If you have always felt like buying a home is an impossibility, these are some of the government homebuyer programs you can take advantage of that will transform those homeowner dreams into a reality. Welcome to homeownership!
FHA Loans
The most well-known homebuyer assistance program is a Federal Housing Administration (FHA) loan. These loans are provided by several government-approved lenders and insured by the FHA. They’re designed to support low-income buyers whose credit scores might be too low to qualify for a standard loan. Depending on a buyer’s credit score, they also allow buyers to pay as little as 3.5% down.
Government Homebuyer Program Qualification Requirements:
- Minimum credit score of 500
- Proof of employment/income
- Debt-to-income ratio under 50%
- Must be primary residence
- No foreclosures in the last three years
- Property must meet FHA’s Minimum Property Standards
Pros:
- Lower than average interest rate
- Down payment as low as 3.5% of purchasing price
- Credit score of at least 580: 3.5% down
- Credit score between 500 and 579: 10% down
- Don’t need to be a first-time homebuyer
Cons:
- Must purchase a Mortgage Insurance Premium (MIP), which includes:
- A percentage sum upfront when you close the loan
- An annual premium that is a percentage of the loan
- Cannot be an investment property
How to Apply:
- You can apply for an FHA loan through several lenders. Search for approved lenders at https://www.hud.gov/lenders.
HUD Homes
When someone forecloses on a home that was purchased with an FHA loan, the property is repossessed by the Department of Housing and Urban Development (HUD) and sold as a HUD home. In the initial phase of a HUD home sale, only buyers who will be using it as a primary residence can bid on the home, but that opens up to investors after it has been on the market for 30 days. Buyers must go through a HUD-registered real estate agent.
Another caveat of HUD homes is whether or not they are FHA-insured. If the property requires up to $5,000 in repairs, the FHA will insure it, but if it requires more than $5,000 in repairs, the FHA will not insure it. This can cause roadblocks in securing financing for the purchase. HUD homes that are FHA-insured qualify for FHA loans, but those that are uninsured need to be financed by different lenders.
Government Homebuyer Program Qualification Requirements:
- Must be primary residence for one year (if buying in the initial 30-day sale window)
- Must not have purchased a HUD home in the last two years
- Must go through a HUD-registered agent
Pros:
- Usually listed below market value
- Lower closing costs
- Steep discounts for certain occupations (see Good Neighbor Next Door Program)
Cons:
- Sold “as-is” and many HUD homes are in poor condition
- Longer closing
- May be difficult to secure financing if property is not FHA-insured
How to Apply:
- Buyers can search for HUD homes at https://www.hudhomestore.com/Home/Index.aspx
- If you’re interested in bidding on a HUD home, search for HUD-registered brokers at https://www.hudhomestore.com/Listing/BrokerSearch.aspx
HUD Good Neighbor Next Door Program
In certain revitalization areas—neighborhoods designated by HUD to need economic and community development—HUD offers a program designed to make buying a HUD home even more affordable for police officers, teachers, fire fighters, and emergency medical technicians. The Good Neighbor Next Door (GNND) program sets aside certain single-family HUD homes for seven days and allows people in these occupations to buy them for 50% off the market value.
They require GNND participants to sign a second “silent” mortgage for the 50% discount that does not require any interest payments as long as the buyer lives in the property for at least three years. Once the three years is up, the second mortgage is forgiven.
Qualification Requirements:
- Must meet the requirements for a police officer, teacher between kindergarten and grade 12, firefighter, or emergency medical technician
- Must be primary residence for three years
- Must be located in a revitalization area
- Must go through a HUD-registered agent
Pros:
- Steep discounts
Cons:
- Limited availability
- Limited locations
- Must certify tenancy every year for three years
How to Apply:
- Search for listings at https://www.hudhomestore.com/Home/GNND.aspx
- Submit a bid through a HUD-registered broker
VA Home Loan Programs
The Department of Veterans Affairs (VA) helps active service members, veterans, and their surviving spouses secure loans to buy, build, repair, or retain a home by providing a home loan guarantee. A VA loan insures the borrower in the event of missed payments or the threat of foreclosure by agreeing to pay back a portion of the loan. This ensures the borrower receives a favorable rate from lenders. In addition, those who qualify for VA loans can buy a home with no down payment.
Government Homebuyer Program Qualification Requirements:
- Must be primary residence
- Must be an active service member, honorably discharged, or spouse of someone who died in the line of duty
- Exceptions are made for certain types of service. See a complete list at https://www.va.gov/housing-assistance/home-loans/eligibility/
Pros:
- No down payment
- Higher allowable debt-to-income ratio
- Lower interest rates
- Protection against default and foreclosure
- VA-backed refinancing options
Cons:
- Must pay a VA funding fee
How to Apply:
Housing Choice Voucher Homeownership Program
The Housing Choice Voucher (HCV) program enables very low-income families, the elderly, and the disabled to afford private, non-subsidized housing by providing government assistance for rent. HUD pays into local public housing agencies (PHA), who then pay a housing subsidy (voucher) directly to the landlord on behalf of the tenant. While most HCV participants rent their homes, they can choose to apply for the expanded homeownership program, which allows existing HCV members to use their voucher to buy a home and receive monthly assistance with their homeownership expenses.
Government Homebuyer Program Qualification Requirements:
- Must already be an HCV participant
- Proof of full-time employment for one year (does not apply to the elderly or disabled)
- Minimum income as determined by your local PHA (usually federal minimum wage $7.25/hr) (does not apply to the elderly or disabled)
- First-time hombuyer
- Must be primary residence
- Applies only to approved single-family residences
- Attend pre-assistance homeownership and housing counseling program as required by PHA
- Meet homeowner obligations
- Meet any additional requirements determined by local PHA
Pros:
- Creates a path to homeownership for very low income and public housing residents
- Able to work with any agent and lender
Cons:
- Stringent requirements
- Can only be used once (first-time buyer)
How to Apply:
- Contact your local PHA to see if they participate at https://www.hud.gov/program_offices/public_indian_housing/pha/contacts
First-Time Homebuyer Grants and State Programs
In addition to federal government homebuyer programs, there are many state and local assistance programs available to both first-time and repeat homebuyers. These programs can provide assistance on everything from down payments and closing costs to renovations and repairs. For example, in California, the California Housing Finance Authority provides several government-backed and conventional loans for low-income and first-time buyers as well as a down payment assistance program.
Many of these programs have minimum credit score, employment, and debt-to-income ratio requirements as well as income caps. Simply search for assistance programs in your state and municipality to see if you qualify.
How to Apply:
- Search for local government-sponsored homebuyer assistance programs by state: https://www.hud.gov/topics/rental_assistance/local
- Search for local HUD-approved nonprofits and grants: https://entp.hud.gov/idapp/html/f17npdata.cfm
- Search for all available assistance and grants by state: https://www.hsh.com/finance/mortgage/home-buyer-programs.html
Learn more about government homebuyer programs at https://www.usa.gov/buying-home.
