Here’s Your Guide to Getting Your First Home Loan

Are you thinking of buying your first home? Would you like to buy a home, but aren’t sure you can afford it? Well, as a first-time homebuyer, you have options – and none of them include putting 20 percent down.

First-time homebuyers today can take advantage of multiple government-backed loan programs that require small or no down payments. While buying in a specific area or being an active duty military member or veteran can help you qualify for a home loan, you can get a loan with as little as three percent down even if you don’t meet those qualifications.

Government-Backed Loans Make It Easier to Buy Your First Home

Many first-time homebuyers are able to qualify for government-backed loans like the Federal Housing Administration (FHA) loan, the U.S. Department of Agriculture (USDA) loan, or the Department of Veterans Affairs (VA) loan. The government insures these loans, so the risk to lenders is mitigated, and lenders can afford to lend to borrowers with lower credit scores and with less money down.

You can get an FHA loan with as little as 3.5 percent down if you have a credit score above 580. If your credit score is below 580 but still above 500, you can get an FHA loan with 10 percent down.

USDA loans and VA loans don’t require any money down, although some lenders may ask for a down payment. You can get a USDA loan for a house in a qualifying area, which is usually an underserved, rural area, although some suburban locations do qualify. You need a minimum credit score of 640 to qualify for a USDA loan.

To get a VA home loan, you need to be an active-duty service member, veteran, or qualifying spouse (in order to qualify as a spouse, your spouse must have been killed in the line of duty or died of a disability sustained during service). VA loans also don’t require a down payment, although some lenders may ask for one. You also don’t need to meet a minimum credit score to qualify, although some lenders may require one.

Conventional Loans Are Available with Just Three Percent Down

You don’t need a 20 percent down payment anymore to qualify for a conventional home loan. Fannie Mae now offers conventional home loans to borrowers with credit scores of at least 620, with as little as three percent down. You’ll have to get private mortgage insurance (PMI) if you put down less than 20 percent, but once you have built up 20 percent of your loan value in equity, you can cancel the PMI.

Fannie Mae and Freddie Mac also run home loan programs to help lower-income borrowers get into homes. There’s the Freddie Mac Home Possible loan, which requires three percent down and a credit score of 660. If you want to buy in an underserved area and have an income less than 80 percent of the average income for the area, you can qualify for a Home Possible loan. The Fannie Mae HomeReady loan is available to borrowers with a credit score of 620 and three percent down, but you have to take a homeowner education course to qualify.

You May Qualify for Special HUD Programs

Are you a pre-K through 12 teacher, a firefighter, a law enforcement officer, or an emergency medical technician? Then you might qualify for the U.S. Department of Housing and Urban Development (HUD)’s Good Neighbor Next Door loan. The Good Neighbor Next Door loan lets you buy a foreclosed home in an approved area with a 500 credit score and as little as $100 down. If you live in the house for three years, you’ll get a 50 percent discount off the list price of the home.

You May Qualify for an Energy Efficient Mortgage Loan

An Energy Efficient Mortgage (EEM) can be combined with another loan, like an FHA loan or a VA loan, to help you afford home improvements that will make your home more energy-efficient. You don’t need to requalify or make a larger down payment in order to qualify for an EEM. You’ll need to have an energy assessment performed on the home in order to qualify.

Buying your first home can feel overwhelming, especially if you don’t have a lot of money for a down payment. Take advantage of one of the many programs available to help first-time buyers get into homes of their own. You’ll be settling into your very own place sooner than you can imagine.