11 programs that help first-time homebuyers get a mortgage

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  • To qualify for a conventional mortgage, you typically need a 620 credit score, 36% debt-to-income ratio, and 10% down payment.
  • But there are programs that help first-time homebuyers get mortgages even if they don’t meet conventional loan standards.
  • You may be eligible for a government-backed mortgage, a conventional loan backed by Fannie Mae and Freddie Mac, or a program specific to your state.
  • You can also get a special loan if your home requires significant repairs after moving in.
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Buying your home may feel like an insurmountable challenge, because you have to meet multiple requirements to qualify. Conventional mortgages typically mandate at least a 620 credit score and 36% debt-to-income ratio. Many lenders also ask for at least 10% toward a down payment.

These requirements can be tricky for first-time homebuyers to meet, especially if you’re young. Thankfully, there are plenty of programs designed to help out first-time homebuyers.

You do have to meet some conditions to qualify for such programs. But when it comes to your finances, these loans and grants have more lenient requirements for getting a mortgage than conventional loans.

Here are 11 programs for first-time homebuyers:

Unlike conventional loans, government-backed mortgages are guaranteed by federal agencies. If you default on your payments, then the agency pays the lender on your behalf. This guarantee allows lenders to offer you a mortgage even if you don’t meet the usual conditions for a conventional loan.

FHA loan

With a Federal Housing Administration loan, you only have to put 3.5% down. 

Lenders are looking for DTIs of 43% or less, and credit scores of 580 or higher. You can still apply with a credit score between 500 and 579, but you’ll need a down payment of 10%.

You will have to pay some premiums, though. At closing, you’ll pay a mortgage insurance premium that comes to 1.75% of your loan. Then you’ll pay an annual premium of 0.45% to 1.05% of your loan, depending on your term length, loan amount, and loan-to-value ratio.

USDA loan

You may qualify for a mortgage through the United States Department of Agriculture if you a) buy a home in a rural or suburban area, and b) earn a low-to-moderate income. The income requirements vary by state.

You don’t need any down payment for a USDA-backed loan.

There are no official credit score or DTI obligations for a USDA loan. But according to USDAloans.com, your chances will improve if your credit score is at least 640 and DTI is 41% or lower.

VA loan

Active and former military members could qualify for a loan from Veterans Affairs. You don’t need a down payment, and the VA doesn’t set a minimum credit score or DTI. Although the loan is backed by the VA, you’ll still get the loan through a traditional lender, so the lender will set the credit score and DTI guidelines.

You won’t have to pay mortgage insurance, but you’ll pay a funding fee that protects the lender should you default on your payments. 

Your funding fee amount will depend on various factors, including how much you borrow, how much you have for a down payment, and whether this is your first time getting a VA loan. You may choose to pay the entire funding fee at closing, or roll the fee into your monthly mortgage payments.

The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) are two government-sponsored mortgage companies.

You can get a conventional loan backed by either company. You’ll still need a 620 credit score, but only a 3% down payment. The maximum DTI allowed will depend on the strength of the rest of your financial profile.

You may qualify for a grant or loan based on where you live. These programs are meant for buyers who don’t qualify for a conventional mortgage, and eligibility is specific to the area.

Once you’ve found programs in your city or state, research which lenders participate in the programs. 

Fannie Mae HomeStyle loan

The HomeStyle loan is for homes that need repairs after moving in. You’ll only need a 3% down payment if a) you’re living in the house rather than letting someone else live in it or renting it out, and b) at least one of the people taking out the loan is a first-time homebuyer.

Freddie Mac CHOICERenovation loan

The CHOICERenovation loan is similar to the Fannie Mae HomeStyle loan. More specifically, it can be a good option if you’re looking to disaster-proof your home with improvements such as retaining walls or flood barriers.

FHA 203(k) loan

This loan has stricter regulations about what types of improvements can be made than the HomeStyle or CHOICERenovation loans, but you can qualify with a lower credit score. Place as little as 3.5% down if your credit score is 580 or higher, and 10% if your score is between 500 and 579. 

Energy Efficient Mortgage program

An EEM lets you roll the costs of energy-efficient repairs into your mortgage without making a bigger down payment. You can improve things like your furnace, insulation, or thermostat system with an EEM.

You’ll need a down payment of 3.5% if your credit score is at least 580, or 10% if your score is between 500 and 579.

You may qualify for the Department of Housing and Urban Development’s Good Neighbor Next Door program if you’re a teacher, firefighter, law enforcement officer, or emergency medical responder who lives in a “revitalization area.”

Go the Good Neighbor Next Door website to search for homes in your area. Homes are listed for seven days, and you can purchase one for 50% off the listed price.

The NADL is for Native American military veterans, and it’s issued through the VA. You don’t need money for a down payment, and you won’t pay private mortgage insurance.

With a regular VA loan, a lender gives you a mortgage that is backed by the VA. With a NADL, the VA is actually your lender.

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