By Grant Edrington – Updated April 10, 2023

It’s not always easy to buy a home today, especially since home prices and interest rates have increased significantly over the last year. Housing inventory has also been limited and, coupled with rent and other expenses going up, too, can be tricky to save up for a large enough down payment to qualify for a mortgage. Another challenge is having enough income to cover the monthly payment, including PMI, home insurance, and taxes. 

Fortunately, there are a lot of home-buying assistance programs for all kinds of homebuyers throughout the U.S. Some of these are federal government programs, while others are state- or city-based programs. 

If you’re interested in buying a home and want to see which programs might be available to you, look through the list below. Depending on your homeownership goals and financial situation, Divvy Homes may also be a great option for you to get on the path to homeownership.

What is a First-Time Homebuyer Program?

First-time homebuyer programs provide valuable mortgage loans and incentives that expand the pool of eligible homebuyers in the United States. These programs are supported by federal, state, and local governments and offer a range of options, including low down payment mortgages, no down payment mortgages, mortgage loans with interest rate discounts, less stringent approval standards, and favorable terms based on the buyer’s income. First-time buyers can apply for these loans either online or in person and can sometimes receive quick approvals from mortgage companies.

Types of First-Time Homebuyer Programs

When it comes to buying your first home, the costs involved may feel daunting. For instance, a home priced at $300,000 would require a minimum FHA requirement of 3.5% ($10,500). Additionally, you might also be responsible for closing costs in the range of 3% to 6% of the purchase price. This can tack on an additional $13,500 in upfront costs to buy your first home.

Fortunately, there are a variety of loan programs available to help with down payment and closing costs. Additionally, both local and federal tax credits can help reduce your financial burden, and educational programs can offer guidance throughout the process. Let’s look at some of the most widely used loans and grants available to first-time homebuyers.

Down Payment Assistance

One of the biggest obstacles that many first-time homebuyers face is coming up with a down payment, which can range from 3.5% upwards to 20% of the home’s purchase price. Fortunately, there are numerous down payment assistance (DPA) programs available that can help reduce this financial hurdle. These programs come in two main forms: DPA loans and DPA grants.

DPA Loans

Down payment assistance (DPA) loans are programs that partially or totally cover downpayment and closing costs. There are three main types of DPA loans: second mortgages, deferred payment loans, and forgiven loans. While they can be helpful for reducing the upfront costs of a down payment, it’s important to remember that they will need to be repaid in some form or fashion. That’s why it’s important to carefully consider the terms of any DPA loan before accepting it. We always recommend consulting with a real estate agent or mortgage lender when evaluating these types of programs.

DPA Grants

DPA grants do not have to be repaid and are usually offered by charitable organizations or government programs. While they can be helpful for reducing the stress of coming up with a down payment, grant program requirements may vary depending on the provider. In general, DPA programs are an excellent resource for first-time homebuyers who may not have the means to cover a down payment on their own, making homeownership more accessible and affordable.

Government-Backed Loans

Government-backed loans provide an opportunity for homebuyers to purchase a home with a low down payment or even if they have poor credit. These loans are insured by the government, which reduces the risk to the lender and allows them to offer lower interest rates. There are three types of government-backed loans currently available: FHA loans, USDA loans, and VA loans. Each program has its own set of qualifications that applicants must meet. Interested in becoming a homeowner but don’t have great credit? Read our tips for buying a home with bad credit.

Tax Credits

Although tax credits for first-time homebuyers under older programs, like the Housing and Recovery Act of 2008, have expired, there are still several tax deductions that can save you money. Federal and state deductions can help lower your taxable income, such as the full amount of mortgage insurance costs for primary and vacation homes. Additionally, you can deduct the cost of interest paid on loan amounts up to certain limits for primary and second homes. Other deductions and credits may be available through your state or local government.

Closing Assistance

Just like with down payment assistance, there are government-sponsored and private programs available to help you pay closing costs. These costs are additional fees paid at the end of the mortgage process, typically between 2%–6% of the total cost of your home loan. Closing cost assistance can come in the form of a grant or loan. In addition, sellers may also offer concessions to help with attorney’s fees, real estate tax services, title insurance, and even points to lower interest rates and contribute to property taxes – although it’s worth noting that seller concessions have not been too common to see over the last few years given the competitiveness of the housing market

Homebuyer Education

If you’re not sure how to begin your home search, educational programs, and resources can provide valuable guidance. Some classes are even offered free of charge and are funded by lenders, real estate agents, HUD, or other organizations. Fannie Mae also offers a free first-time homeownership course that meets the education requirement for most loan programs.

Federal First-Time Homebuyer Programs

The federal government has traditionally been a big proponent of homeownership and has a number of different programs designed to support people who are trying to buy their first home. We’ve compiled a list of the most important programs below: 

FHA Loan Program

An FHA loan can be a great option for lower-income or first-time homebuyers, plus it’s often easier to get approved for an FHA loan compared to other types of loans. Here is what you need to know about this program: 

• If your credit score is 580 or higher, you can get approved with just a 3.5% down payment. 
• If your credit score is 500-579, you can get approved with a 10% down payment. 
• Your debt-to-income ratio should be less than 43%, although a higher DTI could be allowed with compensating factors.
• You’ll need steady income and proof of employment. 
• Your monthly payment will include something called a Mortgage Insurance Premium (MIP), which can cost you 1% of the loan amount per year, or more. 
• You’ll need to work with an FHA-approved lender to get your loan. 

The Homeowner Voucher Program

This program provides subsidies to low-income, first-time homebuyers to use toward buying a home. You must meet HUD requirements for eligibility. These requirements include:  

• You must be a first-time homebuyer.
• You must meet the minimum income requirements for the program, in which the qualified annual income of adult household members are not less than the current federal minimum hourly wage multiplied by 2,000 hours ($14,500 annually, as of March 2023), or that the qualified annual income of disabled adult family members must not be less than the monthly federal Supplemental Security Income (SSI) benefit for a single individual multiplied by 12 ($10,968 for an individual or $16,452 for a couple). 
• Your household must include at least one adult who has been employed full-time for at least one year.
• You must complete a homeownership and housing counseling program.

The VA Home Loan Program

The Department of Veterans Affairs (VA) manages this program, which makes home loans available to veterans of the U.S. military. These loans are issued by private lenders, such as banks and mortgage companies, but the VA guarantees a portion of the loan so you can get better terms. Unlike many other programs, you don’t need a down payment, and there is no requirement to pay private mortgage insurance. The eligibility requirements for VA loans are:

• The home must be occupied by a veteran or a surviving spouse of a service member.
• The homebuyer must have satisfactory credit, sufficient income, and a valid Certificate of Eligibility (COE) confirming their veteran status.
• While there’s no set minimum credit score needed to qualify for a VA loan, most lenders typically require a score in the low- to mid-600s.
• It’s typical for VA lenders to prefer a debt-to-income ratio of 41% or less.
• No down payment is required as long as the purchase price doesn’t exceed the home’s appraised value.

Rural Development Loan Program:

This program assists low-income families in obtaining housing in eligible rural areas. Homebuyers can reduce the mortgage payment for a short period of time, if eligible. To qualify, a homebuyer must:

• Currently have no safe and sanitary housing.
• Be unable to obtain a loan from other resources.
• Occupy the home as a primary residence.
• Be able to take on a loan obligation legally.

In addition to federally funded homebuying assistance programs, each state has its own programs designed to encourage homeownership. Here are a few of the opportunities available in the states where Divvy operates:

HomeReady

HomeReady is a mortgage loan that offers low- and moderate-income homebuyers a reduced down payment of only 3%, along with lower mortgage rates and costs. A minimum FICO score of 620 is required to be eligible for HomeReady. If HomeReady is used to purchase a Fannie Mae HomePath property, buyers can receive a $500 credit for closing costs. Additionally, buyers can take advantage of the HomePath Ready Buyer program to receive a 3% cash contribution towards their mortgage closing costs. State or local government deductions and credits may also be available.

Home Possible

Home Possible is a mortgage loan option that, like HomeReady, allows low- and moderate-income homebuyers to make a down payment of only 3%, along with lower mortgage rates and costs. Available as either a fixed-rate or adjustable-rate loan, Home Possible requires a minimum FICO score of 660. This loan program is especially useful for multi-generational households in need of a low-down-payment mortgage option.

Conventional 97

Conventional 97 is a mortgage option for homebuyers who earn too much to qualify for HomeReady or Home Possible. With a minimum down payment of just 3%, it is a low down payment mortgage option for single-family homes. To qualify for Conventional 97, a FICO score of at least 620 is required, and it is only available as a 30-year fixed-rate mortgage.

What is a First-Time Homebuyer Grant?

First-time homebuyer grants are cash awards given to new homeowners at the time of purchase. Grants are offered at the federal, state, and local levels, as well as by charitable organizations and housing foundations. 

There are several key benefits of first-time homebuyer grants:

• Grants do not need to be repaid, as they are considered contributions towards homeownership.
• Research shows that $10,000 cash grants for first-time homebuyers can increase homeownership rates by as much as 34%.
• New homeowners can help their communities thrive by providing additional tax income and new local spending opportunities.
• Families can build generational wealth through real estate ownership.

Let’s explore some grants that could be available to you.

Federal First-Time Homebuyer Grants

Congress has proposed several bills that provide tax credits and cash grants to homebuyers. Some notable bills include the $15,000 First-Time Homebuyer Tax Credit and the LIFT Act, which provides ultra-low mortgage rates for eligible buyers. If these proposed bills are passed into law, they stand to make homeownership more accessible and affordable for a wider range of individuals. 

National Homebuyers Fund

The National Homebuyers Fund is a non-profit organization that provides a cash grant of up to 5% of a home’s purchase price to eligible homebuyers. To qualify for the grant, homebuyers must agree to live in the home and use it as their primary residence for at least five years. While renters can’t apply for the grant directly, their mortgage company can do so on their behalf. You can get a list of participating lenders by calling (916) 444-2615.

Forgivable Mortgages

A forgivable mortgage is a type of loan that’s forgiven after the homeowner satisfies a specific condition, usually by making on-time payments for around five years. For example, a first-time homebuyer can get a conventional mortgage to finance a home and also receive a $15,000 forgivable mortgage for the down payment.

If the buyer still lives in the home and has made on-time payments after five years, the $15,000 mortgage is forgiven, and the lien is released from the title. Governments often offer forgivable mortgages to boost homeownership rates, neighborhood investment, and community development.

To qualify, recipients must have a good credit score—typically 740-759—qualify for an FHA loan and agree to use a 30-year fixed-rate mortgage, among other qualifications.

Discounted Homes from HUD

The Good Neighbor Next Door Program (GNND) is a U.S. Department of Housing and Urban Development (HUD) program that sells repossessed homes to first-time homebuyers at 50% of the list price. This program is specifically available to teachers, firefighters, law enforcement officials, and emergency medical technicians who want to live in the same community where they work. To apply, you can find a home on the HUD website and apply for a mortgage online.

Closing Cost Assistance Programs for First-Time Buyers

Closing cost assistance programs are designed to help homebuyers by covering up to 100% of their purchase closing costs, such as title expenses, transfer taxes, and mortgage fees. These programs are often part of homebuyer stimulus plans.  Interested buyers can find an active list of closing cost assistance programs on the National Council of State Housing Agencies website. To be eligible, buyers must meet certain minimum credit standards and local income thresholds, and the homes they want to purchase must meet minimum safety and quality standards.

State-Specific First-Time Homebuyer Programs & Grants

First-time homebuyers should also research which programs and grants are available in their state. If you live in a state where Divvy operates, explore first-time homebuyer information specific to your state below:

• Georgia
• Ohio
• Texas
• Tennessee
• Arizona
• Missouri
• Florida
• Minnesota
• Colorado

Using Divvy as a First-Time Homebuyer

At Divvy, we believe that everyone should have access to homeownership and wealth creation. However, many aspiring homeowners have been locked out of the market due to the imbalance between home price appreciation and income growth – home prices have increased roughly 7.6x faster than wages since the 1960s. If you’re looking to get on the path to homeownership but are having trouble qualifying for a traditional mortgage or first-time homebuyer programs, consider Divvy Homes. 

With Divvy, you can choose almost any home on the market that meets our qualifications and your budget. You’ll have the option to contribute part of your monthly payment toward your eventual downpayment savings, with the end goal of purchasing the home back from us on a timeline that works best for you. Learn more about how Divvy works.

Note: Divvy is not affiliated with the first-time homebuyer programs mentioned in this article. Be aware that requirements for these programs may change. We recommend consulting with a lender or real estate agent when evaluating first-time homebuyer programs. 

First-Time Homebuyer FAQs

Which loan is best for first-time homebuyers? 

The loan that’s best for first-time homebuyers depends on a buyer’s individual financial situation and preferences. However, FHA loans and conventional loans are often popular options. FHA loans are backed by the government and typically require a lower down payment, making them a great choice for buyers with less money saved. Conventional loans, on the other hand, typically require a higher credit score and down payment but may have lower interest rates. It’s essential to research different loan options and speak with a trusted lender to determine the best fit for your needs.

Who qualifies for first-time homebuyer programs? 

The eligibility requirements for first-time homebuyer programs vary depending on the program. Generally, individuals who haven’t owned a home in the past three years are considered first-time homebuyers. Other factors that can impact eligibility include income, credit score, and the location of the home. Some programs may also have restrictions on the value of the home or the type of property being purchased. It’s important to research and understand the specific requirements of each program to determine whether or not you qualify.