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First Time Buying A Home? Here’s A List Of Programs That Can Help You!

June 9, 2023

When you're buying a home for the first time, the process can be scary. It may seem impossible to meet all the standards for financing. Typically, conventional mortgages need a minimum credit score of 620 and a debt-to-income (DTI) ratio of 36%. Additionally, you will be required to pay mortgage insurance if you put down less than 20%. 

For first-time buyers, meeting these requirements can be challenging, especially if you're young. Thankfully, there are numerous loans and programs available. By providing loans with lower down payments, less stringent credit standards, and aid with closing expenses, they can lessen the barrier to entry into homeownership. 

To be eligible for these programs, you must fulfill specific requirements. But compared to traditional loans, these loans and grants have less stringent criteria for securing a mortgage.

Who Qualifies As A First-Time Homebuyer:

One of the most popular first-time homebuyer programs comes from the Federal Housing Administration, though program requirements may differ. Anyone who meets any of the following requirements is considered a first-time homebuyer according to the FHA:

Three years have passed since you last owned a home before buying a property. For married couples, only one partner needs to have been without a home for the previous three years. 

You are a divorced or separated homemaker who has only ever co-owned a house as a couple. 

Either you've only possessed real estate that wasn't "permanently affixed to a permanent foundation" or that didn't adhere to local, state, or model building requirements. 

For first-time homebuyers, the following 6 loan and program types are available: 

Government-Backed Loan

Federal agencies guarantee government-backed mortgages, in contrast to conventional loans. If you miss a payment, the agency will pay the lender on your behalf. With the help of this guarantee, lenders will be able to give you a mortgage even if you don't match the standard requirements for a traditional loan.

Government-backed mortgages often fall under one of three categories:

FHA Loan

The minimum down payment required for a Federal Housing Administration loan is 3.5%. 

DTI ratios of 43% or less and credit scores of 580 or higher are what lenders prefer to see. If your credit score is between 500 and 579, you can still apply, but a 10% down payment is required.

However, there are some premiums that you must pay. You will pay a mortgage insurance premium (MIP) equal to 1.75% of your loan at closing. Then, depending on the term length, loan size, and loan-to-value ratio, you will pay an annual premium ranging from 0.45% to 1.05% of your loan.

FHA Loan Requirements

  • Minimum 580 credit score to get a 3.5% down payment 
  • 500-579 credit score for a 10% down payment
  • Debt-to-income ratio (DTI) of less than 43%
  • Mortgage Insurance Premium (MIP) required
  • Steady income and proof of employment
  • One of the main benefits of these loans is that you can accumulate equity instead of paying rent. The borrower may experience drawbacks from the mortgage insurance they pay to safeguard their lender.

There are loan limits as well, and they change based on your region and the property type. To use an FHA loan, a house must be in good condition.

Important: Due to the less stringent rules for FHA applicants, using FHA financing may have an impact on how the seller perceives your purchase offer. 


If you a) purchase a property in a rural or suburban location b) and make a low to moderate income, you may be eligible for a mortgage via the United States Department of Agriculture. States have different minimum income standards.

A USDA-backed loan does not require a down payment.

USDA Loan Requirements

  • Low to middle class (exclusions vary by location)
  • houses in suburban or rural locations when the population is below a specific level
  • US national, non-citizen, or eligible alien
  • Must be the primary place of residence
  • Income eligibility: Cannot earn more than 115% of the area's median household income.
  • No minimum credit score is needed, but applicants must "demonstrate a willingness and ability to manage and handle debt"
  • only available with a 30-year fixed rate 
  • Must be able to afford the payment, which must not be more than 29% of monthly income, including taxes and homeowners insurance.
  • DTI: 41% for additional debt
real estate agent talking to first time home buyers

VA Loan

Veterans Affairs may offer loans to current and former service members. There is no requirement for a down payment, and the VA does not have a minimum DTI or credit score. Even though the loan is VA-backed, you'll still apply for it through a typical lender, and the lender will determine the required credit score and DTI ratio.

Instead of paying mortgage insurance, you will pay a financing fee that safeguards the lender if you stop making payments. 

Your funding cost will vary depending on several variables, such as the amount of the loan, the amount of the down payment, and if this is your first VA loan. The funding charge can either be included in your monthly mortgage payments or paid in full at closing. The financing fee is not charged to veterans who receive VA benefits for a disability related to their military service.

VA Home Loan Requirements

  • Must be a veteran, active-duty service member, or the spouse of a deceased veteran.
  • a minimum of 24 months of service, or fewer in circumstances of disability discharge
  • With rare exclusions, a minimum credit score of low to mid-600 is required.
  • DTI: 41%
  • The house must adhere to the VA's Minimum Property Requirements (MPRs). 

Important: Borrowers cannot refuse to have their homes inspected or valued when applying for VA loans. There are restrictions on the type of property you can purchase as well as its state. 

Conventional mortgages with low down payments

Two mortgage businesses that are supported by the government are the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). To those with good credit who meet the requirements, each offers traditional first-time homebuyer loans with as little as a 3% down payment. Until they have at least 20% equity in the property, borrowers will be required to pay mortgage insurance on these loans. 

Although only a 3% down payment is required, you still need a credit score of 620. The soundness of the rest of your financial profile will determine the maximum DTI ratio that is permitted.

These are a few of the loans that are offered:

  • A credit score of at least 620 is necessary for the Fannie Mae HomeReady Mortgage, which permits down payments as low as 3% and has income restrictions of 80% of the local median income. 
  • Freddie Mac HomeOne Mortgage: These loans must be single units with fixed interest rates, and they are also available with as low as 3% down. 
  • You don't have to be a first-time home buyer to qualify for a Freddie Mac Home Possible Mortgage, but your income must not be higher than 80% of the area median income. 
  • The home must be a one-unit property and your principal residence with a fixed rate to qualify for the Fannie Mae 3% Down Payment Mortgage for First-Time Homebuyers. One of the buyers, at the very least, must not have owned a house in the previous three years. 

Fixer-Upper Loan Programs

Look into home loans that allow flexibility for fixer-uppers if you're looking to buy a house and don't mind a house that needs some maintenance. Some mortgages include financing for improvements along with the overall cost of the property acquisition, saving the borrower time and money. 

First-time buyers may have access to a wider selection of properties thanks to fixer-upper financing. 

Here are a few possibilities:

Fannie Mae HomeStyle Loan

For homes that require repairs following a move-in, use the HomeStyle loan. If both you and at least one other borrower are first-time homebuyers, you'll only need a 3% down payment if you're living in the property rather than renting it out or letting someone else live in it.

Freddie Mac CHOICERenovation loan

The Fannie Mae HomeStyle loan and the CHOICERenovation loan are comparable. More precisely, if you want to disaster-proof your house with additions like retaining walls or flood barriers, it might be a suitable alternative.

The building or remodeling work must be finished before the mortgage may be "delivered" to Freddie Mac. The CHOICEReno eXPress is a scaled-down variation of this loan. 

The maximum loan-to-value (LTV) ratios for CHOICERenovation loans are typically up to 75% of the appraised value of the finished upgrades or the total of the purchase and renovation expenditures. 

FHA 203(k) Loan

Compared to the HomeStyle or CHOICERenovation loans, this loan has tougher restrictions on the kinds of modifications that may be done, but you may still be eligible with a lower credit score. If your credit score is 580 or higher, you can put down as little as 3.5%, and if it's between 500 and 579, you can put down 10%. 

When you wish to renovate your first house, FHA 203(k) loans can be helpful. By offering finance for a fixer-upper that other buyers might pass by due to the additional work required, they might offer an affordable entry point into a competitive market. 

Energy Efficient Mortgage Program

With an EEM, you can refinance the cost of energy-efficient renovations without increasing your down payment. An EEM can help you make improvements to things like your heater, insulation, and thermostat system. 

If your credit score is at least 580, a down payment of 3.5% is required; if it is between 500 and 579, a down payment of 10% is required.

An EEM can only be used to fund improvements that are considered cost-effective. Over the anticipated lifespan of the upgrades, costs for existing dwellings must balance. The most affordable upgrades for brand-new structures are those that abide by the most recent version of the International Energy Conservation Code (IECC).

Borrowers are required to have a qualified energy assessment performed. 

State And Local First-Time Homebuyer Programs

For first-time homebuyers, many state programs offer a variety of assistance. Before choosing a certain form of loan, it's a good idea to look into your alternatives in your state to make the most of the best programs available to you.

Depending on where you live, you might be able to get funding support for your down payment, closing charges, and other expenses. Additionally, several jurisdictions offer tax credits to borrowers with low to moderate incomes. 

The program details vary by state and location, however the following are a few examples of the kinds of assistance that are offered:

  • To qualified first-time homebuyers and veterans, the North Carolina Housing Finance Agency offers a forgiving $8,000 down payment aid. A benefit of staying in the house is that this loan is erased at a rate of 20% per year from years 11 through 15, and completely after that.
  • Assistance with down payments and closing costs is available through the Indiana Homeownership Opportunities Program (HOP). To qualify, you must be a first-time buyer making no more than 80% of the area's median income, put down at least $1,000 toward the purchase, finish a recognized course in homebuyer counseling, and not let housing debt exceed 35% of your gross family income. 

Down Payment Assistance

The largest barrier to becoming a house is frequent down payments. 

You should look into any down-payment aid plans offered by your state or local. You'll probably need to meet requirements such as a minimum credit score, a certain income level, and a particular DTI ratio. 

The Iowa Finance Authority, for instance, offers a $2,500 grant or up to a $5,000 loan to cover closing fees and down payments. 

Other Government Loan Programs

Other government initiatives for home loans are targeted toward particular demographics. These consist of:

Good Neighbor Next Door

If you work as a teacher, fireman, police officer, or emergency medical responder and reside in a "revitalization area," you might be eligible for the Department of Housing and Urban Development's Good Neighbor Next Door program.

To look for homes in your neighborhood, visit the Good Neighbor Next Door website. You can buy a home for 50% off the asking price for the first seven days that it is posted.

Native American Direct Loan

Veterans of Native American descent are eligible for the NADL, which is provided by the VA. You won't pay private mortgage insurance and you won't require money for a down payment.

A standard VA loan involves a lender providing you with a mortgage that is supported by the VA. With a NADL, your true lender is the VA.

Final Note

The largest challenge for first-time homeowners is frequently saving enough money for a sizable down payment, even though they can acquire financing through traditional channels.

First-time homebuyer loans and programs come with many advantages but also have certain restrictions. Therefore, carefully weigh all of your options before deciding how to finance your mortgage. The drawbacks of lesser down payments, such as mortgage insurance and the possibility of owing more on your mortgage than the value of your home, occasionally outweigh their advantages.

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8315 W. 10th Street
Indianapolis IN 46234

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