5 Loan Options for First-Time Homebuyers

by Keri Shull

Buying your first home is a huge step, but it doesn’t have to be stressful. These days, state and federal programs exist to help home buyers like you secure competitive-rate loans – not to mention they can connect you with plenty of resources on financial incentives, tax credits, and federal assistance that can reduce the cost of your home mortgage.

Read on to discover 5 of the best loan options for buyers seeking to enter the housing market! And don't forget to check out our essential tips for all new home buyers.

Federal Housing Administration (FHA)

FHA loans are perfect for first-time buyers who don’t have a large nest egg for a down payment, or those who have some dings on their credit records. First-time homebuyers can qualify for these government-backed loans with a minimum credit score of 580 and as little as 3.5% down, or a credit score of 500 to 579 with at least 10% down.

The one catch of FHA loans is that they require mortgage insurance, which involves upfront and annual premiums that drive up your overall borrowing costs. If you’re in a stable financial situation, you’ll want to keep reading to explore other loan options with more favorable terms for qualified borrowers.  

HomeReady and HomePossible

If you have a better credit score than the FHA minimum, you definitely want to consider Fannie Mae’s HomeReady and Freddie Mac’s Home Possible programs, which offer a competitive package of 3% minimum down payment, reduced rates, and private mortgage insurance for certain buyers.

Compared to FHA loans, borrowers can save on mortgage insurance costs as long as they are under the maximum income threshold – $117,200 for most areas in the DMV – or if the home is located in an area with no income limit. The agencies have a live map of qualifying properties that first-time buyers can choose from.

DC Open Doors
DC Open Doors makes homeownership in Washington, DC affordable by offering qualified buyers home purchase loans and down payment assistance. The program offers a non-amortizing down payment assistance loan at 0% interest, as well as below-market interest rates for first trust mortgages.

Qualified first-time and repeat buyers are eligible for the program, and the DC Housing Finance Agency regularly holds informational sessions to help you find out what program is best for you.


Virginia Housing Development Authority (VHDA)

The VHDA was created to help Virginia residents attain quality, affordable housing by working in public-private partnerships with local governments, community service organizations, lenders, and developers. One VHDA program provides eligible homeowners a 2% grant toward their down payment. Another allows buyers to borrow up to 5% of a home’s sale price to cover the down payment and closing costs.

The VHDA also has an extensive resource library that buyers can use to find information about qualifying federal grants to lower their down payment costs and tax burden.

Maryland Mortgage Program (MMP)

The MMP is a state program that provides 30-year fixed-rate home loans to eligible homebuyers in Maryland. Its loan terms are competitive with other loan products on the market. However, what makes MMP unique is that it offers a range of financial incentives and assistance. For many Maryland home buyers like you, that can mean the difference between continuing to rent and having the option to own.

The MMP offers financial assistance on down payments, closing costs, and securing grants. Even better, its Maryland SmartBuy program makes select state-owned homes available for sale, and allows eligible homebuyers to use special MMP financing to pay off their outstanding student debt as part of the home purchase.

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