Buying your first home is exciting, but also stressful at times. From wondering if you have good enough credit to feeling unsure about which loan program to use, there are a lot of options to consider.
Even if you have less than stellar credit and can’t make a big down payment, the dream of homeownership is not necessarily out of your reach. There are a number of state and national first time home buyer assistance programs available to help. Take a little time to explore your options and get your home buying process off to a well-informed start.
There are a few acronyms you should be familiar with before you dive in as they will come up repeatedly:
* COE: Certificate of eligibility. A document, which verifies military service history and duty status, is required for all VA loans.
* FHA: Federal Housing Administration. This can refer to the US agency or to the loans they insure, known as FHA loans.
* HUD: United States Department of Housing and Urban Development. This cabinet department is responsible for all national programs and policies related to housing, including fair housing laws, improvement and development.
* MCC: Mortgage Credit Certificate. Designed to help low-income families afford homeownership, an MCC allows buyers to claim a dollar for dollar reduction against their federal tax liability based on their monthly mortgage payments.
* PMI: Private Mortgage Insurance. Sometimes required on conventional loans when the down payment is less than 20%, private mortgage insurance protects the lender should a borrower fail to make payments on their loan.
* TDHCA: Texas Department of Housing and Community Affairs. This state agency oversees affordable housing, community and energy assistance programs, and more.
* TSAHC: Texas State Affordable Housing Corporation. This non-profit organization focuses on assisting low-income families and underserved populations who can’t get acceptable housing options through conventional channels.
* USDA: United States Department of Agriculture. This agency provides leadership on food, agriculture, rural development and related issues and their goal is to help rural Americans thrive. USDA offers loans, known as USDA loans, to buyers in rural areas.
* VA: Department of Veterans Affairs: The VA’s goal is to serve and honor the men and women who have served in the US military through benefits and services. One of their main services is their VA home loan programs, which offer home loans to veterans at low-interest rates with no down payment.
Assistance for First-Time Buyers
First time home buyers in Texas have the benefit of several state-level assistance programs to help them achieve homeownership when battling bad credit or income limitations. Here’s a rundown of the most popular programs.
My First Texas Home
The Texas Department of Housing and Community Affairs (TDHCA)offers this great program, designed to provide first time home buyers with home loans, plus down payment and closing cost assistance of up to 5% of the loan amount. Homebuyers who have not owned a home in the last three years can also qualify for My First Texas Home.
Eligible buyers can secure 30 year fixed rate mortgage loans through one of the participating lenders and can choose from FHA, VA, USDA and conventional loan products.
Eligibility:
* The applicant is a first time home buyer, veteran, or home buyer who has not owned a home within the past three years
* Must meet income limits for your county
* Must meet purchase price limits
* Minimum credit score of 620
* Other requirements may apply
Best For: First time home buyers, veterans or those who haven’t owned a home in the last 3 years with fair credit and a low to mid-level budget.
Texas Mortgage Credit Certificate Program
Also offered by TDHCA, the Texas Mortgage Credit Certification Program (MCC) offers a way to maximize your benefits when you combine it with the My First Texas Home program. Buyers enrolled in the program can receive up to $2000 credit on their federal income taxes so long as they owe on their mortgage and still live in the home. There is no minimum credit score requirement for the MCC program.
Eligibility:
* The applicant is a first time home buyer, veteran, or home buyer who has not owned a home within the past three years
* Must meet income limits
* Must meet purchase price limits
* Other requirements may apply
Texas Mortgage Credit Certificate Program
What is a Mortgage Credit Certificate?
Best For: First time home buyers, veterans, or those who haven’t owned a home in the last 3 years with a low to mid-level budget.
My Choice Texas Program
The My Choice Texas Program is similar to My First Texas Home program, with two major exceptions: it does not have a first time home buyer requirement and cannot be combined with the Texas Mortgage Credit Certificate program.
It still offers 30 year fixed rate mortgage loans through FHA, VA, USDA, and conventional loan products, as well as down payment and closing cost assistance.
Eligibility:
* Qualified home buyers from all professions
* Must meet income limits
* Must meet purchase price limits
* Minimum credit score of 620
* Other requirements may apply
Best For: Buyers with fair credit and a low to mid-level budget.
Texas Bootstrap Loan Program
A unique homebuyer program, the Texas Bootstrap Loan Program was established by the TDHCA to help low-income buyers build their own home, rather than purchase one. Eligible buyers can secure a 0% interest loan of up to $45,000 towards the purchase of property on which to build their own home.
There are quite a few requirements to be eligible for this program, including working with a certified Nonprofit Owner-Builder Housing Provider (NOHP) and performing at least 65% of the necessary labor to build the home yourself. It is not a quick solution to the question of homeownership, but it does provide an opportunity to those who would not otherwise be able to afford it.
Eligibility:
* Working with a certified NOHP (XLSX) to provide at least 65% of the labor necessary to build or rehabilitate the proposed housing
* Has an annual household income no greater than 60% of the state or local median family income.
* Has a Total Debt-to-Income ratio no greater than 45% and has a credit history that indicates reasonable ability and willingness to meet debt obligations
* Has resided in Texas at least six months prior to the date of application
* Successfully completes an Owner-Builder Education Class
Nonprofit Owner-Builder Housing Provider (NOHP) Roster
Best For: Low-income households who do not have other home buying options.
Homes for Texas Heroes
The Texas State Affordable Housing Corporation (TSAHC) created this program to help our community heroes and public servants achieve their dreams of homeownership. Teachers, police officers, firefighters, veterans, and more could qualify for these 30-year fixed interest rate loans as well as down payment assistance.
This program is open to all home buyers, first time or otherwise, statewide through their network of participating lenders. First time home buyers using the Texas Heroes program can also be combined with the Texas Mortgage Credit Certificate program for added savings.
Eligibility:
* Eligible professions include teachers, school librarians, counselors and nurses, police officers, firefighters and EMS personnel, corrections officers, veterans and active military
* Must meet income limits for your county
* Must meet purchase price limits
Homes for Texas Heroes Program
Best For: Homebuyers in the eligible professions with a low to mid-level budget.
Steps for Applying for a First Time Buyer Program
No matter which program you decide to apply for, the home buying process will largely be the same. Knowing the steps ahead of time will help you stay organized and calm.
Step 1: Know Your Finances
Before you start your home buying process, it is important to know your total savings, credit score, and debt to income ratio (DTI). If possible, you should also start saving for a down payment, earnest money, option money (in Texas), and closing costs.
Step 2: Find a Participating Lender
Each Homebuyer program will have a roster of participating lenders. It’s important to find a mortgage broker who has access to assist you with the program(s) you are interested in. Check the participating lender page for each program to determine who to speak to.
Step 3: Prequalify for a Mortgage
Getting prequalified for a mortgage before you even begin looking at homes will set you up for home search success. Pre-approval will tell you exactly how much home you can afford and allow you to narrow your search to only those properties. You can also request a pre-approval letter from your lender so you can move quickly with an offer once you find the home you want to purchase.
Step 4: Find the Home You Want to Buy
The home search is definitely the most enjoyable part of the home buying process and you can enjoy it even more armed with a little knowledge beforehand. First, make sure you know what kinds of properties are eligible for the program you have chosen. Make a list of your“must-haves” and “deal breakers” but be sure to keep your mind open to possibilities you hadn’t already considered.
Discuss your price range and your wishlist with your REALTOR® and they will help you select some properties to view.
Step 5: Make an Offer and Apply for the Loan
Once you have found the home you wish to purchase, your REALTOR® will present your offer to the seller. After it has been negotiated, accepted, and the contract has been written you will need to pay your earnest money (a good faith deposit), option money, and begin the formal mortgage loan application process with your lender.
It’s a good idea to gather all documents you will need for your mortgage application ahead of time. This will save you having to scramble to find them at the last minute. Your mortgage lender will be able to tell you exactly what documents they need, but all mortgages will require:
* W2s/1099s
* Tax statements
* Paystubs
* Bank Statements
* Account information for any funds you plan on using outside of a standard banking institution
* 2 forms of ID
First Time Home Buyer Grants
There are several grant programs in Texas, often offered in conjunction with a mortgage program. These grants, which can range from 3%-6% of the total loan amount, are given as non-repayable funds to help offset the down payment or closing costs. Each program has specific eligibility requirements and grant amounts.
While this is not an exhaustive list, here are the four most popular grants:
* Homes for Texas Heroes Down Payment Assistance: Those eligible for the Homes for Texas Heroes home buyer program could also qualify for a down payment and closing costs assistance grant of 3-5% of the loan amount.
* Homes Sweet Texas Home Down Payment Assistance: Offered by TSAHC to low and moderate-income homebuyers in Texas. Eligible homebuyers who are taking advantage of their 30 year fixed rate mortgage loans can get closing costs assistance grant of 3-5% of the loan amount.
* Hill Country Home Down Payment Assistance: Available to eligible homebuyers in Travis County, including the city of Austin, with an FHA, VA, or USDA loan. Applicants can receive a grant of 4-5% of the loan amount to help pay the down payment or closing costs.
* 5 Star Texas Advantage Program: The Southeast Texas Housing Finance Corporation (SETH) offers eligible buyers a down payment or closing cost assistance grant of up to 6%. This program is offered statewide, except in El Paso, Grand Prairie, and Travis County.
Federal First-Time Home Buyer Programs
The type of mortgage loan you should apply for depends on your needs, credit score and financial situation. Be sure to discuss all of your options with your mortgage lender before deciding which loan is best for you.
FHA Loans
FHA Loans, insured by the Federal Housing Administration, are the go-to loan option for those with a less than ideal credit score and little money for a down payment. Down payments for first time home buyers can be as low as 3.5% with a credit score of at least 580.
Requirements:
* FICO score of at least 580 for 3.5% down payment
* Debt to income ratio of less than 43%
* Mortgage Insurance Premium (MIP) required
* Must be the primary residence for the applicant
* Applicant must have proof of employment and steady income
Best For: Buyers with poor to fair credit who can’t save for a large down payment.
VA Loans
The Department of Veteran’s Affairs offers these mortgage loans to veterans of the US military, their spouses, and dependents. With lower closing costs, highly competitive interest rates, and no down payment, this is an excellent option for veterans and their families. There is a VA funding fee due upfront, but the cost will still be significantly lower than a traditional down payment.
Requirements:
* Applicant must have a Certificate of Eligibility (COE) to verify service history and duty status
* Applicant must be active duty or veteran with an honorable discharge and at least 90 consecutive days of active service during wartime or at least 181 consecutive days of active service during peacetime
* National Guard or Reserve members must have more than six years of service
* Surviving spouses or specific dependents of service members may also qualify
* Must be the primary residence for the applicant
* There is no minimum credit score requirement, but a FICO of at least 620 is ideal
Best For: Veterans with a fair credit score.
Native American Direct Loan (NADL)
Another loan program created by the Department of Veterans Affairs, the NADL is designed specifically to help veterans who are Native American, or the spouse of a Native American, buy or build a home on federal trust land. Eligible applicants can receive a low-interest rate 30-year mortgage with no down payment and low closing costs.
Requirements:
* Applicant must be Native American or the spouse of a Native American
* Applicant must have a Certificate of Eligibility (COE) to verify service history and duty status
* Applicant must be active duty or veteran with an honorable discharge and at least 90 consecutive days of active service during wartime or at least 181 consecutive days of active service during peacetime
* National Guard or Reserve members must have more than six years of service
* Applicant’s tribal government must have a Memorandum of Understanding (MOU) with the program
* Proof of funds and dependable income
* Must be applicants primary residence
Native American Direct Loan Program
Tribes with Memorandums of Understanding
Best For: Native American veterans who wish to buy or build on federal trust lands.
USDA Loans
Insured by the US Department of Agriculture, USDA loans are designed to assist homebuyers in rural or suburban areas. Those looking to purchase a single-family home in an eligible area could qualify for a zero down payment mortgage at a very low-interest rate if they have a credit score of 640 or higher. The program also offers direct loans with subsidized monthly payments to low-income families, as well as home repair loans and grants.
Not all rural or suburban areas qualify, so be sure to check the eligibility of any area you wish to purchase in. There are also income and credit history requirements.
Requirements:
* Applicant must be a US Citizen or permanent resident
* A debt to income ratio less than 41%
* Proof of dependable income for at least 2 years
* Must meet income limits for your county and household size
* Must be purchased in an eligible area
* Must have an acceptable credit history
* There is no minimum credit score, but a FICO of at least 640 is ideal
Best For: Homebuyers buying in suburban or rural areas with low to mid-level income.
Good Neighbor Next Door Program (GNND)
In an effort to attract needed professionals to “revitalization areas”, the Department of Housing and Urban Development (HUD) created the Good Neighbor Next Door Program. Available to police, firefighters, EMTs, and Elementary through high school teachers, it provides a 50% discount on the purchase of a home in one of these areas. Anyone purchasing a home through this program must live in the house as their primary residence for three years but are able to sell it and keep all equity after that time period.
Requirements:
* Applicant must be a law enforcement officer, teacher, firefighter, or emergency medical technician and must directly serve the locality where the home is located.
* Buyer must remain in the home for three years upon purchase
Good Neighbor Next Door Program
Best For: Police, emergency workers, or teachers who live and work in these areas and have low to mid-level income or savings.
Fannie Mae/Freddie Mac
The Federal Housing Finance Agency Fannie Mae and Freddie Mac programs offer guarantees on conventional loans through approved lenders. Both programs offer both fixed-rate and adjustable-rate mortgages with low down payments, though the interest rates offered are often higher than other programs.
Requirements:
* Applicant must have a debt to income ratio of less than 36%
* Applicant must have a FICO score of at least 620 for fixed-rate loans and 640 for adjustable rate mortgages
* Must meet purchase price limits for the area
* May require Private Mortgage Insurance
Best For: Homebuyers with fair to good credit who do not qualify for other low down payment programs.
Additional Resources
* Mortgage Calculator: Break down the cost of a mortgage, compare mortgages, and calculate how much you should save to buy a home.
* Debt to Income Ratio Calculator: Calculate your current debt to income ratio, learn what it really means, and explore how to strategically pay off debt to quickly bring your DTI percentage down.
* Eligibility.org: Check your eligibility for VA, FHA, USDA or conventional loans.
* Tips on How to Get a Mortgage with Bad Credit: Learn how to offset bad credit with a higher down payment, cash reserves, and more to secure a home loan.
* Homebuyer Education Courses: An overview of 4 of the most popular online homebuyer courses with pricing, subjects covered, and reviews.
The dream of homeownership is achievable for most, thanks to the wealth of homebuyer assistance and mortgage assistance programs available today. Be sure to discuss all of your options with your mortgage lender and your REALTOR® to ensure you are making the best decision possible for you. With a little research and a little work, you could be a homeowner sooner than you think.
Be sure to check out our New Home Essentials Checklist for great ideas on what to buy for your new place.
