Mortgages for the First-time Home Buyer: Ultimate Loan Guide

If you’re new to buying a home, you probably have quickly realized the overwhelming amount of options there are for your mortgage. To help you get your bearings as a first-time home buyer, we’ve covered the different types of mortgage programs and financing available, as well as some lesser-known tips and grants for first-time home buyers that can help you in the process of buying your first home.

Read our complete beginner's guide to buying a home here!

Tips For First-Time Home Buyers

Before we get into the details, here are a few simple ways to gear up towards financing your first home.

Start Saving Early

Down payment amounts vary greatly based on where you buy and what mortgage loan you use, so it’s a good idea to start saving as early as possible to secure funds for a down payment and for fees that you’ll have to pay to your lender, inspector, broker, and attorney throughout the process.

Know Your Credit Score

Your credit score will be one of the largest factors in determining what interest rate and overall loan amounts you qualify for. Knowing your credit score will help prepare you to see your loan options. If you have a low credit score or if your score recently dropped, be ready to have an explanation for lenders.

Compare Mortgage Rates and Fees

Don’t just get one quote: shop around for your lender! Because a mortgage loan will have a lasting impact on your finances, it’s crucial to have some options to compare and to know which type of loan you can afford and which lender works best for you

Mortgages come with a lot of fees, even some you may not be expecting. Read our blog about unexpected mortgage costs here.

Mortgage Loans for First-time Home Buyers

While conventional loans typically require high down payment amounts and excellent credit scores, there are other options that might be more accessible to first-time buyers.

FHA Loan

The FHA loan is perhaps one of the most accessible and popular types of government-backed loans. The FHA mortgage is offered through traditional lenders but is secured by the government, which allows to offer down payments as low as 3.5% and lower interest rates. It’s a great loan for first-time home buyers because of its accessibility and competitive interest rates.

VA Loan

Veterans looking for mortgages for first-time homebuyers may want to consider the VA loan. The VA loan is offered to military veterans or active service members and offers incredibly low interest and down payment rates. It’s important to note, however, that both the FHA and VA loans come with specific requirements for each property concerning structural integrity and livability: the house must have running water, for example, and must meet other HUD requirements before it can be purchased under the loan.

USDA Loan

The USDA loan is a great option for buyers who are looking for remote land. Each state has predetermined rural areas where homes or property can be bought with the USDA loan for lower interest rates and options for small down payments. USDA loans can be used for primary residences but can’t go to vacation homes or rental properties.

NADLs

Native American Direct Loans (NADLs) offer additional loan opportunities for those who qualify for a VA loan and identify as Native American. To qualify, you must be a Native American enrolled in an American Indian tribe or Alaskan Native village that has set a MOU (Memorandum of Understanding) with the VA.

Fannie & Freddie

These private entities buy up mortgages from private lenders across the country, and therefore assume that debt-to-be-paid and risk. This allows lenders to offer those lower rates without having to assume high risks when someone defaults on their payment.

Programs for First-time Home Buyers

In addition to government-backed loans that provide low rates, you’ll find various programs and options designed to help first-time home buyers with down payments and low rates.

Down Payment Assistance

One of the most common assistance program options is down payment assistance, which helps cover a home buyer’s down payment amount through different types of loans or grants.

DPA Loans

If you anticipate struggling to make a large, one-time deposit for a down payment, your lender may allow you to take out a second mortgage at the same time as your first to help cover the cost. Other options include loans with deferred payments due later during the loan term or when you move or want to refinance. These loans can help offset upfront costs, but require some thinking ahead since they do have to be repaid at some point.

DPA Grants and State and Local Programs for First-time Homebuyers

There are also programs which offer grants that don’t have to be paid back. These grants often change based on local government and funding and don’t have to be repaid. There are also options for forgivable loans, which function as second mortgages but have a 0% interest rate and are forgivable if you can stay in the home for a set amount of years.

Good Neighbor Next Door

The Good Neighbor Next Door program gives teachers, firefighters, police officers, and emergency service technicians up to 50% off the sale price for homes in designated “revitalization” areas. After getting pre-approved, applicants are matched with an advisor who helps them find a home where they must live for 36 months to maintain eligibility.

The Good Neighbor Next Door program is highly competitive, but is a great option for those in teaching or public servant positions who need assistance finding an affordable mortgage.

HomePath Ready Buyer Program

HomePath homes are homes that are offered for sale after the buyer defaulted on a mortgage owned by Fannie Mae. Not only are these homes offered for a discounted price, but they come with closing cost assistance of up to 3% of the home’s sale price if the buyer takes an online home-ownership course.

Charitable or Nonprofit Programs for First-time Home Buyers

There are also several nationwide nonprofit organizations specifically for first-time homebuyers who need down payment or mortgage assistance.

Habitat for Humanity

Habitat for Humanity provides housing specifically to those living in poor living conditions or who have a mortgage or rental costs that they cannot afford. The organization provides affordable mortgages in exchange for volunteer time spent improving properties for others.

Neighborhood Assistance Corporation of America (NACA)

Neighborhood Assistance Corporation of America helps eliminate costs for closing, down payment, and fees for eligible applicants in both urban and rural areas across the country

Our Mortgage Learning Center features blogs on a wide range of mortgage and refinancing topics.

Finding the Best Mortgage Loan

It can be hard to look for affordable options when looking to buy a home for the first time. Researching local options and reading about programs through the HUD website for your local area can help provide options for homeownership. Finding a good realtor will also help, since they may know of programs local to your area that work specifically for your situation.

To learn more about the homebuying process, head to our Learning Center. You can also contact us for a personalized rate today to begin the search for your new home.

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This page last updated: October 18, 2022