Different types of loans for mortgages

Federal and state first-time-buyer programs can lend you a hand.

There are few things as exciting, and overwhelming, as buying your first home. The first hurdle most first-time home buyers face is finding the cash they need for a down payment. A second problem is finding a lender that will give them the time of day if they are low-income consumers or don't have much of a credit history. The good news is there are federal programs designed to help first-time buyers, and nearly every state has its own first-time buyer program.

First Time Buyer Loans

Federal Housing Administration-approved lenders provide loans aimed at first-time buyers' special needs. These loans offer higher loan-to-value rates, fixed or adjustable interest rates, and less-demanding income and down payment requirements than conventional loans. For instance, the FHA permits first-time buyers to borrow up to 97 percent of the value of the property. FHA allows higher debt-income ratios-the percentage of your income you spend on paying debts- than conventional lenders and lets you use a loan or gift to pay all of your down payment and closing costs.

Down Payment Assistance Loans

Lenders offer down payment loans to first-time borrowers to help them pay for their first down payment. Borrowers can combine a down payment assistance loan with a conventional first-time loan to get 100 percent financing for their first home. Most states offer these loans as a way to stimulate the economy and help low-income individuals into the housing market. In California, for example, the California Housing Finance Agency offers the Affordable Housing Partnership Program (AHPP) and the California Homebuyer's Down Payment Assistance Program (CHDAP) to qualifying borrowers.

Graduated Payment Loans

Graduated payment mortgages are an alternative to conventional loans for low-income buyers who expect their income to grow in the next five to 10 years. Payments start so low they don't even cover the interest on the loan, then increase each year. This program allows individuals to apply for a mortgage sooner than they would be able to through a conventional mortgage.