First-Time Home Buyer Loan | Requirements 2024

Understanding first-time home buyer loan requirements

As a first-time home buyer, you’ll have access to special mortgage programs with low down payments and flexible guidelines.

To take advantage of these perks, you’ll need to meet all first-time home buyer loan requirements, including factors like income, credit score, and debt-to-income ratio. You may also find yourself eligible for a grant that can help with down payment and closing costs, especially if you meet the first-time home buyer loan requirements.

These first-time home buyer grants are available in every state, presenting a fantastic opportunity for individuals with decent credit but limited funds to fulfill their homeownership aspirations.

In this article (Skip to…)

• Loan requirements
• Conventional loans
• Government loans
• Grants and down payment assistance
• Nationwide loan programs
• Finding first-time buyer programs
• FAQ

>Related: How to buy a house with $0 down: First-time home buyer

First-time home buyer loan requirements

Plenty of home loan programs cater to first-time buyers. Many of these programs have looser eligibility guidelines to accommodate borrowers with lower household income, credit scores, or down payments.

Here are the basic requirements to qualify for some of the most popular first-time home buyer loans:

Not all the rules listed above are necessarily set in stone. That’s because first-time home buyer loan requirements vary by program.

Furthermore, none of the government agencies listed above actually underwrite their own loans. Instead, borrowers will obtain financing through an approved lender. And each lender is allowed to set its own criteria.

However, here’s what you can generally expect:

• Debt-to-income ratio should generally not exceed 45%
• Credit scores should be 580 or above
• Down payment requirements of at least 3% of the home purchase price
• Loan limits restrict the maximum loan amount based on property location and program type
• Income limits determine eligibility for moderate and low-income individuals
• Home purchase price limits will vary depending on location, but maximum loan amounts are $ in most areas
• Refinancing options have their own requirements

These programs prioritize low-income home buyers, offering flexible underwriting and down payment options.

For example, you might be able to qualify for an FHA loan with a credit score as low as 500, as long as you can make a 10% down payment.

Or you might qualify for a Fannie Mae loan with a debt-to-income ratio as high as 49.99% (must be below 50%) instead of 43%. But you’ll need other compensating factors (like a bigger savings account) to qualify.

So explore your loan options. Even if you have special circumstances, it’s likely easier to meet common first-time home buyer loan requirements than you think.

First-time home buyer requirements

So who qualifies as a first-time home buyer? Anyone buying their very first home is automatically a “first-time buyer.”

But repeat buyers can sometimes qualify as first-time home buyers, too, giving them access to special loan programs and financial assistance.

“If you haven’t owned a home in the past 3 years, you’re considered a first-time home buyer.”

— Ryan Leahy, Sales Manager at Mortgage Network, Inc.

“Under most programs, a first-time home buyer is a person who has not had any ownership in the past three years,” says Leahy

Nonprofits and local governments, which offer the majority of first-time home buyer grants, use this three-year rule to define first-time homeownership.

That’s especially good news for “boomerang buyers” who owned a home in the past but went through a short sale, foreclosure, or bankruptcy.

Under the three-year rule, these individuals have an easier road back to homeownership through first-time home buyer grants and loans, provided they meet the applicable first-time home buyer loan requirements.

Types of first-time home buyer loans

Certain home buyers have access to special loan programs depending on their occupation or location. These specialized options often come with their own set of first-time home buyer loan requirements that you’ll need to meet.

1. Conventional loans for first-time home buyers

Conventional mortgages are popular with first-time home buyers due to their flexibility and accessibility. Here are a few programs:

• Conventional 97: The Conventional 97 loan allows for a down payment of just 3% and is geared towards first-time buyers, though it’s not limited to them. Borrowers must have a credit score of at least 620 and the loan must be for a single-family home
• HomeReady: Fannie Mae’s HomeReady loan is designed for low- to moderate-income buyers. It requires a 3% down payment and offers reduced mortgage insurance premiums. Borrowers must complete an online homebuyer education course to qualify
• Home Possible: Freddie Mac’s Home Possible helps moderate- and low-income home buyers, allowing for down payments as low as 3%. Borrowers must have a credit score of at least 620, and income limits may apply

Keep in mind that first-time home buyers with a down payment of less than 20% pay private mortgage insurance (PMI). They can drop PMI once their loan-to-value ratio reaches 78%, which usually takes most new homeowners between 2 and 3 years.

2. Government-backed first-time home buyer loans

The federal government insures government-backed loans, providing more confidence to lenders and often making these loans more affordable for first-time buyers. To take advantage of these benefits, it’s essential to understand the first-time home buyer loan requirements that apply to each government-backed option.

• FHA loans: Backed by the Federal Housing Administration, the FHA mortgage is a low-down payment loan that only requires a 3.5% minimum. It also offers more flexible credit score requirements than conventional loans, making this type of mortgage an attractive choice for first-time buyers. However, borrowers are on the hook to pay mortgage insurance premiums (MIP) for the life of the loan
• VA loans: The Department of Veterans Affairs makes VA loans available to veterans, active-duty military service members, and surviving spouses. VA loans require no down payment and do not require mortgage insurance, which can significantly reduce the monthly payment
• USDA loans: The U.S. Department of Agriculture offers USDA loans designed for rural and suburban home buyers who meet specific income requirements. These loans offer 100% financing, meaning no down payment is required, and have competitive interest rates

3. State and local first-time home buyer programs

State and local governments often offer programs specifically for first-time home buyers, such as down payment assistance (DPA) loans and grants, closing cost assistance, and home buyer education, each with their own set of first-time home buyer loan requirements.

• DPA loans and grants: Down payment assistance can come in the form of a second mortgage loan or a grant. While loans must be repaid—often concurrently with the mortgage—grants do not need to be repaid. Eligibility requirements vary but often include income limitations and completion of a homebuyer education course
• Closing cost assistance: Many state and local programs offer second mortgage loans or grants to cover closing costs. Like DPA programs, these usually require borrowers to meet certain criteria, such as income limits and first-time buyer status
• Home buyer education: Many of these programs require participants to complete a homebuyer education course as part of their first-time home buyer loan requirements. These courses help borrowers understand the responsibilities of homeownership, including budgeting, maintaining a home, and understanding the terms of their mortgage.

The requirements to qualify for a first-time home buyer grant depend on the down payment assistance programs available where you live.

“Typically, you’d need a 640 minimum credit score. And household income limits may be based on family size and property location,” says Angel Merritt, mortgage manager with Zeal Credit Union.

4. Nationwide first-time home buyer loan programs

Nationwide home buyer programs offer a variety of options to first-time home buyers across the country. Some of these programs are specifically designed for certain groups of people or for buying specific types of properties, and they often come with their own set of first-time home buyer loan requirements.

Let’s take a closer look at some of these programs and their unique loan requirements

Good Neighbor Next Door

The U.S. Department of Housing and Urban Development (HUD) operates the Good Neighbor Next Door program, offering significant discounts on homes for public employees like teachers, firefighters, EMTs, and law enforcement officers. Eligible individuals can receive a discount of 50% off the list price of a home in revitalization areas. In return, the buyer must commit to living in the property as their sole residence for 36 months. While this program has its own set of qualifications, it’s worth noting that these can differ from typical first-time home buyer loan requirements.

HomePath Ready Buyer

Fannie Mae’s HomePath Ready Buyer program is designed for first-time home buyers who plan to purchase a HomePath property. After completing an online homebuyer education course, eligible buyers can receive up to 3% in closing cost assistance toward the purchase of a HomePath property. Homes that Fannie Mae has foreclosed on are the properties in this program.

Energy-Efficient Mortgage (EEM)

An Energy-Efficient Mortgage (EEM) is a federal program that allows home buyers, including those meeting first-time home buyer loan requirements, to finance the cost of making energy-efficient improvements to a new or existing home as part of their FHA, VA, or conventional home loan. The idea behind this program is to save on utility bills, which can help offset the additional mortgage cost. To qualify, the improvements must be cost-effective, meaning the money saved on energy bills should exceed the cost of the improvements.

Native American Direct Loan (NADL)

The Native American Direct Loan (NADL) program is a VA-backed program that provides eligible Native American Veterans and their spouses the opportunity to use their VA home loan guaranty benefit on federal trust land. The program offers many benefits, including no down payment, a low interest rate, and limited closing costs. The buyer must intend to occupy the property as their primary residence.

Charitable and non-profit assistance for first-time buyers

If you’re a first-time home buyer with low to moderate income, you may be eligible for support from charitable or nonprofit organizations. These entities aren’t governmental but offer valuable educational and monetary resources to help you navigate first-time home buyer loan requirements when buying your first home.

Nonprofits usually have income limits and requirements that dictate the type of home buyer who can receive assistance.

Neighborhood Assistance Corporation of America (NACA)

Another nonprofit available across the U.S. is the Neighborhood Assistance Corporation of America (NACA). Catering to families with financial instability, NACA provides mortgage guidance and education. They collaborate with lenders who are willing to accommodate low-income families in securing their first mortgage.

What sets NACA apart is that their loan type doesn’t necessitate a down payment, closing expenses, or even a base credit score, offering prospective homebuyers a tailored approach to meeting first-time home buyer loan requirements.

Habitat for Humanity

Habitat for Humanity is a globally recognized nonprofit focused on offering “adequate, straightforward, and cost-effective” homes for families with limited income. They engage volunteers to construct homes, ensuring that the total cost remains lower than other market options post-closure. So, if you meet their conditions and first-time home buyer loan requirements, this could be an avenue to consider for more affordable housing.

Like many official initiatives, a majority of charitable entities and nonprofits are localized. The U.S. Department of Housing and Urban Development (HUD) maintains an ongoing directory of approved nonprofit organizations available in every state and county. To explore local housing programs that could help you refinance or buy a home within five years, you may visit HUD’s website.

How to find first-time home buyer programs

As a first-time home buyer, coming up with cash for the down payment and closing costs is one of the biggest hurdles.

Luckily, there are grants and loans available to help home buyers become homeowners.

The best way to determine if you meet their first-time home buyer loan requirements is to reach out to the housing authority in the town or city where you want to purchase a home.

Down payment grants, tax credits, and closing cost assistance generally are not advertised, so be sure to ask around.

• Your real estate agent could help you find local grant programs. An experienced Realtor has likely worked with other borrowers who need a little help getting into their new home
• Your loan officer can also help you find down payment and closing cost assistance. In particular, they can suggest programs the lender is willing to work with and has used in the past
• If you work in the public sector, ask your employer. In some areas, nonprofits have grant programs or tax credits to help law enforcement officers, teachers, or emergency medical technicians, for example

Many grant programs are income-based, and many require borrowers to take a homebuyer education course to learn about homeownership and mortgage borrowing.

You may have to do some digging on your own to locate the resources available to you.

How to apply for first-time home buyer programs

Once you meet the first-time home buyer loan requirements for the program you’re interested in, it’s time to begin the mortgage process. Applying for a home loan can be a straightforward process if you know what steps to take. Here’s a step-by-step guide to help you navigate the application process and improve your chances of getting approved.

1. Determine your eligibility

Before you begin the application process, ensure you meet the first-time home buyer loan requirements for the program you’re interested in. This typically involves checking your credit score, income, employment history, and verifying that you meet the definition of a first-time home buyer.

2. Research available programs

Explore the various first-time home buyer programs available at the federal, state, and local levels. Consider different types of loans and assistance programs, such as FHA, VA, USDA loans, and other government-backed and nonprofit programs.

3. Gather necessary documentation

Prepare all the necessary documents you’ll need for your application. Commonly required documents include:

• Proof of income (pay stubs, W-2s, tax returns)
• Employment verification
• Credit reports
• Bank statements
• Identification documents (e.g., driver’s license, Social Security card)
• Documentation of any other assets or liabilities

4. Get pre-approved for a mortgage

Before applying for specific programs, it’s beneficial to get pre-approved for a mortgage. This involves working with a lender to determine how much you can borrow and what types of loans you qualify for. Pre-approval gives you a better understanding of your budget and strengthens your position when making an offer on a home.

5. Complete the application forms

Fill out the application forms for the programs you’re applying to. Ensure all information is accurate and complete. This step may involve multiple applications if you’re applying for both loan programs and additional assistance programs.

6. Submit your application

Submit your completed application forms along with the required documentation to the respective program administrators. This might be done online, by mail, or in person, depending on the program’s procedures.

7. Follow up with lenders and program administrators

After submitting your applications, follow up with the lenders and program administrators to confirm receipt and check the status of your application. Be prepared to provide additional personal finance information or documentation if requested.

8. Attend required homebuyer education sessions

Many first-time home buyer programs require applicants to attend home buyer education or counseling sessions. These sessions provide valuable information on managing your mortgage, budgeting, and the home buying process.

9. Receive approval and close on your home

If your application is approved, you’ll receive a commitment letter outlining the terms and conditions of your loan or assistance program. Review this carefully, and work with your lender to complete the closing process, which includes finalizing your mortgage and officially purchasing your home.

By following these steps, you can navigate the application process for first-time home buyer programs with confidence, making your journey to home ownership as smooth as possible.

Common mistakes when applying for a first-time home buyer loan

Embarking on the path to homeownership can be both exciting and overwhelming. As a first-time home buyer, it’s easy to make mistakes. Meeting first-time home buyer loan requirements and recognizing potential pitfalls before you apply can save you both time and money in the long run.

Not choosing the right mortgage loan program

One common mistake among first-time home buyers is not thoroughly understanding the first-time home buyer loan requirements for the type of program for which you’re applying. It’s crucial to know whether you’re getting a fixed-rate loan or an adjustable-rate loan, as this will impact your repayments.

Also, understanding the down payment requirements, whether mortgage insurance is required, and what kind of property you can purchase (e.g., single-family, duplex) are all vital details.

Not improving credit scores before applying

Another common error is neglecting to check and improve your credit score before applying. Your credit score impacts your loan eligibility and the interest rate you’ll receive. By not taking the time to improve your credit, you may end up paying higher interest rates than necessary.

Not saving enough money to close the loan

Finally, many first-time buyers do not save enough for down payments, closing costs, and other expenses associated with buying a home. Although there are programs with low or no down payment requirements, it’s generally beneficial to have a sizable down payment to reduce your monthly repayments and the total upfront cost of the loan.

Advantages of meeting first-time home buyer loan requirements

When you meet the first-time home buyer loan requirements, you unlock several remarkable benefits that make home ownership more accessible.

• Reduced down payments: The lowered down payment criteria are a standout benefit of meeting first-time home buyer loan requirements. Compared to conventional loans, this lessened initial financial commitment can turn the dream of home ownership into a real possibility for many first-timers.
• Competitive mortgage rates: Qualifying for a first-time home buyer loan often means access to lower interest rates. This is particularly beneficial for those with good credit scores, resulting in more manageable monthly payments and a lower total repayment sum over the lifespan of the loan. Even those with less-than-ideal credit can find competitive rates, particularly through FHA loans.
• Stable interest rates: One of the joys of meeting these loan requirements is the access to fixed-rate loans. The stability of fixed interest rates means predictable monthly mortgage payments, shielding you from market volatility and enabling easier financial planning.
• Loan forgiveness and deferrals: Some first-time home buyer programs also offer forgivable or deferred loans for down payment and closing cost assistance after a certain period of consistent repayment. This advantage not only diminishes the initial costs of purchasing a home but can also lead to substantial savings in the long term.

By meeting the first-time home buyer loan requirements, you open the door to these and other advantages, making the path to home ownership more achievable and financially favorable.

FAQ: First-time home buyer loan requirements

Do you meet the first-time home buyer loan requirements?

Meeting the first-time home buyer loan requirements can be your ticket to securing a grant or loan, which makes the dream of homeownership more within reach than ever.

Start the home buying process by securing pre-approval from a mortgage lender.

This crucial step verifies your mortgage eligibility and gives you a clearer understanding of your home buying budget, making it essential for all aspiring homeowners.