Options for First-Time Homebuyer Assistance

You're about to buy your first home. What options do you have for state and federal financial help?

A realtor talks with a homebuyer.

By: Tracey Velt

Concerns about job loss, uneasiness about the economy and looming personal or medical expenses have forced some potential homebuyers to put their dreams of homeownership on the fence. While assistance is limited, you do have a few options. Here they are:


  1. Federal Housing Administration (FHA) Loans. According to the New York Times, the FHA is underwriting loans at quadruple the rate of three years ago. In fact, says FHA Commissioner David H. Stevens, FHA loans comprise almost 50 percent of the entire home-loan market. Before the housing downturn, according to the Department of Housing and Urban Development (HUD), FHA loans comprised just 3 percent of the market.

    Why the popularity? Simple, says HUD spokesperson Lemar Wooley, in a time of tighter loan restrictions, “FHA’s basic downpayment requirement of 3.5 percent is lower than the minimum required on conventional loans. In addition, with certain restrictions, it permits the use of gifts to make the downpayment and the credit rating requirements are more flexible. It also allows borrowers to carry more debt than conventional loans.”

    However, cautions Hayden, FHA loans require an upfront mortgage insurance premium, which is 2.5 percent, although that cost can be financed. In addition, homebuyers must have a credit score of 620 or higher.

  2. Fannie Mae HomePath. If you’re open to buying a foreclosure, this program can give you the boost you need. Special financing is available on Fannie Mae-owned foreclosure properties (find them at www.homepath.com). “There’s a low, 3 percent downpayment requirement, no need for an appraisal because Fannie Mae owns the property and no mortgage insurance requirement,” says Hayden. In addition, the program is open to both homebuyers and investors.

    The downpayment can be funded by a gift; a grant; or a loan from a nonprofit organization, state or local government, or from an employer. “The good thing about this program is that, generally speaking, the houses are in decent shape, which is always a concern when purchasing a foreclosure. The homes won’t be perfect, but for foreclosed properties, they’re in better shape than most,” he says.

  3. State or municipality grants/programs. Many states offer housing assistance programs for first-time or low-income homebuyers. Many times the funding is available for homes in an area that local government is trying to revitalize. Programs can include down-payment assistance, loan guaranties, interest subsidies; tax credits and closing cost help in the form of low-cost loans or direct payments. Many require credit scores in the 520-and-above range and proof that the borrower has income sufficient to repay the mortgage. In many states, borrowers are required to attend homeownership and financial management classes.

    Find out if your state has a homebuyer assistance program by going to: http://www.hud.gov/buying/localbuying.cfm.

Regardless of whether or not you find assistance, Hayden recommends that when you start looking for a home, you “get your loan application in early and provide the lender with everything he or she asks for -- no matter how ridiculous it may sound.” Doing so will give you the best chance for getting loan approval and will put you on the fast track to getting the home of your dreams.

Tracey C. Velt is an Orlando-based freelance writer.

Keep Reading

Next Up

10 Things Every New Homebuyer Needs to Know

Never bought a house before? These tips will help you better understand the homebuying process.

A Checklist for First-Time Homebuyers

Here are four things you'll need (and two things you won't) when you're ready to switch from renting to owning.

What Are Lease-Purchase Options?

In a tough housing market, sellers may use lease-purchase agreements to lock in qualified buyers who may not be ready to close now but will be in the future.

Options for Affordable Waterfront Living

How to find a bargain in pricey communities without drowning in debt.

Condo and Loft Homebuyer's Guide

Find out if these urban abodes are right for you to buy and live in.

My Home Appraisal is Lower Than Expected!

If your home is appraised at lower than your sale price, don't freak out. Take real estate expert Tara-Nicholle Nelson's savvy advice.

Price Low to Sell High

Slash asking price early, plus more tips from real estate guru Barbara Corcoran.

Mortgage Yoga

The first step to buying a house? Take a deep inhale. On the exhale, stttttrrreeeeeetch to make as big of a monthly payment as you can afford to. The appreciation value will benefit you in the long run.

My House is Worth What?

Before you sell your home, figure out its worth—and what it'll take for buyers to bite. Here's how.

Pricing Solutions for 4 Home Selling Scenarios

Solve your home selling dilemmas with these pricing strategies.

On TV

Flip or Flop

7:30am | 6:30c

Flip or Flop

8:30am | 7:30c

Flip or Flop

9:30am | 8:30c

Flip or Flop

10am | 9c

Flip or Flop

10:30am | 9:30c

Flip or Flop

11am | 10c

Flip or Flop

11:30am | 10:30c

Flipping Texas

12pm | 11c

Flip or Flop

12:30pm | 11:30c

Home Town

1pm | 12c

Fixer Upper

2pm | 1c

Fixer Upper

3pm | 2c

Fixer Upper

4pm | 3c

Fixer Upper

5pm | 4c

Fixer Upper

6pm | 5c

Fixer Upper

7pm | 6c
On Tonight
On Tonight

Property Brothers

8pm | 7c

Log Cabin Living

11:30pm | 10:30c

Log Cabin Living

2:30am | 1:30c

Shop This Look

Found a living space you love in HGTV's Photo Library? Get the look in your own home with products from Wayfair.

Follow Us Everywhere

Join the party! Don't miss HGTV in your favorite social media feeds.