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First Time Home Buyer Options 2023

This page updated and accurate as of 05/31/2023

2023 first time home buyers

First Time home buyers have some great home loan options available in 2023.  Most of the government mortgage programs like USDA, FHA and VA offer great flexibility with little or no down payment needed.

In the post below we highlight some of the different first-time buyer programs and discuss their advantages. Questions? Please call us 7 days a week at ph: 800-743-7556 or just submit the Info Request Form found on this page.

Updated for 2023:

USDA Rural Housing (502 Guaranteed loan, Rural Development)

USDA financing is perfect for first-time home buyers that have limited money for a down payment. USDA and VA loans are the only programs that still permit 100% financing. USDA has a few restrictions on the property location and the household income which we will look at below.

USDA Mortgage Highlights:

  • No down payment is required. Loans may be for up to 100 percent of appraised value or purchase price, whichever is less. No need to special down payment assistance grants, bond money, etc.  Home buyers can get pre approved and out shopping for a home on the same day.
  • Mortgages are 30-year fixed rate at low market interest rates.
  • Loans may include funds for closing costs, the guarantee fee,  legal fees, title services, cost of establishing an escrow account and other prepaid items, assuming the appraised value is higher than sales price. Sellers may pay all the buyers closing costs as well.
  • Buyers must personally occupy the home following the purchase. The home cannot be a vacation home or investment property.
  • Loans may be made to refinance either existing USDA Rural  Development Guaranteed housing loans or our Section 502 Direct housing loans.
  • For purchase loans, a one-time guarantee fee of 1% of the loan amount is charged to the home buyer, which is typically included in the loan.
  • No maximum loan amount or purchase limit is set by USDA, but there is a maximum allowable household income which becomes the natural limiter for the size of the mortgage. The borrower’s Housing and Debt ratios (covered below) determine the approved loan amount. 

Income and Property Location Restrictions:

  • USDA Rural Housing does have income limits for the household. These limits can vary depending on the county, family size, and dependents, among other things. USDA has an easy family income calculator found here where homebuyers can calculate. Interested applicants can go to the online income calculator and choose their property state, county and answer a few questions in regard to any dependents, elderly or disabled members living in the household. Once complete, the USDA direct and 502 Guaranteed program income limits will be listed.   If you have questions on calculating your income for USDA loan eligibility purposes, please contact us.
  • Home Location – The home you choose to purchase must be located in a USDA-approved “rural defined” location.  The USDA map here will tell you if the property address is eligible or not.  Note, many suburb locations are still approved, do not automatically assume your location is not eligible without checking the map.  As for the approved property types – any single-family home, townhomes, FHA approved condo that is located in the USDA approved zone and in overall good repair.  Mobile and Manufactured homes are not eligible. Vacant land, large acreage or building on your own land is not permitted.

USDA Loan Qualifying Requirements:

  • Buyers will need to ensure they have a credit score of 620 or above.
  • Debt to Income Ratio (DTI) also known as “DTI”  To get it, add the expected mortgage payment plus all the other monthly debt obligations (student loans, revolving credit payments, etc.) together. Then divide the total monthly debt expense by the gross monthly income. This gives lenders an idea about the amount of free-standing cash a borrower has each month under the full weight of all debt obligations. Total Monthly Debt Expense ÷ Gross Monthly Income = Debt to Income Ratio.   For USDA mortgages, qualifying ratios are 29/41. That’s shorthand to say that a borrower should have a Housing Ratio of 29 and a Debt to Income Ratio of 41. Strong compensating factors like high credit scores may justify higher ratios, but in general, the 29/41 USDA guideline is standard.
  • Job History –  Buyers should have a minimum two-year job history with no large unexplained gaps in employment.

FHA Home Loan:

Some homebuyers may not be eligible for USDA financing due to location (not rural approved)  or household income may exceed the limit.  The FHA mortgage is a great government-backed mortgage program to help those first-time buyers that are not USDA eligible.  FHA loans are the easiest type of real estate loan to pre-qualify for assuming you have the required 3.5% down payment needed. The FHA loan requirement guidelines for loan qualification are pretty flexible, below we outlined some details:

FHA Mortgage requirements:

  • 620 credit score required.
  • Two Years of steady employment, with no large gaps.  The same line of work is preferred, but the same employer is not as important.
  • 3.5% down payment is required. Down payment CAN be gifted by another party.
  • The home seller is permitted to pay buyers closing costs.
  • Credit report should be a minimum credit score of 620 or higher or in some cases no credit score at all.
  • Bankruptcy must be at least four years old, with perfect credit since discharge (regardless of how high credit score may be) Foreclosures must be at least five years old, with perfect credit since.
  • Your new mortgage payment should be approximately 30% of your gross (before taxes)  income.

FHA Loan Advantages:

  • Unlike USDA loans, there are no property location requirements or household income limits.
  • Relaxed Credit Guidelines – FHA loans can be done with credit scores down to 620. Sometimes a little lower if the applicant has more money to put down.
  •  Low-Interest Rates and Low Monthly Mortgage Insurance – A distinct advantage of an FHA-insured loan, as compared to a conforming loan, is great interest rates and lower monthly mortgage insurance (MI). Depending on the program, standard FHA loan interest rates are usually better than a conforming 30 Year Fixed loan.
  • Safest ARM Currently Available on the Market – FHA guidelines give you the option of doing hybrid Adjustable Rate Mortgages (ARM), including a 5/1, 3/1 ARM and a one year ARM that has the lowest adjustment caps of any ARM in the industry. In addition, all the common fixed rate options are available as well.
  • Variety of Property Types Allowed – While FHA Guidelines do require that the property be a primary home, they do allow you to purchase condos, planned unit developments, and 1-4 family residences, in which the borrower intends to occupy one part of the multi-unit residence.

VA Home Loans:

To encourage homeownership among returning service members from World War II, the U.S. government established a military mortgage guaranty program in 1944. Since then, the VA Loan program has helped place more than 20 million veterans and their families into an affordable home financing plan.

The VA loan is guaranteed by the federal government and issued by approved lenders and banks across the U.S.  The VA purchase loan program still allows eligible Vets to purchase a home with No Money Down.  The VA mortgage offers many advantages for eligible Vets.  Below we will discuss some VA loan advantages and things you want to know.  

VA Loan Requirments:

  • 620 credit score required.
  • Buyers must occupy the property as a primary residence.
  • Decent credit score – 620+
  • Sufficient income that is documentable
  • Debt to income ratios below limitations
  • Valid Certificate of Eligibility

VA Loan Advantage: 

  • NO DOWNPAYMENT –  Nearly all home loan programs today require you to make a small down payment to buy a home. The VA home loan is an exception. Rather than paying 5, 10, 20% or more of the home’s purchase price upfront in cash, with a VA loan you can finance up to 100 percent of the purchase price.
  • NO MORTGAGE INSURANCE –  If you make a down payment that’s less than 20 percent, you must pay monthly mortgage insurance.  At least that’s the case with all other loans. This insurance referred to as private mortgage insurance (PMI) for a conventional loan or a mortgage insurance premium (MIP) for an FHA loan, protects the lender in the event that you default on your loan. But a VA loan neither a no down payment nor mortgage insurance. The VA loan is the only mortgage program that doesn’t have monthly mortgage insurance when the buyer is putting down less than 20%.
  • U.S. GOVERNMENT BACKED, GUARANTEE – There’s a reason why the VA loan comes with such favorable terms. The federal government guarantees that a portion of the loan will be repaid to the lender even if you’re unable to make monthly payments for whatever reason. This guarantee encourages and enables lenders to offer VA loans with exceptionally attractive terms to borrowers that want them.
  • NO PREPAYMENT PENALTY – A VA loan won’t restrict your right to sell your home if you decide you no longer want to own it. There’s no prepayment penalty or early payoff fee no matter within what time frame you decide to sell your home. In addition, there are no restrictions regarding a refinance of your VA loan.
  • ABILITY TO SHOP AND COMPARE –  VA loans are not funded or given by the VA. Furthermore, mortgage rates for VA loans aren’t set by the VA itself. Instead, VA loans are offered by VA approved banks, savings-and-loans institutions, credit unions and mortgage lenders – each of which sets its own VA loan rates and fees. This means you can shop around and compare loan offers and still choose the VA loan that works best for your budget.

Other VA Loan Highlights: 

  • Easy Qualifying –  Like all mortgage types, VA loans require specific documentation, acceptable credit history and sufficient income to make your monthly payments. But, as compared to other loan programs, VA loan guidelines tend to be more flexible. This is made possible because of the VA loan guaranty. The Department of Veterans Affairs genuinely wants to make it easier for you to buy a home or refinance.
  • Low Closing Costs – The VA limits the closing costs lenders can charge to VA loan applicants. This is another way that a VA loan can be more affordable than other types of loans. Money saved can be used for furniture, moving costs, home improvements or anything else. VA also has certain “non-allowable” closing costs the home seller must pay.

Home buyers that have questions about any of the 2023 First Time Buyer Programs can reach out to us by calling Ph: 800-743-7556 or just submit the Info Request Form for fast service.  We are happy to assist buyers nationwide including:

Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming