First-time homebuyer programs, loans and grants to know

Programs available for first-time homebuyers

Many government housing programs (whether federal, state or local) are not specific to first-time buyers but are still a great option for those looking to spend less on their first home purchase. Each program's requirements vary, though you must be a citizen or legal resident of the U.S. to qualify for the following programs.

Good Neighbor Next Door

The Good Neighbor Next Door (GNND) is a U.S. Department of Housing and Urban Development (HUD) sponsored revitalization program not specific to first-time buyers. It offers a 50% discount on selected HUD properties, many of which are foreclosures. GNND is only available to law enforcement, firefighters, emergency medical technicians and teachers. Buyers must live in the property for at least three years following the closing.

HUD Section 32

Each state holds a Public Housing Authority (PHA) department that must make public housing available for low-income families to purchase under Section 32. The exact income requirements vary by state and by family size. Families living in Section 8 housing may find the application process easier, as those who do not must submit an Affirmative Fair Housing Marketing Plan with their application.

To learn more about your state’s programs for first-time homebuyers, find your state's HUD website and contact information here. Your local government may offer programs, as well.

First-time homebuyer loans

As a first-time homebuyer, it's wise to shop for a mortgage lender and know what loan types are available to you. You may have a trusted bank you already use, but there may be another lender that offers better mortgage terms.

For instance, some credit unions offer first-time homebuyer loans with special exemptions like a 0% down payment or low interest rates (though they may require private mortgage insurance or PMI). PMI protects lenders when buyers have less than a 20% downpayment as the risk profile is higher. These loans would still be conventional mortgages, so they hold less stringent closing requirements compared to other loans from the Federal Housing Administration and Veteran Affairs, which often hold strict inspection guidelines or additional closing steps.

Additionally, government-backed mortgage loans may help U.S. citizens or permanent residents in need of assistance, whether or not buyers are first-timers.

Federal Housing Administration (FHA) loan

Buyers with credit scores under 600 or smaller savings may wish to apply for an FHA loan. FHA loans offer low interest rates and down payments (between 3.5% and 10%, depending on your credit score). This loan type requires a debt-to-income ratio of less than 43% and PMI. You can search for HUD or FHA-approved lenders here.

United States Department of Agriculture (USDA) loan

Whether buying an existing home or building a new one, if doing so in a rural area, you may be eligible for a USDA loan. To qualify for a USDA loan, you must meet the income requirements, live in an eligible rural area and use the property as a principal residence. USDA loans require no down payment or PMI. For more information or assistance in applying for a USDA loan, contact your state’s Rural Development office.

Veteran Affairs (VA) loan

The U.S. Department of Veterans Affairs works with private lenders to grant VA loans to any active duty or retired veterans. VA loans require no down payment or PMI and hold competitive interest rates. You can apply at the lender of your choice once you receive a Certificate of Eligibility (COE).

Click below to download our loan checklist that covers everything needed to apply for a mortgage loan

Grants are another way for first-time buyers to fund their home purchase. Grants differ from loans because they are gifted and are not to be paid back. Think of it as a discount off the sale price or closing costs. It's important to note that grants do not cover the total cost of a home. The following are examples of some common home buying grants.

Downpayment Toward Equity Act (DTE)

Future first-time home buyers may be eligible for the DTE Act. Should this act become a law, qualified buyers will receive a $25,000 grant to put toward their home purchase. This would only be applicable for first-time buyers who meet income requirements, hold a government-sponsored mortgage and are either a first-generation buyer, someone who lived in foster care or someone whose parents failed to pay their own home loan.

National Homebuyers Fund

Available to both first-time and repeat buyers, the National Homebuyers Fund offers up to 5% of the mortgage loan amount for buyers to put toward closing costs or down payments. This fund is flexible on credit score, income and loan type requirements.

State and local government grants

First-time buyers may be eligible to receive grants through the government to put toward closing costs or mortgage loans. These grants typically hold income and credit report requirements. Some states might offer zero-interest loans equal to a percentage of the home’s purchase price in place of grants to help buyers with down payments. 

For example, the North Carolina Housing Finance Agency (NCHFA) offers up to $8,000 to qualified first-time buyers and veterans under the NC 1st Home Advantage Down Payment grant program. The NCHFA structures this grant as a zero-interest loan that is forgiven 20% annually after 11 years until the 15th year when it is entirely forgiven. To learn more about your state’s grant programs, check out the table below to visit your local housing authority’s website.

First-time home buyer tax credit

A tax credit reduces the amount you owe when filing your tax return. In 2021, a proposed tax credit for first-time home buyers was introduced into Congress. If this passes into law, eligible buyers could apply for up to 10% (up to $15,000) in federal tax credits. Buyers must meet the income requirements to qualify for the credit.

Additional down payment assistance programs may be offered to military personnel, students, teachers, medical professionals and others. You may also find that your employer offers homebuying grants.

First-time home buyer requirements

Did you know you may be considered a first-time home buyer even if this isn’t your first time owning a home?

It’s true — there’s more to who qualifies as a first-time home buyer than you might think. The HUD defines first-time home buyers as: 

• A person or couple who has not owned a principal residence (a person’s primary residence) in three years
• A couple where one person has owned a home in the last three years, but the other person has not
• A single parent or displaced homemaker (an unemployed adult who cares for their own home and family without pay) who previously owned a home with a former spouse while married
• A person whose current home is not permanently attached to a foundation per regulations (such as a mobile home with wheels or a moving hitch still attached)
• A homeowner whose property is not in compliance with building codes and would cost more than the home’s reconstruction value to become compliant

There are no age limitations to qualifying or a maximum number of times a person can qualify in their lifetime. So it doesn’t matter if you’re buying your first house in your 20s or 50s, or if you previously owned a home, sold it and then rented an apartment or lived the skoolie life for three years before deciding to buy again. You still can qualify as a first-time home buyer.

Getting ready to buy your first home?

Buying a house isn’t something most people do on a whim. It takes planning and usually years of saving for a down payment. So whether you’re considering buying a house in six months or five years, here are a few steps to help you prepare for buying your first home.

Take a look at your finances

Before you fall in love with listings on Zillow, it’s wise to take a good look into your financial health. Your financial health encompasses your income, savings and expenses. 

Auditing your finances will show if you are in a good financial position to buy a house and, if so, help you determine your budget. It may also indicate that you should hold off on buying for a few years to save and repair your financial health.

Review your credit

Second to auditing your finances is reviewing your credit report. If you plan to finance a home through a mortgage lender, you should know your credit score and how much debt you have.

Your debt-to-income (DTI) ratio affects your credit score, which ultimately helps mortgage lenders decide what size loan to offer and at what interest rate. Ideally, your DTI ratio should be less than 35%. 

Understand the extra costs of buying a home

When buying a home, it’s important to recognize the associated costs beyond a house’s sticker price. These can be split between up-front and ongoing costs.

Up-front costs:

• Down payment
• Closing costs

Ongoing costs:

• Mortgage payments
• Property taxes
• Homeowners insurance
• Private mortgage insurance (PMI, if applicable)
• HOA fees (if applicable)
• Home maintenance
• Utilities

Some of the ongoing costs, like property taxes, homeowners insurance and PMI, may be bundled into your monthly mortgage payment if you have an escrow account. Some mortgage types require an escrow account, and with others, it may be optional.

While buyers may have less say in property taxes and PMI, you can choose your homeowners insurance policy. The average homeowners insurance premium is about $1,400 per year but can be as low as $1,230 or as high as $2,260. As a first-time buyer, it’s wise to compare insurance companies before purchasing a policy. Check out The Zebra’s guide for first-time homeowners insurance, which recommends low-cost providers and offers steps for purchasing homeowners insurance for the first time.

The table below offers quick resource links for each state’s housing authority and homeowners insurance information, such as average rates for specific insurance companies and cities.