Learning about government-backed home loans
So, you’re ready to buy your first house and want to know more about your options. Government-backed loans can be a good place to start.
What are government-backed home loans?
Government-backed loans are all about making that dream of homeownership more achievable—and affordable. They’re backed by federal agencies, which can help make lenders more likely to take a chance on you. That’s great news if your credit score isn’t high enough or you if you haven’t had a chance to save a bunch of cash for a big down payment.
Government-backed loans are all about making that dream of homeownership more achievable—and affordable. They’re backed by federal agencies, which can help make lenders more likely to take a chance on you.
Benefits of government home loans for first-time buyers
Government-backed loans for first timers come with some nice benefits, setting them apart from conventional loans issued by financial institutions. These pluses include more flexible requirements for down payment, credit score and debt-to-income ratio. The specifics depend on the type of loan you’re talking about, so let’s dive in.
Types of government-backed home loans
There are three main types of government-backed loans: FHA loans, VA loans and USDA loans. They’re all here to make homeownership a little easier, especially if you’re buying your first home.
FHA loans
Backed by the Federal Housing Administration (FHA), these loans are an option for homeowners with lower credit scores. You can often get by with a score as low as 580 and a down payment as low as 3.5%. Just note, the lower the score, the higher the down payment requirement. That flexibility can help you land the starter home you’re looking for.
VA loans
If you’re a veteran, active service member or a surviving spouse, you’ll want to look into VA loans. Backed by the Department of Veterans Affairs (VA), these loans offer competitive interest rates, flexible credit score requirements and no down payment with a 100% VA loan guarantee benefit. VA loans also don’t require private mortgage insurance (PMI).
USDA home loans
Dreaming of a home in the countryside? Insured by the United States Department of Agriculture (USDA), these loans are designed for people on a budget looking to buy in an eligible rural area. And just like FHA loans, they have more flexible credit score and down payment requirements.
Applying for government-backed home loans
There are a few hoops you’ll have to jump through to get the process rolling. Let’s break it down.
How to apply for an FHA loan?
If you think an FHA loan is right for you, the first step is checking that you meet all the basic requirements. If you check the boxes, the next step is to find an FHA-approved lender and work with them to get that “preapproved” green light until it’s time to fill out an official loan application.
How to apply for a VA loan?
With a VA loan, you’ll need to meet specific service requirements and show that you qualify by getting a Certificate of Eligibility (COE) from the VA. So, your very first step is to request a COE from the Department of Veterans Affairs or a VA-approved lender. Once that’s squared away, you can move on to getting preapproved for your loan.
How to apply for a USDA loan?
First, make sure you meet the income and property requirements. Remember, a USDA loan is an option only if you’re looking to buy in an eligible rural area. Next step, find an approved lender, apply for preapproval (this is where the lender will check your income and the property’s USDA eligibility) and submit that application.
Tips for first-time home buyers
Buying a home—especially that very first one—can feel overwhelming. By keeping these three key points in mind, you can help your search go smoothly.
Be realistic about your budget. It’s always fun to dream big, but it’s important to crunch the numbers and figure out what you can afford. Remember to factor in things like closing costs along with your monthly mortgage payments.
Get preapproved for a mortgage. Preapproval can be your golden ticket to finding your dream home. You’ll get a better handle on how much you can borrow and a leg up on the competition when it comes time to make an offer.
Do your research. Home buyer programs can vary by state and by lender, so make sure you explore all the options available to you.
Look into down payment assistance. Because you’re a first-time home buyer, you may be eligible for down payment assistance through your local or state housing authority, a nonprofit organization or the U.S. Department of Housing and Urban Development.
First-time home buyer programs
Wondering what else is out there for first-time home buyers? Beyond government home loans for first-time buyers, there are different programs you can tap into to make your dream of a new place a reality.
- Freddie Mac and Fannie Mae programs: Fannie Mae's HomeReady and Freddie Mac's Home Possible programs offer a pathway to homeownership with just 3% down payment, even for borrowers with less-than-ideal credit. Both require that applicants earn no more than 80% of the local median income, and both programs allow the use of gifts or grants to cover the down payment. How are these two options different? HomeReady requires a minimum credit score of 620, while Home Possible requires a minimum score of 660.
- State programs for first-time home buyers: These programs vary based on what state you call home, but they can help with your down payment, closing costs, tax credits and more.
- Fixer-upper mortgages, a.k.a. renovation loans: These loans allow buyers to purchase a home and roll the remodeling costs into their mortgage with one convenient monthly payment.
- Citi HomeRun™ Mortgage: This option can be perfect for first timers, even if you don’t have the best credit score. You can put down as little as 3%, you won’t have to pay for mortgage insurance and you’ll get a fixed interest rate so it’s easier to budget for monthly payments.This programs is only available in select markets and may have income limitations.
