First-Time Homebuyer Loan Programs (2025 Edition)
First-time homebuyers have access to specialized loan programs with lower down payments, flexible credit requirements, and reduced costs. Understanding available options helps identify the best path to homeownership.
Who Qualifies as First-Time Buyer
The IRS defines first-time homebuyer as someone who has not owned a primary residence in the past three years. This means previous homeowners may still qualify if enough time has passed.
Additional categories qualify as first-time buyers even with past ownership: single parents who only owned with former spouse, individuals who only owned property not permanently attached to a foundation, and those whose previous home was not compliant with building codes.
Federal Loan Programs
FHA Loans
Federal Housing Administration loans require only 3.5% down payment with credit scores as low as 580. These government-backed loans accept higher debt-to-income ratios and more lenient credit histories than conventional loans.
FHA loans require upfront and annual mortgage insurance premiums. Annual MIP remains for loan life with less than 10% down payment. Loan limits for 2025: $498,257 in most areas, higher in expensive markets.
VA Loans
Department of Veterans Affairs loans offer zero down payment options for eligible military service members, veterans, and surviving spouses. VA loans do not require mortgage insurance despite no down payment.
VA loans charge one-time funding fee (1.4% to 3.6% depending on service type and down payment) but offer competitive rates and lenient credit standards. Minimum credit score requirements vary by lender, typically 620.
USDA Loans
United States Department of Agriculture loans provide zero down payment financing for homes in eligible rural and suburban areas. Properties must meet location requirements covering approximately 97% of U.S. geography.
USDA loans require upfront guarantee fee (1% of loan amount) and annual fee (0.35%). Income limits apply based on area median income. Borrowers must have stable income and reasonable credit history.
Conventional Options
Conventional 97 Loans
Fannie Mae and Freddie Mac offer 3% down payment conventional loans for first-time buyers. These loans require private mortgage insurance until 20% equity is reached but PMI automatically cancels at 78% LTV.
Conventional 97 loans require 620 minimum credit score. Borrowers must complete homebuyer education course. Only one borrower needs to be first-time buyer if multiple borrowers on loan.
HomeReady and Home Possible
Fannie Mae HomeReady and Freddie Mac Home Possible programs serve low-to-moderate income borrowers with 3% down payment options. These programs accept non-traditional income sources including boarder rental income.
Income limits apply based on area median income (typically 80% to 100% of AMI). Favorable mortgage insurance pricing compared to standard conventional loans. Homebuyer education required.
State and Local Programs
Most states operate housing finance agencies offering first-time buyer assistance. Programs vary significantly but commonly include down payment assistance grants, low-interest mortgages, and tax credits.
Common State Program Features
- Down payment and closing cost grants (typically $2,500 to $15,000)
- Below-market interest rates
- Mortgage Credit Certificates providing annual tax credits
- Second mortgages with deferred or forgiven repayment
- Property tax exemptions or reductions
State programs typically combine with FHA, VA, USDA, or conventional loans rather than standing alone. Income and purchase price limits apply. Many programs require homebuyer education completion.
Down Payment Assistance
DPA Types
Down payment assistance comes in several forms: forgivable loans that disappear after 5-10 years of residence, deferred payment loans with no monthly payment until home sale or refinance, low-interest second mortgages, and outright grants requiring no repayment.
Employer Assistance
Some employers offer homebuyer assistance as recruitment or retention benefit. Programs may include forgivable loans, matching contributions, or grants. Healthcare systems, universities, and government employers commonly offer these programs.
Nonprofit Organizations
Local nonprofits and community development corporations provide down payment assistance to qualifying buyers. These organizations often focus on specific neighborhoods, income levels, or occupations like teachers and first responders.
Choosing the Right Program
| Choose This | If You |
|---|---|
| FHA Loan | Have limited down payment and credit score below 680 |
| VA Loan | Qualify through military service and want zero down payment |
| USDA Loan | Buy in eligible rural area and want zero down payment |
| Conventional 97 | Have 680+ credit and want PMI that cancels automatically |
| HomeReady/Possible | Have moderate income and need flexible income documentation |
Related Resources
Frequently Asked Questions
Do I need perfect credit to buy a home?
No. FHA loans accept scores as low as 580 (or 500 with 10% down). Many first-time buyer programs work with credit scores in the 620-680 range. Focus on payment history and reducing debt-to-income ratio.
How much money do I need saved?
Minimum requirements vary by program. FHA loans need 3.5% down plus 2-4% closing costs. Some programs combine zero down payment with closing cost assistance. Budget for 3-6 months reserves for maintenance and emergencies.
Can I use gift money for down payment?
Yes. Most programs accept gift funds from family members for entire down payment and closing costs. Donors must provide gift letter confirming funds are gift, not loan. Some programs require minimum borrower contribution.
What is homebuyer education?
Many programs require completion of HUD-approved homebuyer education course. Classes cover budgeting, mortgage products, home maintenance, and avoiding foreclosure. Available online or in-person, typically 6-8 hours, cost $50-$100.
Should I wait until I have 20% down payment?
Not necessarily. Waiting years to save 20% means missing homeownership benefits and potential appreciation. Low down payment programs allow you to build equity sooner. Compare rent costs versus mortgage with PMI.