First-Time Home Buyer Government Programs for 2024
First-Time Home Buyer Government Programs for 2024
Government loans for first-time home buyers
There are several government loan options that are worth exploring if you need a little extra help qualifying for a mortgage:
- FHA loan: 580 credit score, 3.5% down
- HomeReady and Home Possible: 620-660 credit score, 3% down
- VA loan: 580-620 credit score, 0% down
- USDA loan: 640 credit score, 0% down
FHA home loan
FHA loans can help if you can’t afford a traditional 20% down payment or have a less-than-perfect credit score.
You can put down as little as 3.5% at closing with an FHA loan. These loans have more flexible underwriting standards and are insured by the Federal Housing Administration and issued by an FHA-approved lender.
- Credit score: FICO score over 580
- Loan limit: Current FHA loan limit for most single-family homes is $498,257
- Upfront mortgage insurance fees: Typically 1.75% of the loan amount, rolled into the loan balance
- Annual mortgage insurance premium: Generally 0.85% of the loan amount, broken into monthly payments
The downside is that, with an FHA loan, you’ll have to pay an upfront mortgage insurance premium along with annual premiums that are paid monthly. This mortgage insurance will usually need to be paid until you pay off your mortgage or refinance into a different loan type.
HomeReady and Home Possible
An FHA loan isn’t the only low-down-payment loan option available. Fannie Mae and Freddie Mac — two “government-sponsored enterprises” — each offer a mortgage program with just 3% down. Fannie Mae’s low-down-payment option is called HomeReady and Freddie Mac’s is called Home Possible.
Though these aren’t technically government mortgage loans, they offer many similar benefits, such as flexible credit score and income guidelines. They also have reduced private mortgage insurance (PMI) premiums, which leads to lower monthly mortgage payments.
Unlike FHA loans, these two first-time home buyer government programs do not require refinancing to remove mortgage insurance.”
VA home loan
A VA loan is arguably the most generous government-backed loan available, but you have to be an active duty service member, veteran, surviving spouse, or other eligible applicant to qualify.
What makes this loan different from many others is it requires no down payment and no monthly mortgage insurance. VA loans are provided by private lenders, with the Department of Veterans Affairs guaranteeing a portion of the loan. This makes it possible for the lender to offer more favorable terms and interest rates, with no minimum credit score required.
- Credit score: No official minimum, but most lenders require FICO scores of 580-620
- Loan limit: Often limited to Fannie Mae/Freddie Mac conforming loan limits, current limit for most areas is around $766,550
- Funding/underwriting fee: Upfront funding fee between 2.3% and 3.6% depending on down payment and loan purpose. Typically rolled into the loan amount
- Must be a primary residence: You can’t use a VA loan to buy a vacation home or investment property
You will have to pay a VA funding fee, which is often between 2.3% and 3.6% of the loan amount. Many home buyers roll the VA funding fee into their mortgage to avoid paying it upfront.
USDA home loan
Backed by the U.S. Department of Housing and Urban Development, the USDA loan is ideal for borrowers with low incomes buying property in rural areas.
This loan program is available to low-to-moderate income buyers in less-populated suburbs of some major cities. As with a VA loan, a USDA loan allows borrowers to finance up to 100%, with zero money down.”
- Credit score: Typically, scores of 640 or higher are needed
- Income limits: Household income cannot exceed 115% of the area median income where you live
- Funding/underwriting fee: Upfront mortgage insurance fee is 1%, which can be financed into your principal balance
- Additional monthly fees: 0.35% of the loan amount per year, paid monthly; this fee gets smaller every year as you pay off more of the loan
- Geographic restrictions: The property must be located in an area designated “rural” by the USDA
To qualify, your household income must meet certain guidelines and the home to be purchased must be in an eligible rural area, as defined by the USDA. However, an estimated 97% of the U.S. landmass qualifies as rural. Use the USDA’s online tool to see if your home is eligible.
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