Buying a home is a big deal, especially when it’s your first one. Today, navigating the real estate market is more complicated than ever before. The 2019 home buyers and sellers generational trends report by the National Association of Realtors® found 42% homebuyers from ages 29 to 38 carry student loan debt, at an average of $30,000. Existing debt can make saving for a down payment and qualifying for a traditional mortgage seem impossible. Thankfully, various grants are available to first-time homebuyers who don’t have a substantial down payment or the best credit score. 

From the U.S. Department of Agriculture, this type of loan program provides housing for low- to moderate-income borrowers in hopes of developing thriving communities in rural areas.  To participate in this program, there are eligibility requirements for both borrowers and locations. Borrowers who meet all standards can build, relocate, or renovate a home in a USDA eligible area. To apply for the USDA loan program, first, contact your local mortgage lender. Applications to the program are only accepted through approved lenders

Applicants must:

  • Fall within the required income range
  • Select a property that meets all the program criteria
  • Live in the selected home as their primary residence
  • Not have been previously suspended or removed from any federal programs.

The Federal Housing Administration (FHA) loan program has been assisting new homeowners since the 1930’s. FHA loans are a great option for people with no credit, low credit, or in need of small down payments. Participation allows borrowing up to 96.5% of the value of the home, and an FHA loan program only requires a down payment as low as 3.5%. 

If interested, borrowers would get a loan from an FHA-approved lender, not the FHA themselves. The FHA instead guarantees to pay a claim to the approved lender if the borrower defaults on the loan, making it less risky for lenders to give a loan to someone who may not meet the requirements on their own. Guarantees don’t come for free. Often considered to be the catch of this loan program, you’ll pay the FHA an upfront mortgage insurance premium as well as annual premiums. 

The FHA also offers 203(k) rehab mortgage insurance which is crucial for those who are interested in purchasing an older home needing repair or modernization. This program allows participants to borrow the money needed to renovate their home and then rolls the associated costs into a single FHA loan. This type of loan is great for a fixer-upper, but is subject to restrictions from certain buyers if you plan to flip the house within 90 days. There are regulations on when and why you can resell a home you purchase and renovate with a 203(k) loan. There are two types of 203(k) loans: standard and limited. 

  • Standard: This type of 203(k) loan is intended for large-scale or extensive remodeling. Hiring a qualified 203(k) consultant, who functions as a project manager, is a requirement in standard 203(k) loans. 
  • Limited: Capped at $35,000, a limited 203(k) loan is meant for cosmetic alterations or repairs. 

Veterans Affairs (VA) loans offer veterans and currently-serving borrowers home options requiring no down payment with lower monthly payments and less stringent credit qualifications. A government-backed program, VA loans have competitive rates and have an easier qualification. Additionally, they do not require private mortgage insurance (PMI). 

Adaptive housing grants for those with service-related disabilities are also available through the VA loan program. These grants can be used to buy an adapted house or the supplies required to make alterations to a home to accommodate a disability. There are two types of adaptive housing grants from the VA.

  • Specially Adapted Housing (SAH) Grant: This grant provides independent living by allowing veterans to purchase, build, or remodel an adapted home. With a current maximum of $90,364, the grant amount adjusts annually. 
  • Special Housing Adaptation (SHA) Grant: Instead of building or buying a home, this grant allows you to remodel your home to accommodate service-related disabilities. The current maximum is $18,074, though it also adjusts annually. 

The National Homebuyers Fund (NHF) and participating lenders help first-time homebuyers make their down payment and associated closing costs all across the country. Down payment assistance through the NHF is available up to 5% of the mortgage loan total. Ask your lender about income limits and other requirements associated with your area. The numerous options available through the NHF allow you to find a level of assistance best suiting your needs.

From the Department of Housing and Urban Development (HUD), the Good Neighbor Next Door Program aims to encourage the renewal and development of specified areas. To participate, you must purchase a home in an area marked for revitalization and commit to it being your sole residence for at least 36 months. If you do, HUD offers a discount of 50% from the listing price of the home. This program is only available to certain professions: teachers, law enforcement officers, firefighters, and emergency medical technicians. 

Most first-time homebuyer programs and grants are offered at the state and local level. In fact, very few are offered at a national level. Each state has first-time homebuyer programs that come as grants or low-interest loans. The income limits and other requirements will vary by state. Since each program will vary, it’s crucial you pay attention to any special requirements or penalties each has to offer. 

Available through the U.S Department of Veteran Affairs, the Native American Direct Loan (NADL) doesn’t require a down payment or private insurance. It’s designed to offer financing options for Native American veterans to build, renovate, or buy a home on federal trust land, Alaska native corporations, and pacific island territories. To participate in this type of loan, you must have a valid certificate of eligibility confirming you are qualified for a VA-backed loan. Unlike most loans, you can receive a NADL for every property you buy.