Top 5 Mortgage Home Loans for First-Time Homebuyers

 

First-time homebuyers have unique access to mortgage programs that can save you a lot of money and help you become a homeowner faster. So if you’re getting ready to buy your first home, congratulations! Keep reading to learn how it works and find out if you’re eligible.

Related: Find out if you qualify as a first-time homebuyer

2021 Mortgage Benefits for First-Time Homebuyers

• Down payments as low as 0% – 3.5% down
• Fewer income restrictions
• More flexible credit score requirements
• Use of gift funds to help with closing costs
• HUD-issued grants and down payment assistance
• Government-backed loans with lower interest rates
• Access to withdraw IRA funds without a penalty
• Tax deductions for points and origination fees

Top 5 Most Popular Home Loans for First-Time Homebuyers

One of the biggest obstacles for many first-time homebuyers is the down payment.

The good news is you don’t need to put 20% down to get a competitive rate on your mortgage.

In high-cost areas, the average home could be around $750k, requiring a 20% down payment of $150k. Even if you have the funds available, is it still a smart move to invest the full amount into your home? High-income buyers might want to invest that money elsewhere. And for lower-income buyers, a large down payment might not be possible.

The following mortgages are a popular option for first-time homebuyers. Why? They can help lower your down payment and get you into a house without making you cash-poor or depleting your assets.

1. FHA Loan – 3.5% Down Payment

FHA (Federal Housing Administration) home loans are government-backed mortgages. This mortgage is a popular mortgage option for first-time homebuyers because borrowers can qualify with a lower credit score and a low down payment.

• 3.5% down payment with a credit score of 580
• 10% down payment with a credit score of 500
• Flexible income requirements
• Mortgage insurance premium (MIP) is required

2. VA Home Loan – 0% Down Payment

If you’re a member of the military, the VA home loan is one of the best home loan options for first-time homebuyers. The VA home loan is available to active-duty service members, veterans, and military spouses.

• 0% down payment required
• Low mortgage rates
• Lower credit score requirements
• Reduced closing costs
• No mortgage insurance requirements

3. USDA Home Loan – 0% Down Payment

Government-backed USDA home loans offer solid advantages for first-time homebuyers who want to buy a home in a rural area. USDA home loans offer low-interest rates and no-money-down mortgages for qualified borrowers.

• 0% down payment
• A government-based mortgage with low-interest rates
• Benefits to lower-income buyers
• Lower mortgage insurance premiums

Check out the USDA eligibility map and find out which areas qualify.

4. Conventional 97 Mortgage – 3.0% Down Payment

The conventional 97 mortgage program is ideal for higher-income buyers with excellent credit that want a low 3% down payment. It’s more flexible, and you can keep your assets invested elsewhere.

• 3% down payment
• Opportunity to cancel PMI (private mortgage insurance) without refinancing
• 620 credit score minimum
• No limitations on areas or neighborhoods
• No income limitations

5. HomeReady by Fannie Mae and HomePossible by Freddie Mac – 3% Down Payment

HomeReady and HomePossible are perfect for first-time homebuyers who want a conventional home loan with a low rate and a low down payment.

• 3% down payment
• Use gift funds for up to 100% of your down payment (HomePossible)
• Use gift funds for your closing costs
• Down Payment Assistance (DPA) is available for closing costs
• You might be able to count rental income on your loan application
• You can count income from relatives or other people living with you (HomeReady)

The Fannie Mae HomeReady home loan is also a great loan for borrowers who plan to buy a multi-unit property (up to 4 units). One of the units must be your primary residence.

Additional Resources

To find out more information about downpayment assistance for 2021, along with housing grants and vouchers, check out this site for local and state-based programs.

Taking Action

Connect with a local mortgage advisor to see if you qualify as a first-time homebuyer. Start the process early and ask your lender to show you which home loan programs will give you the best advantages. We’d love to help.