First-Time Home Buyer Conforming Mortgage Programs
Pros
Low down payment requirement
Multiple loan styles available
No credit necessary for certain loans
Cons
Higher interest rates than other federal programs
Eligibility
Cannot earn more than location-specific income requirements unless you’re buying home in low-income census tract.
Best For
Anyone looking for a low down payment loan, but doesn’t qualify for any other federal options
Conforming Mortgages – Freddie Mac and Fannie Mae government-sponsored mortgage providers offer a few different loans for first-time homebuyers.
The HomeReady® loan from Fannie Mae, for one, requires down payments as low as 3%. That makes it a great choice for anyone who’s strapped for cash, has a credit score of at least 620 and makes an income at or near the U.S. median. With a HomeReady® loan, you must have private mortgage insurance at the time of purchase. Once you’ve accrued 20% equity in your new home, you can cancel it.
One of the more popular Freddie Mac mortgages is the 97% LTV Home Possible loan. LTV stands for loan-to-value, meaning down payments are 3% here.
You don’t need a strong credit history to qualify for a Home Possible loan and you can choose both the length and terms of the loan. It also has that cancelable private mortgage insurance we talked about above. Perhaps best of all, you won’t need a strong (or any) credit history to qualify. The Home Possible Advantage mortgage is essentially the same, except it has credit requirements and only comes in fixed-rate variations.
First-Time Home Buyer FHA Mortgage Program
| Pros | Low down payment requirements Low credit scores accepted |
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| Cons | Higher down payments needed for those with a low credit score | |
| Eligibility | Credit score of at least 620 | |
| Best For | Anyone that doesn’t have a perfect credit history or sufficient funds for a down payment |
The Federal Housing Administration backs FHA loans. A great option for anyone who lacks adequate savings, FHA loans generally require a 3.5% down payment. Consider that standard mortgages require 20% down and you’ll realize what a substantial benefit that is.
To receive this perk in its full glory, you must have a credit score of 620 at this time. If your credit score is closer to 620, you could need to make a down payment of up to 3.5% of your home’s value. Still not too shabby compared to 20%. In fact, even with the credit score requirement, an FHA loan is one of the easiest federal programs to qualify for.
First-Time Home Buyer USDA Mortgage Program
| Pros | No down payment requirement for those with decent credit scores Low credit scores accepted |
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| Cons | Only available to those that don’t qualify for a conventional mortgage | |
| Eligibility | Cannot earn more than 115% of the adjusted U.S. median in most cases Home must be in an eligible rural area |
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| Best For | Low- to mid-income individuals willing to live in the country |
The United States Department of Agriculture (USDA) sponsors “Section 502 Single Family Housing Guaranteed Loan Program,” better known as USDA mortgages. USDA mortgages attract new homebuyers to less populous areas of the country, whether they be rural or semi-rural.
Borrowers must earn less than 115% of the U.S. median income and prove that they are unable to secure a conventional mortgage in order to secure a USDA loan. Depending on your credit score, you might not have to pay any down payment at all. If your score falls a bit lower on the scale, you may have to pay a down payment around 10% of your home’s value.
First-Time Home Buyer Veterans [ aka VA ] Mortgage Program
| Pros | Loan coverage up to 100% of your home’s value No private mortgage insurance requirement Usually comes with lower closing costs |
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| Cons | Must pay VA fee Long application process |
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| Eligibility | Current or former military members, spouses, or other beneficiaries Credit score of at least 620 |
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| Best For | Veterans with little monthly income or savings | |
The Department of Veterans Affairs insures VA loans, which help veterans without adequate savings or significant income. Depending on your circumstances, a VA loan may not require any down payment at all. Plus, since the government will back part of your risk, you won’t have to get private mortgage insurance (PMI).
While significant, those aren’t the only benefits. VA loans also tend to come with lower closing costs than other mortgages. To qualify for a VA loan, veterans usually need a credit score of at least 620. You also need to pay between 1.25% to 2.4% of your home’s value into the VA fund. The exact amount will depend on how much you put down upfront, if you choose to make a down payment at all.
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