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First-Time Homebuyer Mortgage Programs

First-Time Homebuyer Mortgage Programs and How They Work

As a first-time homebuyer, you may be wondering what options are available to you. On this chapter of the Ultimate Guide to Home Buying, you will discover many options including down payment assistance.

For the purposes of this guide, I am listing all programs that can assist you with a home purchase, not just programs only classified for first-time homebuyers. Keep this in mind as you navigate this page.

Need help choosing? This guide is meant to provide you with an overview of home financing programs. Part of my job as a loan officer is to learn more about your homeownership goals, financial history and income to make loan program recommendations that are the best fit for your needs. Please do not hesitate to call and allow me to answer your questions and/or concerns.

Below, you will find many options that are made available to help you get into your first home. Buying a home will likely be one of your largest investments. Understanding the various home loan programs will help you understand your mortgage options, down payment costs and so much more!

VA Home Loan

Are you a Veteran? Service member? 

If you meet VA home loan eligibility requirements for a VA-backed loan, the VA home loan solution is likely your best choice as a First-Time Homebuyer.

VA home loan benefits for first-time homebuyers include:

  • 100% financing available.
  • Low or no funding fee requirement (can be financed).
  • No monthly mortgage insurance.
  • Lower overall closing costs.
  • Low interest rates.
  • No first-time homebuyer requirements.
  • No income limit.

If you are unsure if you qualify for a VA Home Loan, please give me a call. I am happy to review your Certificate of Eligibility (COE). Unsure? You may download your VA benefit letters or if you’d like to submit a loan application, we may be able to retrieve your COE for you.

If your funds are low, want to finance as much as possible and you are VA home loan eligible, this program is likely the best home loan program choice for you.

USDA Rural Homebuyer Program

This is one of my favorite loan programs for those that are not Veterans because it allows up to 100% financing of your home purchase when buying in designated rural areas.

Interested in buying in Utah? I have Utah home loan maps available on my USDA home loan solution page that highlight non-rural areas. The areas outside of the yellow highlights are available for this mortgage program.

Here’s the benefits of a USDA Rural home loan:

  • 100% financing available.
  • 1% Up-Front Guarantee Fee.
  • Low monthly mortgage insurance (life of loan).
  • Lower overall closing costs.
  • Designed to help lower-income home buyers.
  • No first-time homebuyer requirements.
  • Lower debt-to-income ratios allowed.
  • Only available in rural areas.
  • Generous income limit.

The most common reason I find my clients ineligible for this program is the home purchase location. The second most common reason? The borrower may have too much monthly debt obligation to fit them within the lower debt-to-income limits this program allows.

For borrowers that have a low-debt profile and income that is not over the income limit, this is a fantastic home loan option! Call me to discuss this option if you are interested.

What does LTV mean? The Loan-to-Value (LTV) ratio is a measure comparing the amount of your mortgage with the appraised value of the property. The higher your down payment, the lower your LTV ratio.

Conventional Mortgage Examples:
$300,000 appraised value x 97% LTV = $291,000 max loan amount.
$300,000 appraised value x 95% LTV = $285,000 max loan amount.

FHA Mortgage Example:
$300,000 appraised value x 96.5% LTV = $289,500 loan plus you are able to finance the required FHA Mortgage Insurance Premium.

Conventional Max 97% Loan to Value

There are multiple 97% LTV Conventional homebuyer solutions available with different requirements for those with limited down payment funds to purchase a home. What these programs offer is the ability to finance up to 97% of the value of the home with the remaining as down payment required.

Interested in seeing the Conventional loan limits by state and county? See my Conventional loan limits for Utah or my Conventional loan limits for California page.  These pages are updated annually when new loan limits are published.

Fannie Mae HomeReady

  • 97% loan-to-value financing maximum (remaining as down payment).
  • 97% LTV requires single-unit residence purchases.
  • No first-time homebuyer requirement.
  • Mortgage insurance required until 80% LTV reached.
  • Lower MI cost compared to the standard 97% loan option.
  • Requires one borrower to take a homebuyer education course.
  • Non-Occupying Co-Borrower allowed up to 95% LTV.
  • Income Limit: 80% Area Median Income.

Freddie Mac Home Possible

A majority of requirements for the Home Possible program are identical to the above HomeReady program.

Home Possible currently offers better down payment requirements for those wanting to purchase 3–4-unit residential properties.

80% Area Median Income (AMI) Note: The AMI is an annually changing number that changes by county and requires lookup. The 80% AMI requirement for HomeReady and Home Possible programs is a common reason why borrowers are ineligible for this option. Talk to me, provide your income, the state and county you are interested in purchasing a home and I’ll compare the limit to your income to see if you are eligible.

Fannie Mae Standard Purchase 97% Max LTV

This homebuyer loan program is a good option for my clients that have limited funds for a down payment but are beyond the eligibility requirements for a HomeReady or Home Possible loan.

Often, you will find the 97% LTV program will have higher mortgage insurance and interest rates when comparing the 95% LTV program which requires a larger down payment.

  • 97% maximum loan-to-value financing (remaining as down payment).
  • Single-unit residences only.
  • 1 borrower must be a first-time homebuyer.
  • Mortgage insurance required until 80% LTV reached.
  • Mortgage insurance often costlier compared to HomeReady or Home Possible.
  • Homebuyer education required if all borrowers first-time homebuyers.
  • Non-Occupying Additional Borrower not allowed.
  • No income limit.

Not a first-time homebuyer as defined by HUD or need a non-occupying additional borrower? Consider the 95% LTV program below.

Conventional 95% LTV Purchase Program

Besides the VA mortgage solution, a 95% Conventional LTV loan is a very popular mortgage program that I highly recommend! This loan is very flexible to fit most homebuyer needs, typically has lower interest rates over the 97% standard purchase program and has lower mortgage insurance cost.

  • 95% loan-to-value financing (remaining as down payment).
  • Single-unit: 95% LTV; 2-Unit 85% LTV; 3-4 Unit 75% LTV.
  • No first-time homebuyer requirement.
  • Mortgage insurance required until 80% LTV reached.
  • MI cost lower than standard 97% LTV purchase program.
  • Homebuyer education not required.
  • Non-Occupying Additional Borrower allowed.
  • No income limit.

The 95% LTV purchase loan program gets even better on MI cost at 90% LTV or 85% LTV. You are able to purchase without mortgage insurance by financing 80% LTV.

FHA Home Loan – 96.5% LTV

First-time homebuyers tend to favor FHA loans because they offer additional flexibilities over other homebuyer programs. FHA loans traditionally offer the most flexibility when it comes to lower credit scores, major credit events like bankruptcy and higher debt-to-income limits to help accommodate higher amounts of student loan, credit card and auto debt.

A FHA loan is a government-backed mortgage insured by the Federal Housing Administration. This government-backing is what allows for the flexibilities that many borrowers need to purchase their first home.

Let’s take a look at what FHA offers:

  • 96.5% loan-to-value financing (remaining as down payment).
  • Loan limits are lower than Conventional (county specific, ask me).
  • A purchase greater than 90% LTV, the Mortgage Insurance Premium (MIP) is for the life of the loan.
  • Up-Front Mortgage Insurance Premium: 1.75%
  • No first-time homebuyer requirement.
  • Homebuyer education not required.
  • Non-Occupying Co-Borrower allowed.
  • Appraisals require a home inspection. Higher fee.
  • No income limit.

After years of doing loan scenarios for clients, it is my experience that borrowers with credit scores below 660 will usually save money on their monthly mortgage payment by going FHA as their home loan choice.

Please talk to me to discuss if FHA is the right direction for your home purchase needs. I’m happy to provide multiple loan scenarios to compare Conventional to FHA and any other program you may be interested in.

FHA with Down Payment Assistance (DPA)

I have several down payment solutions based on the FHA home loan. All of these programs still require the 1.75% Up-Front Mortgage Insurance Premium, the Mortgage Insurance Premium for the life of the loan and additional requirements.

I strongly recommend going with one of the homebuyer programs listed above before choosing a down payment assistance loan. When you go with a down payment assistance program, the interest rates are typically higher, there’s often additional loan costs and fees involved and your overall mortgage payment will be higher.

Understanding that there are clients that simply cannot save up a down payment within a reasonable amount of time, these DPA programs are made available.

Learn More: Utah Down Payment Assistance Solutions
Learn More: California Down Payment Assistance Solutions

Specific DPA programs are provided below to learn more.

Need a DPA solution in Nevada or Arizona? I have programs available!

Overwhelmed? Part of my job as your Mortgage Advisor is to analyze your borrower profile and make suggestions that will accommodate your goals.

Whether you want the absolute lowest payment possible or want a program that requires less up-front saving, I’m here to help provide these solutions.

Let’s talk. I look forward to assisting you through your home financing journey.

Important Disclaimers

The content on this page provides general consumer information. It is not legal advice or regulatory guidance. Scott Buehler updates this information periodically. This information may include links or references to third-party resources or content. Scott Buehler or Guild Mortgage does not endorse the third-party or guarantee the accuracy of this third-party information. There may be other resources that may also serve your needs. Guild Mortgage does not offer real estate services. Contact a licensed Real Estate Agent for real estate information. Guild Mortgage does not provide credit repair services. Guild Mortgage does not offer tax services. Contact your tax preparer for advice on your personal or business taxes.