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First-time home buyer programs: Everything you need to know

Yahoo Personal Finance· Getty Images
Updated 5 min read

For many first-time home buyers searching for their dream home, the home buying process can be complicated and expensive. With high home prices and mortgage rates, buying a first home may seem out of reach for many. Fortunately, there are programs in every state and many localities designed to help first-time home buyers overcome some of the financial hurdles keeping them from home ownership.

Follow along to find out more about state and local first-time home buyer programs, where to find them, and how you can qualify.

Learn more: What is the Good Neighbor Next Door program, and who qualifies?

State and local first-time home buyer programs are specifically designed to increase the accessibility and affordability of homeownership for first-time home buyers.

These innovative programs can offer closing cost and down payment assistance, reduced mortgage rates, and more to help first-time home buyers save money on one of the most significant financial transactions of their lives. They also provide even more assistance through invaluable educational resources.

Read more: What you need to know about the first-time home buyer tax credit

The most common sources for first-time home buyer programs at the state level are Housing Finance Agencies (HFAs). These state-chartered authorities operate in every state of the union to bring residents affordable housing opportunities. HFA programs typically focus on low and middle-income residents as well as special groups like first-time home buyers, veterans, those with disabilities, and people experiencing homelessness.

While HFAs typically set the eligibility criteria for their first-time home buyer programs, they do not provide home loans. Instead, they give borrowers the assistance they need to work with approved private participating lenders that administer the loans.

HFAs are not the only source for first-time home buyer programs at the state and local levels. County and municipal government agencies may also assist directly through their own programs.

For more information on local agencies in every state, visit the Department of Housing and Urban Development's (HUD) website covering local home buying programs.

Your options for first-time home buyer programs vary based on where you live. Read more about options in some of the biggest U.S. states:

The benefits of first-time home buyer programs come in various forms, from much-needed cash to low-interest conventional loans to information you can use for housing decisions for years to come. Below are some of the most common benefits of first-time home buyer programs.

The most direct benefits come in the form of cold, hard cash. Many programs offer first-time home buyer grants — which you do not have to repay — to cover the upfront expenses of buying a home, such as the down payment and closing costs. Down payment assistance programs may also provide a second mortgage loan with low or no interest to cover these upfront costs.

For long-term assistance, some first-time home buyer loan programs offer low-interest-rate loans you can't find elsewhere. For example, first-time homeowners in targeted areas in Connecticut can reduce their interest rate by up to 0.25%.

Mortgage tax credit certificates (MCCs) allow first-time homeowners to reduce their federal taxes based on how much they spend on their mortgage interest. While the percentages vary between states, MCCs provide a tax credit typically worth 20%-40% of the amount first-timers spend on mortgage interest (up to $2,000 per year).

For example, let’s say your state HFA offers a 40% MCC. If you pay $4,000 in interest on your mortgage in a year, the MCC would give you a $1,600 federal tax credit. That is a “dollar for dollar” reduction in your annual tax bill.

While this is a federal tax credit, state HFAs manage the programs that provide these benefits.

First-time home buyer benefits aren't always about the money. State and local programs can also offer invaluable knowledge on the intricacies of the home-buying process. First-time home buyers are often required to complete an educational course to receive benefits.

Dig deeper: Best mortgage lenders for first-time home buyers

It is important to remember that while each first-time home buyer program will have specific eligibility requirements, there are some general requirements for first-time home buyer programs:

  • First-time home buyer definition: Many first-time home buyer programs define "first-time home buyer" as someone who has never owned a home before or has not owned a home within the last three years.

  • Occupancy: Most first-time home buyer programs are designed for primary residences. You will likely be required to live in the home after purchasing it and not use it for other purposes, such as a vacation or rental property.

  • Income: First-time home buyer programs are typically designed for low-income to moderate-income buyers, so your household will have to adhere to income limits to qualify. The limit often depends on the local median income and your household size.

  • Sales price: The program may set a maximum sales price for the home you'd like to buy based on the area's median sales price.

  • Home-buyer educational courses: As mentioned above, HFAs may require you to complete an educational course to qualify for a first-time home buyer program. These helpful lessons can teach you the details of the home buying process, the importance of saving and much more.

  • Credit score: You typically need a minimum credit score of at least 620. This aligns with the minimum score conventional loan lenders look for.

  • Debt-to-income (DTI) ratio: First-time home buyer programs typically require you to have a DTI of 43% or lower, but DTI requirements might vary among state and local programs, and by type of mortgage. You can calculate your DTI by dividing your total monthly debts by your gross monthly income.