Pros and Cons of First-Time Homebuyer Loans

What to Know About First-Time Homebuyer Programs

Two people looking at a house for sale with a real estate agent.

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If you’re a first-time homebuyer, special programs may be available to help you. First-time homebuyer programs provide loan assistance to eligible homebuyers in this category. These programs are available to low- and moderate-income homebuyers, and may provide down payment and closing-cost assistance.

Many such programs are administered at the state, county, and local levels, so the specific terms and requirements can vary, depending on where you live. If you qualify, there are a lot of benefits of using a first-time homebuyer program—but there are some drawbacks you should consider as well.

Key Takeaways

  • First-time homebuyer programs provide loan assistance to homebuyers who meet their qualifications.
  • First-time homebuyer programs are offered at the state and local levels and serve low- to moderate-income borrowers.
  • If you are eligible for a first-time homebuyer program, you could receive a low interest rate, down-payment assistance, help with fees, and the possibility of deferred payments.

Pros and Cons of First-Time Homebuyer Loans

  • First-time homebuyer loans often have lower down-payment requirements.

  • You may qualify for these programs even if you have less-than-ideal credit.

  • Eligible borrowers may receive help with closing costs.

  • Your home will likely need to meet certain minimum property requirements.

  • You may have to pay for private mortgage insurance (PMI).

  • Some loan programs may set income limits to qualify.

Pros Explained

  • Low down payments: First-time homebuyer programs usually come with much lower down-payment requirements. For instance, if you take out a U.S. Department of Agriculture (USDA) loan, there are no down-payment requirements.
  • Lower credit scores accepted: These programs may be an easier way to qualify for a mortgage, especially if you’ve struggled with poor credit. If your credit score is above 500, you’re eligible to apply for a Federal Housing Administration (FHA) loan, for example.
  • Help with closing costs: Some programs also will assist with closing costs. And if you take out an FHA loan, you can use a gift from friends or family to help cover your closing costs.

Cons Explained

  • Minimum property requirements: Many first-time homebuyer programs have minimum property requirements designed to protect the homebuyer and the lender. For example, Veterans Administration (VA) loans come with certain conditions to determine whether a home is safe and structurally sound.
  • May come with mortgage insurance: Although you’ll pay less money in the form of a down payment, you may be required to take out mortgage insurance. When you accept an FHA loan, you’re required to pay an upfront premium and monthly insurance in addition to your mortgage payment.
  • Income limits: To qualify for some of these programs, your household must meet certain income requirements. USDA loans, for one, come with very specific income limits, depending on where you live and how many people are in your household.


You may qualify for certain first-time homebuyer programs allocated for your occupation.

Special programs exist for veterans and public-servant occupations such as teachers, first responders, and doctors. For instance, the Good Neighbor Next Door program provides 50% off the home’s purchase price for teachers, firefighters, and emergency medical technicians (EMTs) willing to live in a targeted revitalization area.

What You Should Consider About First-Time Homebuyer Loans

Buying a home may come with many unexpected costs, and the process may feel overwhelming for first-time homebuyers. However, every state offers some type of first-time homebuyer program that can help you save money on things like your down payment and closing costs.

You can ask your real estate agent or mortgage lender if they know of any first-time homebuyer programs you may be eligible for. You also should check with your employer to see if any programs are available for your profession.

One thing to keep in mind about first-time homebuyer programs is that there will be specific requirements you have to meet to qualify. Some programs require that your income is below a certain limit, while others require you to take a homebuyer education course. Find out what the specific rules are and whether you meet the requirements.

Also consider any additional costs that may come with that program. For example, you may be granted a lower down payment, but you may have to purchase mortgage insurance. So you’ll pay less money upfront, but this will add to your monthly costs.


Also check to see if there are any state or federal tax deductions available for homebuyers. For instance, if you’re married and filing jointly, you can deduct your mortgage insurance costs if your mortgage is worth less than $750,000, or $375,000 if you're married and filing a separate return. There may be additional state or local tax deductions available.

Frequently Asked Questions (FAQs)

How do you qualify for a first-time homebuyer loan?

The eligibility requirements will vary, depending on the program you’re applying for and where you live. But, in general, you’ll need to be a low- to moderate-income first-time homebuyer. You may also need to meet certain credit score requirements. For instance, your credit score must be above 500 to qualify for an FHA loan.

How much of a down payment do you need for a first-time homebuyer loan?

The exact down payment will depend on the program you sign up for and your credit score. For instance, VA loans don’t come with any down-payment requirements as long as the sales price isn’t higher than the home’s appraised value.

But if you sign up for an FHA loan, your down payment could be as low as 3.5% if your credit score is 580 or higher. If your credit score is 500-579, you’ll have to make a 10% down payment because you’re seen as more of a lending risk.


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  1. El Dorado County, California. “First Time Homebuyer Loan Program.”

  2. U.S. Department of Agriculture. “Program Overview,” Page 4.

  3. U.S. Department of Housing and Urban Development. “Section A. Borrower Eligibility Requirements,” Page 4-A-3.

  4. U.S. Department of Housing and Urban Development. “Section B. Acceptable Sources of Borrower Funds,” Page 5-B-10.

  5. U.S. Veterans Administration. “Chapter 12 Minimum Property Requirement,” Page 12-3.

  6. U.S. Department of Housing and Urban Development. “The Guide to Single Family

    Home Mortgage Insurance,” Page 7.

  7. U.S. Department of Agriculture. “Rural Development Single Family Housing Guaranteed Loan Program.”

  8. U.S. Department of Housing and Urban Development. “About Good Neighbor Next Door.”

  9. USA Grant Applications. “First Time Homebuyer Grants.”

  10. U.S. Department of Agriculture. “Welcome to the USDA Income and Property Eligibility Site.”

  11. IRS. “Publication 936 (2021), Home Mortgage Interest Deduction.”

  12. U.S. Veterans Administration. “Purchase Loan.”

  13. Rocket Mortgage. “FHA Loans: Requirements, Loan Limits, and Rates.”

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