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HomeBudgetWhat Are the Financial Options for First Time Home Buyers?

What Are the Financial Options for First Time Home Buyers?


Fortunately, there are many first-time home buyer loans and programs that are designed to help people like you enter the housing market. Here’s what to know.

So… you’re thinking about buying a home. Congratulations!

This is one of the most exciting (albeit stressful) times of your life. For most people, the two largest purchases they will ever make are buying a vehicle and buying a home – and just like buying a car, buying your first home is a major milestone that you will remember forever. 

But there are unique challenges to your first house purchase. 

Since this is your first home, you won’t have equity built up in a previous property that you can use to help pay for the home. Furthermore, you likely have other financial obligations like student loans that eat into your monthly budget. Those obligations have also likely hampered your ability to accelerate saving for a down payment on a home. 

Fortunately, there are many first-time home buyer loans and programs that are designed to help people like you enter the housing market. While the barrier to entry may seem high, these financial options are designed to help make housing more equitable for everyone. Here are the options to consider.

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FHA Loans: Perfect for First-Time Home Buyers

Forget the major banks and having to hustle around for the best mortgage rate. FHA loans are those that are backed by the Federal Housing Administration. Consider some of the reasons FHA loans are more popular than conventional loans among first time buyers:

  • Lower down payment. Conventional wisdom states that you should put down 20% to purchase a home. With FHA loans, however, you only need to put down 3.5%. Of course, if you have more money saved up, you can certainly have a larger down payment. In fact, the average down payment among those with FHA loans is 10% down, but 3.5% is the minimum requirement.
  • Good for those with low credit scores. You need at least a 580 credit score to qualify for the 3.5% down payment. Even if your score is lower (500 to 579), you can still qualify for a loan with a 10% down payment. This is still more competitive than traditional loans. Additionally, if you’ve declared Chapter 7 bankruptcy, you can get an FHA loan 2 years after discharge, compared to 4 years for a conventional loan.
  • Includes Non-Occupant Co-Borrowers. If you don’t have a good credit score, long credit history, or have income uncertainty (i.e. from freelancing), you may be required to have a co-borrower. Essentially, this is someone who signs the loan with you. In the unlikely event that you can’t pay the loan, then the co-borrower will be responsible for it. This helps provide security for the lender. Well, conventional lenders require a co-occupant to be a co-borrower, but FHA loans allow co-borrowers to not live on the property. For example, a parent could use this to help their child purchase their first home. 

To learn more about FHA loans and what it takes to qualify, visit the official U.S. Department of Housing and Urban Development website. 

VA Loans: Perfect for Service Members, Veterans, and Surviving Spouses

The Department of Veterans Affairs helps all our service members and their families make sure that they have a place to live. To be clear, the VA itself is not the lender. Rather, the VA helps guarantee these mortgages and their benefits via qualified lenders. Here are some of the benefits:

  • Often/Usually do not require a down payment
  • Often/Usually do not require mortgage insurance
  • No standard credit or income requirements, though individual lenders may set these

While there is no required credit score, professional observers note that lenders prefer those with a credit score of 640 or higher. To qualify for this loan, you must show a Certificate of Eligibility and verify your income. 

To learn more, visit the official U.S. Department of Veterans Affairs website. 

Good Neighbor Next Door: Perfect for Teachers, Healthcare Workers, and Emergency Workers

The Good Neighbor Next Door program was designed in part to help build healthy communities. To do this, the Department of Housing and Urban Development (HUD) offers 50% off select HUD properties. 

Even more interesting, most of these properties are foreclosures. This means that even without the 50% off, they’re extremely affordable – so with the discount, this is an excellent deal!

It’s important to note that these are usually in low-income or underserved communities. The program is intended to reward those who aim to be a better neighbor through their service. 

Interested to see where HUD properties are located? Learn more on the official HUD Homes website.

USDA Loans: Perfect For Those Looking in Rural Areas

 No… despite the name, USDA loans aren’t just for farmers.

The U.S. Department of Agriculture is focusing on helping boost rural areas, as well as specific suburban areas, by offering 100% loan financing. What does that mean? No down payment! You can borrow 100% of the cost of the house. 

However, because the loan is so generous, there are income limitations. For households with fewer than 5 members, you can qualify as long as the standard income is below $91,000. For those with 5 to 8 in the household, the limit increases to $121,300.

The goal of this program is to “improve the economy and quality of life in rural America.”

If rural life is what your heart is yearning for, then visit the official USDA website to check your eligibility. 

What Are Other Options for First-Time Borrowers?

Even if you don’t qualify for any of the major programs above, there are plenty of other financial options for first time borrowers. These include, but are not limited to:

  • State and local incentives. These come in the form of grants and low-interest mortgage programs. For example, a city might want to attract more tech workers, so they pass an incentive program to attract tech companies and their workforces. Check with your state and local governments to see if any such programs are available.
  • Energy Efficient Mortgage Program. Passionate about going green? Well, if you purchase a home with energy-saving improvements or upgrade its eco-friendly features, you may qualify. This program extends loan limits to be able to include energy efficiency improvements.
  • Charitable or Nonprofit Programs. These programs are designed to help those with low or moderate income, as well as those from marginalized communities. Some of the most reputable programs include Habitat for Humanity and the Neighborhood Assistance Corporation of America (NACA).
  • Employer-Sponsored Programs. As part of the benefits package, more and more employers are offering first-time home buyer programs. It’s worth asking, especially if you’re relocating for a job.
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Final Thoughts

If you’re thinking about buying a house, it’s never too early to begin saving for a down payment. Even if you qualify for a program that allows for a 0% down payment, don’t forget that the more you put down, the more you’ll have in equity and the more you’ll save from interest. 

When it comes to saving for a down payment, I recommend keeping your money in a high interest savings account. I personally use CIT Bank and highly recommend it for anyone who wants to help accelerate their savings to reach their goals!

If you have more questions about buying a home for the first time, I recommend joining the TBM Family on Facebook. It’s a great way to get perspectives on a wide range of financial topics!

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