Access grants and loans designed for new home buyers

First-time home buyer programs include low-down-payment loans (3-3.5% down), down payment assistance grants (free money), forgivable loans and tax credits. FHA allows 580 credit with 3.5% down. Conventional 97 and HomeReady require just 3% down. State housing agencies offer $5,000-$50,000 in assistance. Many programs aren’t limited to true “first-time” buyers—you qualify if you haven’t owned in three years.

Who Qualifies as a First-Time Buyer?

The Official Definition

You’re considered a first-time buyer if:

• You’ve never owned a home, OR
• You haven’t owned a primary residence in the past 3 years

Additional Qualifying Situations

You also qualify if you’re:

• A single parent who only owned with a former spouse
• A displaced homemaker who only owned with a spouse
• Someone who owned a home not permanently attached to a foundation
• Someone who owned a home not meeting building codes

Why It Matters

First-time buyer status gives you access to:

• Special loan programs
• Down payment assistance
• Tax credits
• Lower PMI rates (some programs)

Low-Down-Payment Loan Programs

FHA Loans

Down payment: 3.5% (with 580+ credit) or 10% (with 500-579 credit)

Best for:

• Credit scores 580-679
• Higher DTI ratios
• Gift funds for down payment

Features:

• Government-insured
• Lenient credit requirements
• MIP required for life of loan (usually)

Example: $300,000 home

• Down payment: $10,500 (3.5%)
• Total cash needed: ~$18,000-$22,000

Conventional 97

Down payment: 3%

Best for:

• First-time buyers with 620+ credit
• Those who want PMI removal option

Features:

• Fannie Mae/Freddie Mac backed
• PMI removable at 20% equity
• Standard underwriting

Example: $300,000 home

• Down payment: $9,000 (3%)
• Total cash needed: ~$17,000-$21,000

HomeReady (Fannie Mae)

Down payment: 3%

Best for:

• Low-to-moderate income buyers
• Multi-generational households

Features:

• Income limits (100% of area median)
• Reduced PMI rates
• Boarder income can help qualify
• Homebuyer education required

Home Possible (Freddie Mac)

Down payment: 3%

Best for:

• Low-to-moderate income buyers
• Very low-income buyers (can go to 97% AMI in some areas)

Features:

• Income limits apply
• Reduced MI coverage
• Sweat equity allowed for down payment
• Homebuyer education required

VA Loans

Down payment: 0%

Best for:

• Veterans, active military, eligible spouses

Features:

• No down payment required
• No monthly mortgage insurance
• Competitive rates
• Funding fee (can be financed)

USDA Loans

Down payment: 0%

Best for:

• Buyers in rural/suburban areas
• Low-to-moderate income households

Features:

• No down payment
• Low guarantee fee
• Income limits apply
• Property must be in eligible area

Down Payment Assistance Programs

Types of Assistance

Grants:

• Free money, no repayment
• Most competitive
• Often $5,000-$15,000

Forgivable loans:

• Loan forgiven after 5-10 years of residency
• Sell early = repay prorated amount
• Often $10,000-$40,000

Deferred payment loans:

• No payments until sale/refinance/payoff
• May be 0% interest
• Due when you move

Low-interest loans:

• Below-market rate second mortgage
• Monthly payments required
• Builds equity

Where to Find Assistance

State housing finance agencies (HFAs):

• Every state has one
• Search “[Your State] Housing Finance Agency”
• Multiple programs per state

City and county programs:

• Check city housing department
• County may have separate programs
• Local nonprofits

Employer programs:

• Some employers offer homebuyer assistance
• Ask HR about available benefits

Nonprofits:

• Habitat for Humanity
• NeighborWorks affiliates
• Community Development Financial Institutions

Typical Requirements

Requirement	Common Standard
Income limit	80-120% of area median
First-time buyer	Usually required
Occupancy	Primary residence
Homebuyer education	Usually required
Credit score	620-660 minimum
Property location	Within program area

State-by-State Programs

High-Assistance States

California (CalHFA):

• MyHome: Up to 3.5% as deferred second
• Zero Interest Program: Up to $20,000
• Forgivable Equity Builder: Up to $40,000 (income restricted)

Texas (TDHCA):

• My First Texas Home: Up to 5% assistance
• Texas Mortgage Credit Certificate: Tax credit

Florida (Florida Housing):

• Down Payment Assistance: Up to $10,000
• Multiple programs by county

New York (SONYMA):

• Down Payment Assistance Loan: Up to 3%
• Achieving the Dream: For lower income

Finding Your State’s Programs

1. Search “[State] first-time home buyer programs”
2. Check your state HFA website
3. Ask your lender about available programs
4. Contact a HUD-approved counselor

Tax Benefits for First-Time Buyers

Mortgage Credit Certificate (MCC)

What it is: Tax credit for portion of mortgage interest paid

How it works:

• Credit rate: 10-50% of interest (varies by program)
• Annual credit: Up to $2,000 typically
• Remains for life of loan

Example:

• Mortgage interest paid: $15,000/year
• MCC rate: 20%
• Tax credit: $3,000 ($2,000 cap may apply)

Benefit: Direct reduction of taxes owed (not just deduction)

First-Time Homebuyer Savings Accounts

Some states offer tax-advantaged savings accounts:

• Contributions may be tax-deductible
• Earnings grow tax-free
• Must use for home purchase

States with these programs: Check your state for availability

IRA Withdrawal for First Home

Penalty-free withdrawal:

• Up to $10,000 from IRA
• Must be first-time buyer (3-year rule)
• For purchase, building or rebuilding

Taxes still apply: You’ll owe income tax on traditional IRA withdrawal

Mortgage Interest Deduction

If you itemize:

• Deduct interest on up to $750,000 of mortgage debt
• Property taxes deductible (subject to $10,000 SALT cap)
• May not benefit if standard deduction is higher

Homebuyer Education Requirements

Why It’s Required

Many programs require homebuyer education:

• Reduces default rates
• Prepares buyers for homeownership
• Opens the door to assistance programs
• May provide certificate for lender

What Courses Cover

• Budgeting and credit
• Mortgage process
• Shopping for a home
• Home maintenance
• Avoiding foreclosure

Where to Take Courses

HUD-approved agencies:

• Find at HUD.gov
• Free or low-cost ($0-$100)
• In-person or online

Online providers:

• Framework (Fannie Mae)
• eHome America
• Homebuyer.com

Duration: 4-8 hours typically

Certificate Validity

Certificates typically valid for:

• 1-2 years from completion
• Must complete before closing
• Keep copy for lender

Combining Programs

Stacking Assistance

Many buyers combine multiple programs:

Example stack:

• FHA loan (3.5% down requirement)
• State HFA grant ($10,000)
• City forgivable loan ($8,000)
• MCC tax credit (ongoing)

Result: Minimal cash needed, ongoing tax savings

Compatibility Rules

Not all programs combine:

• Some require specific loan types
• Income limits vary
• Check with each program
• Lender helps coordinate

Maximum Assistance Example

$350,000 home purchase:

Source	Amount	Type
FHA loan	$337,750	Mortgage
State HFA	$10,000	Grant
City program	$7,500	Forgivable loan
Savings	$5,000	Cash
Total	$360,250	Covers price + costs

Finding and Applying for Programs

Step 1: Research Programs

• Check state HFA website
• Search local housing department
• Ask lenders what they offer
• Consult HUD counselor

Step 2: Verify Eligibility

For each program, check:

• Income limits
• First-time buyer requirement
• Property requirements
• credit score minimums

Step 3: Complete Homebuyer Education

• Enroll in HUD-approved course
• Complete before applying
• Keep certificate

Step 4: Work with Approved Lenders

Many programs require:

• Lender approved by the program
• Not all lenders participate
• Ask about program experience

Step 5: Apply for Assistance

• Apply alongside mortgage application
• Submit required documentation
• Meet program deadlines

Common First-Time Buyer Mistakes

Not Knowing Programs Exist

Many buyers don’t research assistance options. Thousands in free money goes unclaimed.

Waiting Too Long to Apply

Some programs have:

• Limited funding (first-come, first-served)
• Application deadlines
• Waitlists

Apply early once you’re ready to buy.

Not Completing Education First

Required education takes time. Complete it before making offers to avoid delays.

Assuming You Don’t Qualify

Income limits are often higher than expected:

• 120% AMI in many programs
• Family of four can earn $100,000+ in some areas
• Check before assuming you’re ineligible

Using the Wrong Lender

Not all lenders work with all programs. Choose a lender experienced with your target programs.

Frequently Asked Questions

What if I owned a home 5 years ago?

You likely qualify as first-time buyer. Most programs use a 3-year lookback. If you haven’t owned a primary residence in 3 years, you’re considered first-time.

Can I use down payment assistance with any loan?

Usually, but programs specify eligible loan types. Many work with FHA and conventional. Some only work with specific lenders.

Is down payment assistance really free?

Grants are free. Forgivable loans are free if you stay long enough (typically 5-10 years). Deferred and low-interest loans must be repaid eventually.

How much assistance can I get?

Varies by program and location. Typical amounts: $5,000-$25,000. Some programs offer $40,000+. Stack multiple programs for more.

Do assistance programs have income limits?

Most do. Limits are often 80-120% of Area Median Income (AMI). A family of four might qualify earning up to $100,000+ depending on location.

How long does it take to get approved for assistance?

Similar to regular mortgage timeline (30-45 days) if you’ve completed education and have documentation ready. Some programs are faster.

Can I buy any house with these programs?

Most require:

• Primary residence
• Within program geographic area
• Meet minimum property standards
• Under maximum purchase price limits

Related Articles

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• First Time Home Buyer Tips: Expert Advice for 2025
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