What is a first-time homebuyer loan?
Many programs define a “first-time homebuyer” as someone who has not owned a principal residence during the previous three years. Definitions and eligibility requirements can vary by program.
First-time homebuyer programs may offer lower down payment options, flexible eligibility requirements or access to assistance. Depending on eligibility, borrowers may use conventional mortgages, FHA loans, VA loans or USDA loans. State and local programs may also provide down payment or closing cost assistance. Some programs require homebuyer education.
These are still mortgage loans subject to underwriting, program requirements and lender guidelines.
Do I need a special first-time homebuyer loan?
There is not one universal mortgage called a “first-time homebuyer loan.” First-time buyers may qualify for conventional, FHA, VA, USDA or other mortgage programs depending on their finances, property and eligibility. Some programs include features designed for first-time or lower-income buyers, while other loan programs are available to both first-time and repeat buyers.
Types of first-time homebuyer loan products
Understanding the different loan products available can help you compare options based on your financial situation and eligibility.
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Conventional loans
Certain conventional loan programs may allow eligible borrowers to make a down payment as low as 3%. Examples include Fannie Mae HomeReady and Freddie Mac Home Possible, subject to each program’s eligibility requirements. Credit, income, property and other requirements vary by program and underwriting. Private mortgage insurance (PMI) generally applies when a conventional borrower puts less than 20% down.
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FHA loans
FHA loans are insured by the Federal Housing Administration and may allow down payments as low as 3.5% for eligible borrowers. FHA guidelines can accommodate a range of borrower credit profiles, but minimum credit score and other requirements may vary based on lender guidelines and borrower circumstances. FHA loans require mortgage insurance premiums; how long annual mortgage insurance is required depends in part on the original loan-to-value ratio and loan terms.
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VA loans
VA-backed purchase loans may allow eligible service members, veterans and certain surviving spouses to finance up to 100% of the purchase price with no down payment. VA loans do not require monthly private mortgage insurance. A VA funding fee may apply unless the borrower is exempt, and eligibility and underwriting requirements apply.
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USDA loans
USDA-guaranteed loans may offer 100% financing for eligible borrowers purchasing eligible properties in designated rural areas. Household income and property eligibility requirements apply, along with other program and lender guidelines.
First-time homebuyer grants and down payment assistance programs
Down payment assistance (DPA) may be available through state housing finance agencies, local governments, housing organizations and lender programs. Depending on the program, assistance may be structured as a grant, forgivable loan, deferred-payment loan or repayable second mortgage. Eligibility may depend on factors such as income, property location, purchase price, occupancy, loan type and completion of homebuyer education.
CCM Smart Start down payment assistance
CCM Smart Start may provide down payment assistance for qualified borrowers using eligible conventional financing. Program assistance and maximum benefit amounts vary based on borrower eligibility, including applicable income requirements.
- At least one occupying borrower must be a first-time homebuyer.
- Household income limits apply based on Area Median Income (AMI).
- The property must be used as a primary residence.
The program applies to qualifying conventional home loans and may not be combined with certain other promotions.
CCM Zero Down Payment Mortgage
CCM ZeroDown combines an FHA-insured first mortgage with down payment assistance through a second lien, which may allow qualified borrowers to finance the required down payment. Borrowers remain responsible for applicable closing costs and FHA mortgage insurance.
Eligibility, second-lien terms, rates, repayment requirements and eligible property types are subject to current program guidelines.
First-time homebuyer tax programs
Some state or local housing agencies may offer Mortgage Credit Certificates (MCCs) or other tax-related homebuyer programs to eligible borrowers. Availability and eligibility vary by location, and these programs should not be confused with a universal federal first-time homebuyer tax credit. Borrowers should review current program requirements and consult a qualified tax professional about their individual tax situation.
How first-time homebuyer loans work
The homebuying process generally includes pre-approval, home search, purchase contract, underwriting and closing. Many first-time homebuyer programs require the property to be used as a primary residence. The time from application to closing varies based on the borrower, property, loan program and transaction.
Pre-approval can help establish a working budget and demonstrate to sellers that a lender has reviewed certain financial information. Interest rate, loan term, mortgage insurance, taxes, insurance and other costs can affect the monthly housing payment. A licensed CrossCountry Mortgage loan officer can explain available options and help you compare loan programs.
Who qualifies as a first-time homebuyer?
Qualification depends on the requirements of the specific loan or assistance program. Many programs use the three-year principal-residence standard, which means someone may qualify as a first-time homebuyer even if they owned a home in the past. Definitions and exceptions can vary by program.
Lenders may evaluate factors including:
Credit profile: Credit score and credit history requirements vary by loan program, lender guidelines and underwriting.
Income and employment: Lenders review income, employment and other documentation to determine whether borrowers have sufficient stable and qualifying income. Documentation requirements vary based on employment and income type.
Debt-to-income ratio: Lenders compare qualifying monthly debt obligations with gross monthly income. Acceptable debt-to-income ratios vary by loan program, borrower qualifications and underwriting findings.
Income and purchase price limits: Some assistance programs establish household income, purchase price or other limits based on location and program requirements.
Down payment, closing costs and private mortgage insurance
Your down payment is the amount you contribute toward the purchase price upfront. Closing costs may include expenses such as appraisal, title services, lender charges, prepaid taxes and insurance, and other transaction costs. The amount varies significantly based on the loan, property, location and transaction.
Minimum down payment requirements vary by loan type and borrower eligibility:
| Loan option | Potential minimum down payment | Mortgage insurance/fees | Who it may work for |
|---|---|---|---|
| Conventional | As low as 3% for certain eligible borrowers/programs | PMI generally applies below 20% down | Buyers who meet conventional underwriting and program requirements |
| FHA | As low as 3.5% for eligible borrowers | FHA mortgage insurance applies | Buyers seeking an FHA-insured option with flexible program guidelines |
| VA | 0% for eligible borrowers | No monthly PMI; VA funding fee may apply unless exempt | Eligible service members, veterans and certain surviving spouses |
| USDA | 0% for eligible borrowers and properties | USDA program fees apply | Eligible borrowers purchasing eligible properties in designated rural areas |
| Down payment assistance | Varies by program | Depends on the first mortgage and assistance structure |
For example, 3% down on a $300,000 purchase price equals $9,000. Assistance programs vary: some may provide grants, while others use forgivable, deferred-payment or repayable loans. A loan officer can help estimate the total cash needed to close and explain available assistance.
How to prepare and get pre-approved
Preparing early can help you understand your financial position and the mortgage options that may be available.
- Review your credit reports and credit score, and address inaccuracies if you find them.
- Consider reducing revolving debt and avoid taking on significant new debt before applying.
- Gather requested financial documents, which may include income, employment, asset and tax documentation depending on your circumstances.
- Build a budget that accounts for the mortgage payment as well as taxes, insurance, utilities, maintenance and other homeownership expenses.
During pre-approval, a lender reviews financial information to determine the loan amount and programs for which you may qualify. A pre-approval is not a commitment to lend and remains subject to applicable conditions, underwriting and property requirements.
Frequently asked questions
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Possibly. Many programs consider you a first-time homebuyer if you have not owned a principal residence during the previous three years. Some programs use different definitions or provide exceptions for certain circumstances, so a loan officer can confirm the requirements for a specific program.
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Not necessarily. For many conventional mortgages, borrowers may request PMI cancellation when the principal balance reaches 80% of the home’s original value, subject to applicable requirements. PMI generally terminates automatically when the scheduled principal balance reaches 78% of the home’s original value if applicable requirements are met. Other cancellation options may depend on the loan, investor and servicer.
FHA mortgage insurance follows different rules. For many FHA loans with an original loan-to-value ratio above 90%, annual mortgage insurance generally remains for the mortgage term. Borrowers should review the requirements applicable to their specific loan.
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Some programs may allow assistance to be used toward eligible down payment and/or closing costs, but permitted uses vary by program. Seller concessions or lender credits may also be available subject to loan program requirements and transaction terms. Review the loan estimate and applicable program guidelines with your loan officer.
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Many mortgage programs allow eligible gift funds to be used toward a down payment or certain closing costs. The permitted source of the gift, documentation requirements and how the funds may be used vary by loan program and borrower circumstances. A loan officer can explain the requirements that apply to a specific mortgage.
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A higher debt-to-income ratio does not necessarily mean automatic denial. Eligibility depends on the loan program, underwriting findings and the borrower’s overall financial profile. Reducing qualifying debt or considering a lower purchase price may improve qualification. A loan officer can review available options based on your circumstances.
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You can speak with a loan officer before you are ready to make an offer. Starting early may give you time to review credit, build savings, understand potential costs and explore available loan or assistance programs. An early conversation does not obligate you to buy a home or select a particular program.
