Before purchasing your first home, it’s wise to explore first-time homebuyer programs sponsored by federal and state agencies. These programs could help you achieve homeownership faster.
However, it’s easy to become overwhelmed by the various options available. MoneyGeek’s guide covers zero-down-payment, low-down-payment and Oregon-specific homebuyer programs to help you determine what’s best for your particular situation.
What Is a First-Time Homebuyer Program & How Can It Help?
The journey to homeownership involves saving for a down payment. This is the lump sum of money you pay upfront in a real estate transaction. Basically, it’s your contribution toward the purchase, and it is equal to a certain percentage of the home’s total cost.
However, many people struggle with saving for a down payment due to different factors such as rising rents, stagnant wages or existing debts. Fortunately, there are options for financial assistance available for first-time homebuyers.
First-time homebuyer programs can help you afford to become a homeowner through down payment assistance, tax credits or loans with below-market interest rates. Some are backed by federal agencies (USDA loans and VA loans), while others are offered by your state (Oregon Bond Residential Loan Program).
The best first-time homebuyer program for you will depend on your unique needs and situation. For instance, you could apply for a VA loan if you have a military background.
Zero-Down-Payment Loan Programs
There are two government-backed loan programs that don’t require a down payment. These include USDA and VA loans.
The U.S. Department of Agriculture (USDA) makes it easier for low-income homebuyers to achieve homeownership in rural areas through its Rural Development Guaranteed Housing Loan program.
The USDA offers the following programs:
Direct home loans: These loans have interest rates as low as 1% and can be repaid within 33 years, with the possibility to extend to 38 years for very-low-income applicants. Loan guarantees: USDA-approved lenders offer loans at a 30-year fixed rate for new or existing residential properties to be used as permanent residences. Home repair loans: These loans are mainly used for home repairs, improvements or modernization. The USDA offers loans up to $40,000 and grants up to $10,000, which can be combined for up to $50,000 in financial assistance.
To qualify for a USDA loan, Oregon homebuyers must meet income eligibility based on where they live. Furthermore, their prospective properties must be in a rural area with a population below 35,000.
Because they are backed by the U.S. Department of Veterans Affairs, VA loans come with more favorable terms, like a lower interest rate. First-time homebuyers in Oregon can take advantage of this mortgage option if they are service members, veterans or eligible surviving spouses.
Compared to other loans, VA loans have more lenient requirements. They require no down payment and a low minimum credit score. There’s also no need for private mortgage insurance (PMI). The VA backs loans regardless of the home price, meaning there are no loan limits.
When applying for a VA loan, you will be required to submit a valid Certificate of Eligibility (COE). This is the most important document required for VA loans. It verifies to your lender that you are eligible for the VA home loan benefit.
Note that you may not get a COE if you received a dishonorable or bad conduct discharge.
Low-Down-Payment Loan Programs
There are also loan programs that allow Oregon homebuyers to purchase a house with less than a 20% down payment. These include conventional loans and FHA loans.
Fannie and Freddie (Conventional) Loans
Conventional loans are ideal for first-time homebuyers in Oregon with good credit. You can be approved for this financing option with as little as a 3% down payment. However, you will need PMI to protect your lender in the event you default.
Typically, conventional loans that adhere to guidelines established by Freddie Mac or Fannie Mae are called conforming loans. They also conform to the loan limits set annually by the Federal Housing Finance Administration (FHFA). In 2022, the conforming loan limit in most of the continental U.S. is $647,200.
Conforming conventional loans are not sponsored by the government, so they often have stricter requirements. You usually require a minimum credit score of 620 and a debt-to-income ratio of 45% or lower to qualify for this loan.
Note that conforming loans are conventional, but not all conventional loans are conforming. Those that exceed conforming limits are called jumbo loans, and they are generally harder to get.
FHA loans are a good financing option for first-time homebuyers in Oregon with poor credit scores. They are offered by private lenders but are insured by the Federal Housing Administration (FHA).
Requirements for an FHA loan are more relaxed. The minimum down payment is 3.5%, and the minimum credit score requirement is 500.
However, you can only put 3.5% down if your credit score is 580 or higher. The minimum down payment requirement for those with credit scores between 500 and 579 is 10%.
FHA loans have fixed interest rates and 15- or 30-year repayment terms. The maximum loan amounts you can get depends on where you live. For instance, homebuyers in Dalles City in Wasco County have a mortgage limit of $420,680 for a single-family home. Meanwhile, those in Corvallis City in Benton County have a higher mortgage limit of $483,000.
Oregon homebuyers who want to purchase a fixer-upper may consider an FHA 203(k) loan. This allows borrowers to roll the cost of purchasing a home and renovations into a single loan. Overall, this simplifies the process for homebuyers who are purchasing a fixer-upper.
Typically, FHA 203(k) loans are used to finance home improvements, including modernization, reconstruction and elimination of health hazards. In addition, you can use the funds to replace plumbing, roofing, gutters, floor treatments and more. You can also finance energy conservation improvements, accessibility improvements and major landscape work.
Two types of FHA 203(k) loans are available for home renovations. The limited 203(k) loan is ideal for minor repairs and improvements that cost up to $35,000. Meanwhile, the standard 203(k) loan provides over $35,000 for major improvements. The cost of rehabilitation must also cost a minimum of $5,000.
USDA loans: The property you want to purchase in a rural area must be 2,000 square feet or less.
VA loans: You may not be able to get a COE, a requirement for VA loans, if you received a dishonorable discharge.
Fannie and Freddie loans: Conventional loans that conform to guidelines set by Fannie Mae and Freddie Mac are best for borrowers with good credit.
FHA loans: FHA loans require a minimum credit score of 500 and a down payment of 3.5%.
FHA 203(k) loans: You can’t use your FHA 203(k) loan to finance luxury additions to your home, such as a swimming pool.
Oregon Homebuyer Programs
Oregon also offers various loan programs specific to its residents who want to purchase a home.
Oregon Bond Residential Loan Program
The Oregon Housing and Community Services Department (OHCS) features the Oregon Bond Residential Loan program to help eligible homebuyers achieve homeownership. First-timer homebuyers can choose between Cash Advantage (which provides cash equal to 3% of the loan amount) and Rate Advantage (which offers below-market interest rates and lower monthly payments).
Down Payment Assistance Loan Program
Portland’s Down Payment Assistance Loan Program (DPAL) provides a second mortgage loan to be used with a mortgage from a participating lender. Eligibility requirements include being a first-time homebuyer and having an annual household income at or below 100% of the city’s current area median income.
HUD Resources Oregon
Oregon homebuyers can take advantage of HUD resources in the state, including Habitat for Humanity and city-specific offerings.
FAQs for First-Time Homebuyer Programs in Oregon
Buying your first home is an exciting milestone, but it can also be overwhelming. MoneyGeek answers some frequently asked questions to help ease this process.
- Federal Housing Financing Agency. "FHFA Announces Conforming Loan Limits for 2022." Accessed September 27, 2022.
- Habitat for Humanity. "Apply for a Habitat house." Accessed September 27, 2022.
- Oregon.gov. "Oregon Bond Residential Loan Program." Accessed September 27, 2022.
- Portland.gov. "Down Payment Assistance Loan Program." Accessed September 27, 2022.
- U.S. Department of Agriculture. "Single Family Housing Direct Home Loans." Accessed September 27, 2022.
- U.S. Department of Agriculture. "Single Family Housing Guaranteed Loan Program." Accessed September 27, 2022.
- U.S. Department of Agriculture. "Single Family Housing Repair Loans & Grants." Accessed September 27, 2022.
- U.S. Department of Housing and Urban Development. "203(k) Rehab Mortgage Insurance." Accessed September 27, 2022.
- U.S. Department of Housing and Urban Development. "203(k) Rehabilitation Mortgage Insurance." Accessed September 27, 2022.
- U.S. Department of Housing and Urban Development. "FHA Mortgage Limits." Accessed September 27, 2022.
- U.S. Department of Housing and Urban Development. "Homeownership Assistance: Kentucky." Accessed September 27, 2022.
- U.S. Department of Veterans Affairs. "VA Home Loans." Accessed September 27, 2022.
- U.S. Department of Veterans Affairs. "VA Home Loan Guaranty." Accessed September 27, 2022.
- U.S. Department of Veterans Affairs. "Eligibility requirements for VA home loan programs." Accessed September 27, 2022.