. USDA Loan

The loan insured by the United States Department of Agriculture (USDA) is not as well-known as its FHA equivalent, but it offers many advantages. A USDA loan enables you to purchase a home with no down payment but with one caveat: you must purchase a home in a rural or suburban area.

As with the FHA loan, the USDA guarantees the mortgage, but you have to get the money from an approved lender. This loan is designed for low-income applicants with mortgage rates as low as one percent. The list of eligibility criteria includes:

  • Proof of dependable income for at least 24 months
  • No accounts converted to collections within the last 12 months. In other words, an ‘acceptable’ credit history
  • A monthly payment less than 29 percent of your gross monthly income. You could get away with a higher ratio with a credit score of 660+
  • United States Citizenship

If you have a credit score of less than 620, you receive ‘streamlined processing’ while applicants with scores below 580 are still eligible but with far stricter underwriting standards.

  1. Fannie Mae & Freddie Mac

These are government-sponsored entities that purchase mortgages from lenders, group them together, and sell them back to investors as mortgage-backed securities. The purpose of both programs is to make home purchases possible and even to this day, Fannie Mae and Freddie Mac provide the clear majority of financing for new mortgages.

Both entities stepped in during the 2008 financial crisis to guarantee more subprime mortgages in a bid to keep the housing market afloat. In 2014, both enterprises announced plans to introduce 3 percent down payment mortgages to the market. Fannie Mae also offers education for first-time buyers; click here to learn more.

Other Programs

There are a variety of other programs available to first-time buyers; some have more specialized eligibility criteria than others:

  • VA Loan: This loan is available to those on active duty in the military. You benefit from no down payment, low rates, no credit score requirement, and no PMI.
  • Good Neighbor Next Door: This program offers loans to teachers (up to 12th grade), firefighters, police officers, and EMTs. One of the best features is the 50 percent discount on properties in “revitalization areas.”
  • Energy-Efficient Mortgage (EEM): An EEM enables you to add environmentally friendly home improvements. You can create an energy-efficient home without the need for a down payment.


If you’re interested in becoming a first-time homebuyer, there is a wide range of programs available to help you find an affordable property. If you’re thinking of entering the market, here are a few quick tips:

  • Try to ensure that your monthly repayment is no more than 30 percent of your gross monthly income. A higher percentage means you run the risk of becoming ‘house poor.’ Fannie Mae recommends a figure of 28 percent.
  • Don’t overlook closing costs such as origination fees, homeowner’s association fees, taxes, and title and settlement fees. These costs can add up to several thousand dollars.
  • Make sure you have savings in the bank to cover any maintenance fees.
  • Speed up the application process by providing pay stubs, tax returns, bank statements, names and addresses of landlords, credit and loan statements, and W-2s from the last two years.

If you have any questions, please ask below!