That distant dream of owning a home may be closer than you think.

4 minute read

Becoming a homeowner is a quintessential part of the American Dream. Fulfilling that dream can be challenging for millennials. With steep rental rates that make it difficult to set aside money for a home down payment, skyrocketing housing prices, and the 2008 recession, buying a home may not feel possible. Fortunately, there are programs available to first-time homebuyers to overcome that challenge.

Before you start searching the housing market for your perfect home, it’s important to do your research to make your home a sound investment. Take a look at our breakdown of the top five first homebuyer programs available for millennials to see if one is the right option for you.

Fannie Mae Freddie MacFannie Mae/Freddie Mac

Both Fannie Mae and Freddie Mac offer a number of options for first-time buyers. Through their HomeReady® Mortgage plan, Fannie Mae offers low down payments for low-income borrowers with a credit score of at least 620. [1] The Freddie Mac Home Possible® Mortgage gives first-time homebuyers a similar option. [2]

While banks typically require a more significant down payment – as much as 20% – the Fannie Mae and Freddie Mac programs only require 3%. That’s a huge break for millennials who may find it difficult to save large amounts of money while paying student loans and rent. Both programs do not require prospective buyers to have large incomes. The plans are not limited geographically, making them available to millennials nationwide.

Freddie Mac also has the Super Conforming Mortgage, which helps first-time buyers purchasing in high-cost areas. The Freddie Mac Fixed-rate mortgage option is available to first-time buyers and current homeowners. The fixed-rate plan sets a stable monthly payment schedule for the duration of your loan. That means you won’t find your mortgage affected by dips or hikes in financial markets.

FHA Section 203(k)FHA Section 203(k)

For prospective buyers looking to give a home new life, 203(K) Rehab Mortgage Insurance allows buyers to pay for a home – and pay for the cost of needed upgrades – through a single loan. [3] That means you can get started fixing up your dream home right away instead of having to save for future improvements or needing to take out another line of credit.

For consideration, you will need to submit an application through an FHA approved lender and make sure the home you buy is at least one year old. It covers a variety of alterations from minor to total rehabilitation.

USDA loan form and documents on a tableUSDA

First-time buyers living in a community with a population below 35,000 people may be eligible for a loan. The United States Development of Agriculture offers a program to assist low-income applicants in purchasing safe housing in eligible rural areas with payment assistance. [4]

Also known as Section 502 Direct Loan Program, applicants must meet a number of criteria, such as being without safe and sanitary housing and being unable to get a loan from other resources. The homes must also be 2,000 square feet or less and not exceed the set market value for the area.

VA Loan Veterans Affair ConceptVA Loan

Military veterans have additional options to secure financing without a significant down payment. [5] The VA guaranteed mortgage offers no money down for qualified buyers as well as not requiring private mortgage insurance.

Veterans who are able to make a down payment receive benefits as well. VA loan borrowers who make at least a 5% down payment reduce their VA Funding Fees, which usually cost about 2.15%, to 1.5%. If you put down 10%, the fee goes even lower.

To apply for these benefits, veterans will need to work with a VA approved lender.

Energy Efficient MortgageEnergy Efficient Mortgage

If you’re a first-time homebuyer who is also passionate about sustainability and protecting the environment, an Energy Efficient Mortgage can offer the best of both worlds. [6] This federally recognized mortgage offers benefits to buyers who purchase a home that is energy efficient or one that can be made more efficient with improvements. Buyers can qualify for a larger home, increase the potential resale value of their home and save in future utility payments.

To be considered for a loan, you will need to complete a home energy assessment on your prospective home. Your mortgage lender will use that information to determine your total savings.

Ultimately, when it comes to making the financial investment in purchasing your first home, there are a lot of factors to consider. It isn’t always easy to know which one is best for you. It’s never too soon to reach out to an experienced real estate agent for advice to help you make that dream of owning a home a reality – and without breaking the bank.

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About the Author

Ben Mizes

Ben Mizes

Ben Mizes is the co-founder and CEO of Clever Real Estate, the free online service that connects you with top agents to save thousands on commission. He's an active real estate investor with 22 units in St. Louis and a licensed agent in Missouri. Ben enjoys writing about real estate, investing, personal finance, and financial freedom.

Published by Debt.com, LLC