First-Time Home Buyer Programs You've Never Heard Of (But Should)

When I started house hunting as a first-time buyer, everyone told me about FHA loans with 3.5% down. What nobody mentioned were the dozens of other programs offering grants, down payment assistance, and better loan terms than FHA—without the lifetime mortgage insurance penalty.

I discovered one of these programs completely by accident when a loan officer casually mentioned “HomeReady” in passing. That single conversation saved me over $40,000 in mortgage insurance costs over the life of my loan compared to FHA.

Here are the first-time buyer programs that most people never hear about—but could save you thousands or make homeownership possible years earlier than you thought.

Why Most People Only Know About FHA Loans

FHA loans get all the attention because they’re easy to explain: 3.5% down, 580 credit score minimum, flexible debt-to-income ratios. But here’s what the headlines don’t tell you:

• FHA mortgage insurance never goes away (on loans after 2013 with less than 10% down)
• FHA insurance is expensive (1.75% upfront + 0.55-0.85% annually)
• FHA appraisals are stricter and can kill deals over minor property issues

For many first-time buyers, conventional programs with 3% down offer better long-term value—especially if you have decent credit and stable income.

Fannie Mae HomeReady: The Program Lenders Don’t Always Mention

HomeReady is designed specifically for low-to-moderate income buyers, but the qualification requirements are much more flexible than most people realize.

HomeReady Key Features

• 3% down payment (as low as 3% from your own funds)
• 620 minimum credit score (lower than most conventional programs)
• Flexible income sources: Boarder income, rental income from multi-unit properties, non-borrower household income all count
• Income limits apply: Varies by county, generally 80-100% of area median income
• Lower PMI costs than standard conventional loans
• PMI cancels at 20% equity (unlike FHA’s lifetime MIP)

Real-Life Example

When I bought my first home in 2019, I qualified for HomeReady because:

• My income was $62,000 (below the $68,000 limit in my county)
• I had a 680 credit score
• I put 3% down ($9,000 on a $300,000 home)

My PMI was $142/month with HomeReady vs $186/month with standard conventional—a $44/month savings that added up to $3,960 over the seven years before I removed PMI through appreciation and principal paydown.

If I’d gone FHA instead, I’d be paying $205/month in mortgage insurance forever (unless I refinanced). That’s $2,460 per year—every year—for the entire 30-year loan.

Who Should Consider HomeReady?

• First-time buyers in moderate-cost areas
• Buyers with 620-739 credit scores who don’t qualify for best pricing
• Multi-unit property buyers who can use rental income to qualify
• Buyers with non-traditional income sources (freelancers, side hustles, boarders)

Connect with lenders who offer HomeReady through Browse Lenders to see if you qualify based on your income and county.

Freddie Mac Home Possible: HomeReady’s Cousin

Home Possible is Freddie Mac’s version of HomeReady with similar benefits but slightly different requirements.

Home Possible Key Features

• 3% down payment (as low as 3% from your own funds)
• 660 minimum credit score (slightly higher than HomeReady)
• Income limits: Generally 80% of area median income
• Flexible income sources: Non-borrower household income counts
• Lower PMI costs than standard conventional loans
• PMI cancels at 20% equity

HomeReady vs Home Possible: Which Is Better?

Choose HomeReady if:

• Your credit score is 620-659 (HomeReady allows lower scores)
• You need more flexible income documentation
• Your lender offers better HomeReady pricing

Choose Home Possible if:

• Your credit score is 660+ (Home Possible often has better pricing for higher scores)
• Your lender has better Freddie Mac relationships
• You’re buying a multi-unit property (Home Possible is more flexible with rental income)

Both programs are excellent alternatives to FHA for first-time buyers who meet income limits.

State and Local Down Payment Assistance Programs (The Hidden Gold Mine)

This is where first-time buyers can find serious money—but you have to know where to look.

How State Programs Work

Most states offer first-time buyer programs with:

• Down payment grants: $3,000-$15,000 in free money (doesn’t have to be repaid)
• Down payment loans: 0% interest loans forgiven after 5-10 years
• Reduced interest rates: 0.5-1.0% below market rates
• Closing cost assistance: Additional grants to cover fees

Real-Life State Program Examples

California: CalHFA MyHome Assistance Program

• Assistance amount: 3.5% of purchase price (up to $15,000)
• Eligibility: First-time buyers with income limits
• Loan types: Can combine with FHA, VA, USDA, or conventional
• Repayment: Deferred loan forgiven after staying in home 30 years

Texas: Texas State Affordable Housing Corporation (TSAHC)

• Assistance amount: $15,000-$40,000 depending on program
• Eligibility: First-time buyers meeting income/credit requirements
• Loan types: Conventional, FHA, VA, USDA
• Repayment: Some programs are grants, others are forgivable loans

Illinois: Illinois Housing Development Authority (IHDA)

• Assistance amount: $10,000 grant
• Eligibility: First-time buyers in target areas
• Loan types: Conventional or FHA
• Repayment: Grant (no repayment required)

Florida: Florida Housing Finance Corporation

• Assistance amount: Up to 5% of purchase price
• Eligibility: First-time buyers with income limits
• Loan types: Can layer with FHA or conventional
• Repayment: Second mortgage forgiven over time

Ohio: Ohio Housing Finance Agency

• Assistance amount: $7,500-$20,000
• Eligibility: First-time buyers and repeat buyers in target areas
• Loan types: Works with conventional, FHA, VA
• Repayment: Forgivable loan after 15 years

How to Find Your State’s Programs

1. Google “[Your State] housing finance agency”
2. Visit your state’s HFA website and look for first-time buyer programs
3. Contact approved lenders who participate in state programs (not all lenders do)
4. Check income and purchase price limits for your county

Most state programs have income limits (typically 80-120% of area median income) and purchase price limits (usually aligned with conforming loan limits). But if you qualify, you can stack these programs with low down payment loans for minimal out-of-pocket costs.

Local City and County Programs (Even More Money)

Beyond state programs, many cities and counties offer additional down payment assistance—and you can often stack local + state + federal programs together.

Examples of Local Programs

Chicago: City of Chicago ARO Program

• Assistance: $40,000-$100,000 forgivable loan
• Eligibility: Income limits apply
• Requirement: Must live in home 10 years for full forgiveness

Portland: Portland Housing Bureau Programs

• Assistance: Up to $80,000 in down payment help
• Eligibility: Income limits and first-time buyer status
• Requirement: Varies by program

Philadelphia: Philly First Home

• Assistance: Up to $10,000 grant
• Eligibility: First-time buyers in Philadelphia
• Requirement: Homebuyer education course

How to Find Local Programs

• Google “[Your City] first-time home buyer assistance”
• Contact your city’s housing department
• Ask local lenders who work in your area regularly
• Visit HUD’s local office directory

Local programs often have shorter waitlists and less competition than state programs—but fewer people know about them.

Conventional 97: The 3% Down Program Nobody Talks About

Conventional 97 is a standard Fannie Mae/Freddie Mac program that allows 3% down—but unlike HomeReady and Home Possible, it has no income limits.

Conventional 97 Key Features

• 3% down payment
• 620 minimum credit score
• No income limits (great for higher earners who don’t qualify for HomeReady/Home Possible)
• PMI required until 20% equity
• Available from most lenders

When to Use Conventional 97

• You make too much money to qualify for HomeReady/Home Possible
• You have good credit (680+) and want to avoid FHA
• You want PMI that cancels automatically at 20% equity

If your income exceeds the limits for income-restricted programs, Conventional 97 is your best 3% down option.

How Your Credit Score Affects Program Eligibility

Your middle credit score determines which programs you qualify for and what interest rates you’ll receive.

Program Minimums by Credit Score

• 580-619: FHA only (3.5% down)
• 620-659: HomeReady, FHA, VA, USDA
• 660-679: Home Possible, Conventional 97, FHA
• 680-739: All programs with competitive pricing
• 740+: Best pricing on all programs

If your score is borderline (620-679), improving it by 20-40 points before applying can unlock better programs and save thousands in interest and PMI costs.

Teacher, Police, and Public Service Programs

If you work in public service, you may qualify for special programs with even better terms.

Good Neighbor Next Door (HUD)

• For: Law enforcement, teachers, firefighters, EMTs
• Benefit: 50% discount on HUD-owned homes in revitalization areas
• Requirement: Must live in home 3 years
• Down payment: $100 (yes, really)

Teacher Next Door

• For: Full-time teachers
• Benefit: Down payment assistance grants up to $7,500
• Requirement: Varies by program and state
• Loan types: Works with FHA, VA, conventional

Police Officer Programs

Many cities offer discounted homes or down payment assistance for officers who agree to live in high-priority neighborhoods. Check with your city’s police recruitment office.

Military and Veteran Programs: VA Loans

If you’re active military or a veteran, VA loans are hands-down the best program available:

VA Loan Benefits

• $0 down payment (no down payment required)
• No PMI (ever)
• Competitive rates (often 0.25-0.50% lower than conventional)
• Flexible credit requirements (many lenders accept 580+ scores)
• Funding fee: 2.15-3.30% (can be rolled into loan, waived for disabled veterans)

VA loans beat every other program for eligible borrowers. If you qualify for VA, use it.

USDA Loans: $0 Down in Rural and Suburban Areas

USDA loans get overlooked because people assume “rural” means farms and fields. But USDA eligibility covers 97% of U.S. land area—including suburbs of major cities.

USDA Loan Benefits

• $0 down payment
• No PMI (1.0% upfront fee + 0.35% annual fee instead)
• Competitive rates
• Flexible credit requirements (640+ recommended)

USDA Eligibility

• Location: Property must be in USDA-eligible area (check USDA map online)
• Income limits: Typically 115% of area median income
• Property type: Primary residence only (no investment properties)

If you’re buying in a suburb or small town, check USDA eligibility before assuming you don’t qualify. You might be surprised.

How to Actually Get These Programs (Most Lenders Don’t Offer Them)

Here’s the frustrating reality: not all lenders participate in these programs, and many loan officers don’t mention them unless you ask specifically.

How to Find Lenders Who Offer These Programs

1. Search your state HFA’s approved lender list (state programs)
2. Ask lenders directly: “Do you offer HomeReady, Home Possible, and state down payment assistance programs?”
3. Use lender-matching services like Browse Lenders that specialize in first-time buyer programs
4. Work with local credit unions and community banks (often more flexible than big banks)

Don’t assume the first lender you contact knows about or offers these programs. Shop around and ask specifically.

Can You Stack Programs? (Yes, and You Should)

One of the best-kept secrets: you can often combine multiple programs together to minimize out-of-pocket costs.

Real-Life Stacking Example

Scenario: First-time buyer in Illinois purchasing a $250,000 home

Program Stack:

1. Fannie Mae HomeReady: 3% down ($7,500)
2. Illinois IHDA Grant: $10,000 down payment assistance
3. Local county program: $5,000 closing cost assistance

Total out-of-pocket: $0 (assistance covers down payment and closing costs)

Result: Buy a home with no money down, conventional financing, and PMI that cancels at 20% equity—better than FHA in every way.

How to Stack Programs

1. Start with your base loan: HomeReady, Home Possible, Conventional 97, FHA
2. Add state assistance: Check your state HFA for down payment grants/loans
3. Add local assistance: Check city/county programs
4. Work with experienced lenders: Not all lenders know how to layer programs correctly

The key is finding a lender who regularly works with these programs and knows how to combine them legally and effectively.

Common First-Time Buyer Program Myths (Debunked)

Myth 1: “You need perfect credit for conventional 3% down programs”

Reality: HomeReady accepts 620+ scores, and many buyers with 640-680 scores qualify with competitive rates.

Myth 2: “FHA is always the best option for first-time buyers”

Reality: FHA has lifetime mortgage insurance that never cancels (with less than 10% down). Conventional 3% down programs cancel PMI at 20% equity, saving tens of thousands long-term.

Myth 3: “Down payment assistance is only for very low-income buyers”

Reality: Many programs have income limits at 80-120% of area median income—covering middle-class buyers making $60,000-$120,000+ depending on location.

Myth 4: “State programs have years-long waitlists”

Reality: Some programs do have waitlists, but many are first-come, first-served or have quick turnaround times. Apply early and ask about timelines.

How to Get Started with First-Time Buyer Programs

Step 1: Check Your Credit Score

Pull your free credit reports and check your scores. If you’re below 640, focus on improving your score before applying.

Visit Middle Credit Score to understand how your credit affects your mortgage options and what scores you need for each program.

Step 2: Research Your State and Local Programs

• Google “[Your State] housing finance agency”
• Google “[Your City] first-time home buyer assistance”
• Make a list of programs you potentially qualify for

Step 3: Contact Multiple Lenders

Don’t just call one bank. Contact 3-5 lenders and ask:

• “Do you offer Fannie Mae HomeReady and Freddie Mac Home Possible?”
• “What state and local down payment assistance programs do you work with?”
• “Can you help me stack multiple programs together?”

Step 4: Get Pre-Approved with the Best Program

Once you find a lender who offers the programs you qualify for, get pre-approved so you know your budget and can move quickly when you find the right home.

Step 5: Take Required Homebuyer Education

Many state and local programs require homebuyer education courses (usually 6-8 hours online). Complete this early so you’re ready when you apply.

Final Thoughts: Don’t Leave Money on the Table

The biggest mistake first-time buyers make is assuming FHA is their only option—or that they need 20% down to buy a home.

The truth is there are dozens of programs offering:

• 3% down conventional loans with cancellable PMI
• $0 down VA and USDA loans with no mortgage insurance
• State and local grants worth $5,000-$40,000+ in free money
• Special programs for teachers, police, and public service workers

But you have to know these programs exist and find lenders who actually offer them.

Start by researching your state’s housing finance agency, checking your credit score at Middle Credit Score, and connecting with lenders through Browse Lenders who specialize in first-time buyer programs.

The program that saves you tens of thousands of dollars might be one conversation away—but only if you ask about it.