Buying your first home can require a sizable amount of cash before you ever make your first mortgage payment. A down payment, closing costs, prepaid taxes, homeowners insurance, moving expenses, and initial repairs can add up quickly. First time home buyer programs may reduce some of those upfront barriers through mortgages with smaller down payment requirements, grants, second mortgages, or other forms of financial help.
The right program depends on factors such as your income, credit profile, location, military service, property type, and available savings. Some programs reduce the amount you need upfront, while others come with income restrictions, mortgage insurance, geographic requirements, or additional fees.
Here are eight options worth comparing before applying for a mortgage.
How Do First Time Home Buyer Programs Work?
First time home buyer programs generally help eligible buyers qualify for financing or reduce the cash required to purchase a primary residence.
There is no single nationwide program that every first-time buyer uses. Instead, buyers may have access to federal mortgage programs, conventional mortgages backed by Fannie Mae or Freddie Mac, and programs administered by state or local housing agencies.
Help can take several forms:
- Mortgages requiring a small down payment
- Loans that permit no down payment for qualified borrowers
- Grants that can reduce upfront expenses
- Second mortgages used toward the initial purchase
- Forgivable loans that may not require repayment after certain conditions are met
- Assistance with eligible purchase expenses
Eligibility varies considerably. Some programs are limited by income or location, while others are available only to veterans, service members, or buyers purchasing qualifying properties.
First Time Home Buyer Programs at a Glance
| Option | Minimum Down Payment | Key Eligibility Factor | Important Cost or Limitation |
|---|---|---|---|
| FHA-insured mortgage | As low as 3.5% | Must meet FHA and lender requirements | Mortgage insurance applies |
| Fannie Mae HomeReady | As low as 3% | Income and other requirements apply | Mortgage insurance may apply |
| Freddie Mac Home Possible | As low as 3% | Income generally limited to 80% of area median income | Mortgage insurance may apply |
| Freddie Mac HomeOne | As low as 3% | At least one borrower must generally be a first-time buyer | Program requirements apply |
| VA-backed purchase loan | Potentially 0% | Eligible veterans, service members, and certain survivors | VA funding fee may apply |
| USDA guaranteed loan | Potentially 0% | Income and property-location requirements | Property must be in an eligible area |
| State housing agency programs | Varies | State and program requirements | Income and purchase-price limits may apply |
| Local assistance | Varies | City, county, employer, or nonprofit requirements | Availability varies by location |
Minimum down payment figures do not represent every expense due at closing. Buyers may still need money for closing expenses, prepaid items, inspections, moving, or other costs.
1. FHA-Insured Mortgages
An FHA-insured mortgage can be one of the first first time home buyer loans worth checking if you have limited savings or a credit profile that makes some conventional products harder to obtain.
The Federal Housing Administration insures these mortgages rather than lending money directly to buyers. You apply through an FHA-approved lender.
HUD states that an FHA down payment can be as low as 3.5% of the purchase price. FHA financing can be used for eligible one- to four-unit properties.
Advantages
- Down payment can be as low as 3.5%
- Credit qualification can be flexible compared with some conventional products
- Eligible funding sources may help cover the required investment
- Available for several eligible property types
Limitations
FHA financing requires mortgage insurance. HUD states that borrowers are responsible for an annual mortgage insurance premium, while the upfront premium can generally be financed into the mortgage.
That means a smaller initial down payment does not automatically make FHA financing the least expensive choice over the full loan term.
Buyers who can qualify for conventional financing should compare the interest rate, mortgage insurance, lender charges, and estimated monthly payment before choosing.
2. Fannie Mae HomeReady
HomeReady is a conventional mortgage from Fannie Mae designed for eligible borrowers who may have lower income or limited cash available for a purchase.
HomeReady allows down payments as low as 3%. Fannie Mae also permits several sources for down payment and purchase expenses, including gifts and eligible grants.
One advantage over FHA financing is the potential treatment of mortgage insurance. Fannie Mae states that borrowers may have an opportunity to cancel mortgage insurance after reaching 20% equity, subject to applicable requirements.
HomeReady may therefore make sense for buyers comparing a low down payment mortgage against an FHA-insured option.
Eligibility rules still apply, so borrowers should confirm current income and underwriting requirements with participating lenders.
3. Freddie Mac Home Possible
Freddie Mac's Home Possible mortgage is another conventional option with a down payment as low as 3%.
Qualifying income is generally limited to 80% of the area median income, according to Freddie Mac. Funds for the down payment can come from several permitted sources, including gifts, grants, employer programs, and secondary financing.
Freddie Mac also states that borrowers can request cancellation of mortgage insurance after reaching 20% equity, subject to applicable requirements.
Who Might Look at Home Possible?
It may be relevant if:
- You meet its income requirements
- You have limited savings available upfront
- You can qualify for conventional financing
- You want to compare conventional mortgage insurance against FHA mortgage insurance
The lowest down payment should not be the only number you compare. Interest rates, insurance costs, lender charges, and the total estimated monthly payment can change the overall cost.
4. Freddie Mac HomeOne
HomeOne is aimed specifically at qualified first-time buyers and permits a down payment as low as 3%.
Freddie Mac describes HomeOne as a conventional option for qualified first-time purchasers, without income or geographic limits associated with the program itself.
This can make HomeOne worth checking for someone who earns too much to meet the income requirement for Home Possible yet still wants a conventional mortgage with a small initial down payment.
A participating lender can determine if you meet the full underwriting and property requirements.
5. VA-Backed Purchase Loans
For eligible veterans, service members, and certain surviving spouses, a VA-backed purchase mortgage can substantially reduce the upfront savings needed for a purchase.
The Department of Veterans Affairs says eligible borrowers can often purchase without a down payment, provided the sales price does not exceed the property's appraised value. VA-backed purchase mortgages also do not require private mortgage insurance or FHA-style mortgage insurance premiums.
Nearly 90% of VA-backed home loans are made without a down payment, according to the VA.
What Does a VA Mortgage Cost?
No down payment does not mean no upfront expenses.
Many borrowers pay a one-time VA funding fee. For purchase mortgages, the current fee for first use with a down payment below 5% is 2.15% of the loan amount. Certain borrowers are exempt, including some veterans receiving compensation for a service-connected disability and qualifying surviving spouses.
The funding fee can generally be financed into the mortgage or paid at closing. Other closing expenses generally cannot be rolled into a VA purchase mortgage.
Eligible buyers should compare VA quotes from several lenders because the VA does not set the interest rate, discount points, or most lender-specific charges.
6. USDA Guaranteed Loans
USDA's Single Family Housing Guaranteed Loan Program can provide 100% financing to qualified buyers purchasing a primary residence in an eligible rural area.
Despite the name, eligible areas can extend beyond what some buyers informally think of as rural. The key question is if the specific property meets USDA's location requirements.
The program also has household income requirements.
USDA states that the program serves eligible low- and moderate-income households and does not require a down payment for qualified borrowers.
Another point worth knowing: USDA's guaranteed program is not restricted to first-time purchasers.
That makes it an alternative for eligible first-time purchasers as well as previous homeowners.
7. State Housing Finance Agency Programs
Federal mortgages are only one source of help. State housing finance agencies frequently administer home buying assistance programs for qualifying residents.
The CFPB specifically advises first-time buyers with low or moderate incomes to ask about mortgages available through their state's housing finance agency.
Program structures vary by state. Assistance may come as:
- A grant
- A second mortgage
- A deferred-payment loan
- A forgivable loan
- Reduced-cost financing
- Funds for eligible purchase expenses
This distinction matters because receiving $10,000 as a grant can have very different long-term consequences from borrowing $10,000 through a second mortgage.
Before accepting assistance, check when repayment is required and what happens if you sell, refinance, move, or pay off your primary mortgage.
8. State and Local Grants and Purchase Assistance
Some buyers may qualify for first time home buyer grants or similar programs administered by state agencies, counties, cities, nonprofits, employers, or other organizations.
HUD confirms that state and local governments may have programs that help buyers with their down payment.
The amount and structure depend heavily on location. Some programs provide a true grant, while others use deferred or forgivable second mortgages.
That difference should be checked before treating advertised assistance as free money.
What Is Down Payment Assistance?
Down payment assistance is financial help designed to reduce the amount an eligible buyer needs to contribute toward the initial purchase.
Common structures include:
| Assistance Type | How It Generally Works | What to Check |
|---|---|---|
| Grant | Funds generally do not require repayment if conditions are met | Eligibility and occupancy rules |
| Second mortgage | Additional loan sits behind the primary mortgage | Interest rate and repayment schedule |
| Deferred loan | Payments may be postponed | When the full balance becomes due |
| Forgivable loan | Balance may be forgiven over time | Required occupancy period |
| Lender credit | Lender contributes toward eligible expenses | Possible effect on rate or other loan terms |
Program names can sound similar while repayment rules differ significantly. Read the program documents before deciding how valuable the advertised assistance actually is.
Can a Program Help With Closing Costs?
Yes, some programs provide closing cost assistance, although availability and eligible expenses vary.
Closing costs are separate from your down payment. The CFPB says closing costs typically range from 2% to 5% of a home's purchase price, excluding the down payment.
On a $300,000 purchase, that general range would equal roughly $6,000 to $15,000.
Actual costs depend on the property, mortgage, lender, location, taxes, insurance, title charges, and other factors.
This is why focusing only on the minimum down payment can leave a buyer short on cash at closing.
How Do You Compare First Time Home Buyer Programs?
Start with the total financial picture rather than automatically choosing the program with the smallest down payment.
Compare these factors across your available choices:
Down Payment
Find out how much cash you must contribute and which funding sources are permitted.
A 3% conventional mortgage and a 3.5% FHA mortgage can produce different insurance expenses and qualification requirements.
Interest Rate
Government backing or a specialized program does not necessarily give every borrower the same rate.
Rates can differ by lender and borrower profile. The VA, for example, specifically advises borrowers to shop among lenders because lenders set their own interest rates and many loan charges.
Mortgage Insurance
Check if mortgage insurance applies, how much it costs, and when it can be removed.
This can create a significant cost difference between FHA and eligible conventional financing over time.
Upfront Fees
Look beyond the down payment. Origination charges, appraisal expenses, title services, prepaid taxes, homeowners insurance, government program fees, and other charges may affect the amount due at closing.
Income Limits
Some programs have income limits, while others do not.
Home Possible, for example, generally limits qualifying income to 80% of area median income.
Property Restrictions
A program may limit eligible property types, locations, purchase prices, or occupancy.
USDA financing requires an eligible rural location, while VA financing requires borrowers to meet VA eligibility requirements and generally occupy the property.
Repayment Rules for Assistance
A $10,000 grant and a $10,000 repayable second mortgage do not have the same financial value.
Check what happens to assistance if you sell or refinance before a required occupancy period ends.
Which Program Could Fit Different Types of Buyers?
There is no single program that fits every first-time purchaser.
If you have limited savings: FHA, HomeReady, Home Possible, and HomeOne may provide relatively small down payment options.
If you're an eligible veteran or service member: A VA-backed purchase mortgage may eliminate the required down payment and monthly mortgage insurance, although a funding fee can apply.
If you're purchasing in an eligible rural area: USDA financing may provide 100% financing if you meet the program's household income and other requirements.
If your income is low or moderate: Check your state housing finance agency alongside federal and conventional mortgage choices.
If your biggest obstacle is upfront cash: State or local assistance may help with a down payment or eligible closing expenses.
Can You Combine a Mortgage Program With Financial Assistance?
Sometimes.
Certain mortgage programs allow eligible funds from grants or secondary financing to cover part of the required upfront contribution.
For example, Fannie Mae says HomeReady can accept eligible grants and Community Seconds, while Freddie Mac says Home Possible permits funds from sources that include grants and secondary financing.
HUD also notes that FHA's required investment may come from acceptable sources that include gifts, second mortgages, and grants through qualifying assistance programs.
Compatibility depends on the mortgage, assistance program, lender, and transaction. Confirm that the programs can be combined before relying on both in your purchase budget.
Are First-Time Buyer Programs Always the Cheapest Choice?
No.
A program can lower the cash needed upfront without producing the lowest long-term borrowing cost.
For example, one mortgage might require less cash at closing yet carry higher mortgage insurance expenses. Another might require a slightly larger initial contribution but allow mortgage insurance to be canceled after certain equity requirements are met.
A grant can reduce your initial expenses, while a repayable second mortgage increases the amount you owe.
The practical way to compare choices is to look at:
- Cash required at closing
- Interest rate
- Monthly principal and interest
- Mortgage insurance
- Program and lender fees
- Assistance repayment requirements
- Estimated total payment
- Long-term borrowing costs
A lender's Loan Estimate can help you compare formal mortgage quotes on a consistent basis.
Frequently Asked Questions
What Qualifies You as a First-Time Home Buyer?
The definition depends on the program. Some programs may classify you as a first-time purchaser even if you owned a home in the past, provided you have not owned a qualifying primary residence during the program's specified period.
Always check the definition used by the specific program rather than assuming previous ownership automatically disqualifies you.
Do First-Time Buyers Need a 20% Down Payment?
No.
Several mortgage options allow qualified buyers to put down far less than 20%. FHA financing can require as little as 3.5%, while HomeReady, Home Possible, and HomeOne can allow down payments as low as 3%. Eligible VA and USDA borrowers may qualify without a down payment.
Putting less than 20% down may affect mortgage insurance, fees, monthly payments, and total borrowing costs.
Are There Federal Grants for Every First-Time Buyer?
No universal federal grant gives every first-time purchaser money toward a home.
Assistance frequently comes through state and local governments, housing finance agencies, lenders, employers, nonprofits, and specialized programs. HUD recommends checking state and local resources for available help.
Can You Qualify With a Lower Income?
Potentially. Several programs specifically serve buyers with low or moderate incomes.
Income limits and underwriting standards differ, though, and qualifying for an assistance program does not automatically mean you qualify for the associated mortgage.
Where Should You Start?
Start by checking the mortgage programs for which you may qualify, then search your state housing finance agency and local housing agencies for additional assistance.
After identifying possible programs, request quotes from several lenders. Compare the interest rate, monthly payment, mortgage insurance, cash required at closing, lender charges, and any repayment requirements tied to financial assistance.
Choosing a First-Time Buyer Program
The best starting point is identifying the financial barrier you are trying to solve.
If your primary issue is the down payment, a low-down-payment conventional or FHA-insured mortgage may help. Eligible veterans and rural buyers may have access to VA or USDA financing with no required down payment. State and local programs may reduce the cash needed for the purchase through grants, secondary financing, or other assistance.
Still, lower upfront costs can come with tradeoffs. Mortgage insurance, funding fees, income restrictions, property requirements, and repayment conditions can change the actual value of a program.
Compare several first time home buyer programs using the same purchase price and estimated loan amount. Looking at both the amount needed at closing and the ongoing monthly cost can give you a much clearer basis for choosing financing that fits your budget.
