7 Loan Options: Which Is Best for a First-time Homebuyer?


Today, you can find numerous programs and loan options to help buy your dream house, making your first purchase easier. Most of them aim to help with closing charges and down payments. Below are seven of the loan options, programs, and national grants for first-time homebuyers. Look for the financing option that helps you buy your dream house without having to pay for a 20% downpayment.


If you’re from the middle class, you can apply for the financing option offered by the US Department of Agriculture. It’s your best bet if you’re planning to buy a house in a USDA-accredited rural area. You can receive up to 100% financing from the government, but that doesn’t mean you’re stuck buying a property with livestock or a farm. Make sure that your dream house is in a USDA-accredited rural location.

USDA loans also have their income requirements based on your location, making it the best option for people with low to moderate incomes. Usually, you have to build up a credit profile to qualify for an efficient application process. Or you need to present a few more documents that support your financial background to get approved.

Good Neighbor Next Door

It’s a first-time homebuyer loan program from the US Department of Housing and Urban Development that caters to the housing needs of teachers, emergency medical practitioners, firefighters, and law enforcement authorities. Qualified applicants can enjoy a 50% discount on a house listed in the “revitalization areas.” Don’t hesitate to visit the website to look for properties available in your area.

Fannie Mae’s HomePath ReadyBuyer Program

Fannie Mae’s HomePath ReadyBuyer Program is a financing option that helps first-time homebuyers with the closing charges. You can avail of a maximum of 3% for those charges, but you have to complete a homebuying education course if you want to enjoy its benefits.

It’s the best option for buyers inclined to buy foreclosed properties acquired by Fannie Mae or who need assistance with the closing charges. Qualified applicants can get up to 3% assistance in the closing charges. Don’t be afraid to look for accredited properties in the area, but your challenge is that the number of available choices is small.

FHA Section 203(K)

FHA Section 203(K) is a program designed for home remodeling projects. You have the option to include the expenses into your primary FHA loan, making it the best choice for people who lack the budget for major renovation projects. It’ll also help you determine your property’s value after the renovations.

Then, you can apply for the funds needed to pay for the renovation and include it in the primary FHA loan. You should also look for a contractor familiar with this program and its guidelines to ensure you get qualified.

Native American Direct Loan (NADL)

It’s a government loan program for Native Americans, providing them with the best option for building, renovating, or buying homes in accredited areas. It mainly aids Native American veterans and their families. You won’t have to comply with mortgage insurance requirements or pay for a downpayment, lowering the closing charges.

You can also get multiple NADL properties, but you can only find them in particular states, so make sure the house you’re planning to buy meets the requirements.

FHA Loan

It’s a loan program supported by the Federal Housing Administration (FHA) for people with a tight budget for downpayment and low credit profile. It comes with less strict credit score qualifications and a lower downpayment. If you’re a first-time homebuyer, you’ll only have to obtain a credit score of 500 with a 10% downpayment or a 580 credit score with a 3.5% downpayment.

But there’s a disadvantage to applying for this program. You’ll have to pay for mortgage insurance if you don’t have a budget for a 20% downpayment. You might be paying for a more expensive program because FHA loans can charge you annual and upfront premiums. FHA loan will not protect you, unlike homeowner’s insurance.

It’ll only protect the mortgage company if you can’t afford to pay for your loan.

VA Loan

It’s a financing option offered by the US Department of Veterans Affairs that shoulders the downpayment for military personnel. Qualified applicants can include active military personnel, veterans, and their qualified family members. It’s an excellent option because you can avail of its low interest rates, unlike the other programs you can find.

It also doesn’t require a downpayment, but you’ll have to make a one-time payment that you can include in your monthly premiums. In other cases, some members get exempted from paying the funding fee. VA loans will also not require mortgage insurance and a minimum credit profile.

Not all mentioned loan programs are available in your area or applicable in your current situation. You might also encounter particular restrictions, including financial needs, so do your research. It’s also best to contact a mortgage professional to determine if you can qualify for one of these programs.

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