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First-Time Home Buyer Programs, Loans And Grants: A Guide

9-Minute Read
Published on November 4, 2020
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*As of April 20, 2020, Quicken Loans® isn’t offering conventional adjustable rate mortgages (ARMs).

*As of July 6, 2020, Quicken Loans is no longer accepting USDA loan applications.

Making the decision to buy your first home is monumental, and therefore overwhelming. And very expensive! How will you ever be able to gather up a down payment, get approved, and make your monthly payments?

Fortunately, there are a wide variety of programs available to help you make your first home purchase. For most people, owning a home is a part of the American dream, and our government has programs available to make it possible.

We’re here to help you find the financial resources to get you into your dream home.

Down Payment Assistance

For many, it’s cobbling together the down payment that presents the biggest challenge, especially if you live in a place with high rents. Fortunately, there is down payment assistance available, primarily in the form of first-time home buyer grants and generally at the state and local level. There may even be funds available from the private sector and nonprofits where you live.

Chenoa Fund

One nationwide (except NY) source of down payment assistance is the Chenoa Fund. The Chenoa Fund is an affordable housing program administered by CBC Mortgage Agency (CBCMA), a federally chartered government entity.

The Chenoa Fund provides up to 3.5% down payment assistance, or DPA. Conveniently enough, that’s the down payment you need for an FHA loan. If you have a FICO score of 620 or higher and a DTI of 45% or less, you’ll get a second mortgage with no interest and no payments. If your income is less than 115% of your area’s median income, and you make your mortgage payment on time for 36 months, the mortgage is forgiven. If you make more than 115% of your area’s median income, the DPA must be repaid.

If you make a late mortgage payment, you’ll be given a second chance at loan forgiveness. You get to reset the period and the mortgage will still be forgiven if you make timely payments for the next 36 months.

Apply for a Mortgage with Quicken Loans®

Call our Home Loans Experts at (800) 251-9080 to begin your mortgage application, or apply online to review your loan options.

Start Your Application

Federal Government Programs

We’re about to enter the alphabet soup of government agencies that are there to help you in your quest to become a homeowner. At a high level, you need to understand that there is one agency, the U.S. Department of Housing and Urban Development, or HUD, that directly assists homeowners through its programs. HUD sells foreclosed homes and sponsors programs, discussed below, that make it easier for a variety of low- and moderate-income people to buy homes.

HUD houses the Federal Housing Administration, or FHA. The FHA funds mortgages made by private lenders according to its rules. In addition to HUD and the FHA, the Veteran’s Administration, or VA, and the U.S. Department of Agriculture, or USDA, offer loan programs that provide guarantees through private lenders.

Then there are Freddie Mac and Fannie Mae, the government-sponsored enterprise, or GSEs, that purchase loans after origination to keep lenders liquid. Lenders must meet Freddie and Fannie’s requirements to be able to sell them their mortgages so that they have the liquidity to issue future mortgages. Known as qualifying or conforming mortgages, these are the conventional mortgages that you may be familiar with, like the 15- or 30-year fixed-rate mortgage and a variety of ARMs.

Let’s look at each of these agencies and what they have to offer.

HUD Home Programs

If you’re looking for a bargain, consider buying a HUD house. HUD houses are homes that were last purchased with an FHA loan. Because of foreclosure, the government now owns these properties, and HUD manages them until they are sold. HUD houses are purchased “as-is.” That means that the government makes no warranties and will not undertake repairs.

As you can imagine, people who are unable to make their mortgage payments are likely to be unable to pay for home repairs, so many HUD homes need substantial renovation. Also, the foreclosure process is lengthy, so some of these homes have been sitting empty for a long while. Potential buyers are strongly encouraged to perform a thorough home inspection so that they know exactly what they are getting into. If you buy a HUD home with an FHA mortgage (below), you may be able to finance renovations with an FHA 203k loan and roll both loans into one convenient monthly payment.

HUD’s Special Home Buying Programs

Good Neighbor Next Door (Formerly Known As Teacher/Officer/Firefighter Next Door)

Law enforcement officers, teachers (Pre-K – 12), firefighters, and emergency medical technicians make good neighbors, and HUD wants to encourage these future homeowners by offering them a whopping 50% discount on the list price of HUD homes. This program aims at growing neighborhood stability through responsible homeownership and investment.

Homeownership For Public Housing Residents

If you qualify for Section 8 Housing Choice Voucher program, it may be possible to apply your voucher to a monthly mortgage payment if you live within a participating Public Housing Authority. You can learn more about eligibility requirements directly from HUD.

Section 184 Indian Home Loan Guarantee Program

This program works to help American Indian and Alaska Native people pursue their homeownership dreams. Section 184 borrowers can get into a home with a low down payment and flexible underwriting. Section 184 loans can be used, both on and off native lands, for new construction, rehabilitation, purchase of an existing home, or refinance. HUD’s website offers a map of approved areas by state and county as well as a list of eligible lenders.

HomePath Homes

If you are a first-time home buyer, you might want to consider a HomePath home. These homes are owned by Fannie Mae, a GSE that purchases mortgages from lenders after origination.

When borrowers default on their conventional mortgages, they sometimes transfer the property to the lender through a deed in lieu of foreclosure transfer to avoid having a foreclosure on their credit history. This is significant because foreclosures can take a long time, and the house can sit vacant or worse, suffer damage at the hands of owners who know they will ultimately face eviction.

There are lots of great reasons to consider a HomePath Home for your first home purchase, including low down payments, HomeStyle renovation loan eligibility, and closing cost assistance.

Apply for a Mortgage with Quicken Loans®

Call our Home Loans Experts at (800) 251-9080 to begin your mortgage application, or apply online to review your loan options.

Start Your Application

HomeReady Or Fannie Mae Standard Mortgage

With a Fannie Mae-backed loan, your two options for low down payments are Fannie Mae’s HomeReady program, or its standard 97% LTV option.

The HomeReady program is designed to help low- to moderate-income borrowers (to be eligible, your income must be less than 80% of your area’s median income). HomeReady borrowers can get a home with a down payment as low as 3%. They also receive homeownership education as part of the program, to encourage sustainable homeownership.

However, Fannie Mae’s standard 97% LTV option is exclusive to first-time home buyers, defined as a borrower who hasn’t owned a home in the past three years, and has no income limits. This option also allows you to make a down payment of as little as 3%. Loan-to-value ratio refers to how much of the home purchase is covered by a loan. So, if you’re putting 3% down, you have a 97% LTV.

You can find a feature-by-feature comparison of these mortgages on Fannie Mae’s website.

Home Possible And HomeOne℠ Mortgage From Freddie Mac

Not to be outdone, Freddie Mac also has two low down payment programs that mirror Fannie Mae’s offerings: Home Possible and HomeOne℠.

Home Possible is similar to Fannie Mae’s HomeReady in that it aims to serve low- to moderate-income borrowers. It offers a 3% down option with similar income requirements; check out Freddie Mac’s eligibility tool to see if you qualify. With Home Possible, a homeownership education course is required, but only if all borrowers on the loan are first-time home buyers. Home Possible is available to all qualified buyers, regardless of whether they’ve owned a home in the past.

HomeOne℠ is Freddie Mac’s 3% down mortgage program for first-time buyers. Like Fannie Mae’s standard 97%, it has no income limits, regardless of the area you’re purchasing in. At least one borrower must be a first-time home buyer. If you and all your co-borrowers are, one of you will need to complete a homeownership education program, as with Home Possible. You can view the HomeOne℠ FAQ page for more information. At this time, Quicken Loans® doesn’t offer HomeOne℠ loans, but we do offer mortgages through Home Possible.

FHA Loan

In addition to the houses and housing programs HUD offers, it oversees the FHA. The FHA funds and insures mortgages issued through private lenders. In 2019, FHA loans accounted for 11.41% of new home purchase mortgages.

FHA loans are very popular among first-time home buyers since they typically require lower minimum credit scores and down payments than conventional loans.

While conventional loans (those financed by banks and other private lenders) require a minimum 620 credit score for loan eligibility, FHA borrowers can put down as little as 3.5% on their home if their credit score is 580 or higher. Even borrowers with past financial issues can be approved.

VA Loan

While the vast majority of government-financed loans are issued through the FHA, loans guaranteed by the VA are also available. These are not special programs for first-time buyers but are excellent loan programs for those who qualify.

Unlike other loan programs, VA loans offer 100% LTV financing. This means a loan can be taken out for the entire value of the home with a $0 down payment. The VA guarantees a portion of your loan to protect lenders, and the amount of that guarantee is decided by your entitlement. In most cases, entitlement means you won’t need money for a down payment. You may, however, still need to pay closing costs.

VA loans don’t require credit scores and debt-to-income ratio allows for easier eligibility.

Because VA loans are backed by the government, lenders assume less risk. As a result, lenders don’t require you to buy mortgage insurance. The reduced risk also results in lower interest rates compared to conventional loan types. There are also no prepayment penalties. This makes future home purchases and refinancing options more attainable.

USDA Loan

Also known as rural development loans, USDA loans are backed by the U.S. Department of Agriculture and provide affordable mortgage options for homes in rural areas. These loans are for those who choose to live in rural areas. USDA eligibility focuses on income and location, not occupation. In other words, you don’t have to be a farmer to apply.

This loan is a 30-year fixed-interest rate mortgage with the option to finance into a new USDA loan. You can qualify with a credit score as low as 640. Like VA loans, USDA loans allow 100% financing, which means no down payment is required. You may be able to get a lower interest rate than other loan options since the loan is insured by the government.

Low Down Payment Conventional Loan

Government-backed loans aren’t the only ones that offer affordable financing options. There are several conventional loan options that allow down payments as low as 3%, with varying eligibility requirements.

You’ll also need a decent credit score and low DTI if you plan on getting the lowest down payment possible. Lower down payments make you more of a risk in the eyes of the lender, so you’ll want to compensate for that in other areas.

The benefit of getting a conventional low down payment mortgage – as opposed to an FHA loan – is that you’ll be able to stop paying mortgage insurance when you reach 20% equity in your home. However, you might get a better rate with an FHA loan.

Find Your Home

Buying your first home can be overwhelming. Whether you’re actively shopping for a new home or you plan on waiting a few years, knowing your options now will bring you one step closer to your goal.

If you’re still wondering which loan program to consider, we’re here to help! As an approved FHA and VA, we can work with you to help determine which option is best for you. Get started today at Rocket Mortgage® or speak to a Home Loan Expert by calling (800) 785-4788.

Apply for a Mortgage with Quicken Loans®

Call our Home Loans Experts at (800) 251-9080 to begin your mortgage application, or apply online to review your loan options.

Start Your Application

See What You Qualify For