Owning a home doesn’t have to be complicated or expensive, even for first-time buyers.
In this guide, MoneyGeek outlines financial assistance programs that cater specifically to the needs of first-time homebuyers in Virginia, such as zero-down-payment, low-down-payment and state-specific programs. We encourage you to study these options to determine which one best fits your needs.
What Is a First-Time Homebuyer Program & How Can It Help?
The most significant cost that you’ll face as a homebuyer is your mortgage down payment. Therefore, it is in your best interest to check if you’re ready and capable of meeting this considerable expense before purchasing a home.
First off, you must decide how much you need to pay upfront as your down payment and weigh this against how much you can conveniently set aside for monthly mortgage payments. Keep in mind that making a higher down payment can give you bigger savings because you’ll pay lower interest rates and monthly amortization fees.
Typically, a down payment of 20% of your home’s cost is the market standard. But not all homebuyers can afford this, especially first-timers. Fortunately, there are homebuyer financial assistance programs that require lower down payments.
For instance, there are federal homebuyer programs that are available across the country, such as USDA and VA loans, which require zero down payment. There are also homebuyer programs specific to the state of Virginia, such as the Virginia Housing Development Authority’s Down Payment Assistance Grant and the Virginia Department of Housing and Community Development’s HOMEownership Down Payment and Closing Cost Assistance Program.
Zero-Down-Payment Loan Programs
There are two zero-down-payment home loans available in the market today: USDA and VA loans. With these loan programs, homebuyers can purchase a home without paying upfront costs at closing.
The U.S. Department of Agriculture’s (USDA) Rural Development Guaranteed Housing Loan program specifically caters to homebuyers who are looking to purchase a home in eligible rural areas.
Compared to other mortgage types, USDA loans are generally more affordable, which makes them an ideal choice for low-income households.
To qualify, a Virginia homebuyer must satisfy a number of applicant and property requirements, including:
- Meet citizenship and income requirements
- Must provide proof that they don’t have safe and decent housing and that they cannot get a loan with terms that they can meet
- Use the purchased property as their primary residence
- The property must be 2,000 square feet or less in size and located in a rural area with a total population below 35,000
When modified by payment assistance, USDA loans can offer a fixed rate as low as 1%. Payback periods can reach up to 33 years or 38 years for very low-income homebuyers.
Active and retired military personnel and their eligible spouses who are looking to purchase a home will find a VA home loan a solid option.
VA home loans are offered by the U.S. Department of Veterans Affairs through private lenders. These loans don’t require a down payment and have no loan limit, no private mortgage insurance (PMI) requirement, low closing costs and no prepayment penalty fee, alongside generous terms and affordable rates.
A VA home loan can be used to purchase a brand-new home, construct a new home or buy a home and remodel it. There are also additional VA loan options that you can apply for at the same time as your VA mortgage loan for any necessary alterations and repairs to the home that you’ll purchase.
Your eligibility depends on your duty status, length of service, income and credit score. You must also be able to present a valid Certificate of Eligibility (COE).
Low-Down-Payment Loan Programs
Low-down-payment loan programs are great alternatives if you don’t qualify for a zero-down-payment loan and wish to buy a home with less than a 20% down payment. There are two options to choose from: a conventional loan and an FHA loan.
Fannie and Freddie (Conventional) Loans
Conventional loans, which are often referred to as Fannie Mae and Freddie Mac loans, are private, government-sponsored mortgages that provide better access to home loans for most individuals.
These often have low rates and are widely available, although they tend to have relatively strict lending requirements.
Fannie and Freddie loans allow first-time homebuyers to purchase a property with as little as a 3% down payment. But keep in mind that the size of your actual down payment will depend on your personal circumstances, the property that you intend to purchase and the type of loan that you select. If you don’t put 20% down, you’ll be required to purchase private mortgage insurance (PMI) to serve as your lender’s protection if you default on your loan.
To qualify for a conventional loan, you’ll need a credit score of at least 620 and a maximum 50% debt-to-income ratio. However, private mortgage lenders have varying requirements, which is why it is always best to compare loan offers from multiple companies.
Banks and other private lenders offer FHA loans, which are insured by the Federal Housing Administration (FHA). With this type of mortgage, borrowers have the option of fixed interest rates for either a 15- or 30-year repayment term.
First-time homebuyers will appreciate that, compared to conventional loans, FHA loans tend to have fewer restrictions. Some of these minimum requirements are a fair credit score of 500–580, a low down payment of 3.5% and a maximum debt-to-income ratio of 56.9%. You’ll also have to pay a mortgage insurance premium (MIP), which is usually cheaper than PMI.
That said, meeting the FHA’s minimum requirements doesn’t automatically mean that your loan will be approved or that you’ll qualify for the lowest down payment rate. Lenders will still base your down payment requirement on your creditworthiness. For instance, a credit score of less than 580 will require you to make a down payment of at least 10%.
If you’re considering buying a property that needs some work, an FHA 203(k) loan might be the best option. It combines a standard mortgage with a home renovation loan, so you don’t have to apply for multiple loans.
FHA 203(k) loans come in two types. The streamlined or limited FHA 203(k) loan covers renovations that are capped at $35,000, which is the better option if significant repairs aren’t necessary. The main advantage of this type of loan is its quick approval because of the lower loan amount. Meanwhile, the standard FHA 203(k) loan can cover major repair work costing over $35,000. But note that, with this option, you must hire a consultant from the U.S. Department of Housing and Urban Development (HUD) to look after the entire renovation.
To be eligible, you must be able to pay a minimum down payment of 3.5%, have a credit score of at least 500–580 and the home should serve as your primary residence.
USDA loans: These are a great option for low- to middle-income borrowers who wish to buy a property in an eligible rural area that has a population of less than 35,000 and prefer not to make a down payment.
VA loans: A VA loan is the ideal option for active and retired military members and their eligible surviving spouses who prefer a mortgage loan that doesn’t need a down payment or PMI.
Conventional loans: Fannie and Freddie loans are popular and widely available among first-time homebuyers. These loans let you own a home by making a down payment of as little as 3%.
FHA loans: These are a solid option if you want lower minimum requirements for a down payment, credit score and debt-to-income ratio.
FHA 203(k) loans: The FHA 203(k) is the perfect option for first-time homebuyers who want a single mortgage to take care of purchasing a house and renovating it.
Virginia Homebuyer Programs
Alternatively, you may consider applying for a homebuyer program that specifically caters to Virginia residents.
Virginia Housing Development Authority’s Down Payment Assistance Grant
The Virginia Housing Development Authority offers a Down Payment Assistance Grant which you don’t have to repay and can be combined with a Mortgage Credit Certificate (MCC) program. With this grant, first-time homebuyers can receive up to 2.5% of the home price, but you must purchase a home in Areas of Economic Opportunity, meet the income requirements and have either a conventional or FHA loan from Virginia Housing.
HOMEownership Down Payment and Closing Cost Assistance Program
The HOMEownership Down Payment and Closing Cost Assistance Program (DPA) allows first-time homebuyers to purchase homes through flexible gap financing. Homebuyers who meet the income requirements may get up to $2,500 to cover closing costs and up to 15% of the home’s purchase price.
Acquire, Renovate, Sell
The Acquire, Renovate, Sell (ARS) program is a joint initiative of the Virginia Department of Housing and Community Development (DHCD) and the Virginia Housing Development Authority (VHDA) that gives first-time homebuyers from low- and moderate-income backgrounds opportunities for affordable homeownership.
FAQs for First-Time Homebuyer Programs in Virginia
Buying your first home does not need to be a challenge. Take a look at MoneyGeek’s answers to the most common questions about first-time homebuyer programs in Virginia to serve as your guide.
- Consumer Financial Protection Bureau. "Conventional loans." 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 28, 2022.
- U.S. Department of Housing and Urban Development. "FHA Mortgage Limits." Accessed September 28, 2022.
- U.S. Department of Veterans Affairs. "VA Home Loans Limits." Accessed September 28, 2022.
- Virginia Department of Housing and Community Development. "Acquire, Renovate, Sell (ARS)." Accessed September 28, 2022.
- Virginia Department of Housing and Community Development. "Homeownership Down Payment Assistance Program (DPA)." Accessed September 28, 2022.
- Virginia Housing. "Down Payment Assistance Grant." Accessed September 28, 2022.