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Loan Options When Buying Your First Home

For first-time homebuyers, FHA loans provide mortgages at smaller down payments. Some loans allow you access to a mortgage without making a down payment. The United States government offers the following loan programs to first-time home buyers:

Federal Housing Administration Loans

The Federal Housing Administration insures government-backed fha loans. These loans have lower credit score requirements and smaller down payments than conventional loans. The amount borrowed is limited based on your location’s cost of living. Borrowers must also carry mortgage insurance in case they default on repayment. This insurance includes an upfront one-time premium and an ongoing monthly premium. Borrowers can choose between a fixed and adjustable interest rate.

VA Loans (Department of Veterans Affairs)

Military service members, veterans, and their spouses can access government-backed VA loans. These loans were created to expand homeownership access and provide more relaxed underwriting standards. Qualified veterans may access the loans without making a down payment. Their interest rate is among the lowest, qualifying borrowers for larger loans.

Each lender has a unique minimum credit score requirement. The debt-to-income ratio has a low cutoff, with a shorter waiting period following bankruptcy. To qualify for a VA loan, you must show your certificate of eligibility. This loan is provided through a mortgage company, private bank, or credit union.

Read also: Beyond the Numbers: Factors That Influence Your Loan Eligibility

U.S. Department of Agriculture Loans

USDA loans are mortgage assistance programs that reduce home-buying costs. They are designed for low-to-moderate-income families to refinance or purchase existing properties. Their terms are more favorable, with low interest rates and no down payment. They are categorized into USDA direct loans and guaranteed loans. Guaranteed loans are issued by private lenders. The USDA direct loan requirements are more stringent, and borrowers must be considered low-income. USDA loans are also available only for properties outside urban areas. The loan application process is similar to other mortgage programs but without prepayment penalties. This loan can be used to purchase foreclosures, condos, and newly built homes.

Fannie Mae HomeReady Loan

HomeReady has low down payment requirements for individuals with nontraditional incomes. Borrowers can fund down payments through eligible grants, gifts, and community seconds. Unlike fha loans, borrowers can cancel mortgage insurance after their home equity increases. You may have to complete a homeownership education course to qualify for the loan. They are backed up by the private lender Fannie Mae.

Freddie Mac Home Possible Loan

The Home Possible Loan program is for buyers with low or moderate incomes. Freddie Mac is sponsored by the government under the Federal Housing Finance Agency. Its loan program includes cancellable mortgage insurance and a low-down payment. You can fund the down payment using gifts, grants, and cash. Qualified borrowers have access to a no-cash-out refinance and an adjustable-rate mortgage.  

State and Local First-Time Homebuyer Programs

Many states offer home loans to first-time buyers at competitive rates and tax credits. Borrowers who get loans through state agencies work through private mortgage lenders. States usually have credit requirements and income limits for borrowing. People with disabilities and veterans may also get specialized loans. To apply for a state program, reach out to a participant lender.

Learn More About FHA loans

Home loans help individuals with low incomes to buy their first home. Government-backed loan options offer different interest rates, perks, and rules depending on the loan you apply for, and your income. Contact a reputable mortgage broker to get a loan for your first home.

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