First Time Home Buyer Louisiana: The Complete 2023 Guide

What Is a Louisiana First-Time Home Buyer? 

A Louisiana first-time homebuyer is someone who is looking to buy a home in Louisiana for the first time.  However, you don’t have to be a first-time homebuyer to use most of the first-time homebuyer programs in Louisiana. 

You are considered a first-time homebuyer if you have not owned a home within the last three years. 

What are the requirements for first-time homebuyers in Louisiana? 

You’ll need to have a minimum credit score of at least 580 and have a down payment of 3.5% of the purchase price. You should have a debt-to-income ratio under 50%  and purchase a home that is under the loan limits for your area. 

It is possible to purchase a home with lower credit scores if you are a veteran or active duty military or if you have 10% down. The lowest credit score allowed to purchase a home is 500.

First-Time Homebuyer Income Requirements in Louisiana

There is no minimum income requirement in order to become a first-time homebuyer in Louisiana. However, you do have to earn enough income to cover the house payment of the home you’d like to buy. 

Lenders use something called the debt-to-income ratio to determine how much you can afford to spend each month on your mortgage payment.  Your debt-to-income is a calculation of your monthly gross income and your monthly liabilities. 

The median home price in Louisiana is right around  $177,000 so you’d need to gross about $35,000 per year with no debt to purchase a home in that price range. 

Credit Requirements for First-Time Homebuyers in Louisiana 

You will find a variety of options available for first-time homebuyers of all credit backgrounds. While having a credit score over 700 and a down payment of 20% or more will it easier to buy a home, you don’t have to have those. 

One of the reasons why getting pre-approved is early is so important is so that you can work with your lender on what options are available to you based on your credit, income, and down payment. 

Mortgage lenders will pull a tri-merged credit report, which means a report of all three credit bureaus. The lender is going to look at your credit history and your credit scores. 

A good lender will have options available for buyers with bad credit, fair credit, and good credit. 

What Credit Score is Needed to buy a house in Louisiana? 

Most lenders in Louisiana will require you to have at least a 580 credit score. However, we can work with buyers who have a credit score of 500 or higher. Scores under 580 will usually require larger down payments. 

Related: What Is A Credit Score? 

Can I Buy a Home if I Have Bad Credit? 

Yes, but it depends on what’s making your credit bad. If you have collection accounts, late payments filed for bankruptcy or even had a foreclosure you can still buy a home. You just need to meet the requirements for those things. 

READ: Buy A House With Bad Credit 

Down Payment Requirements for First-Time Homebuyers in Louisiana 

There is no required down payment to buy a home in Louisiana.  There are programs such as USDA Rural Development and VA Loans, that don’t require a down payment. They are 100% financing.  You can also look into homebuyer grants, that will provide your down payment for a higher payment, or second mortgage. 

If you choose to use a program that does require a down payment, the minimum down payment ranges from 3% to 3.5%. 

Your down payment is going to depend on the loan program you choose, the area you want to purchase in, your credit score, and your income. 

Down Payment Options for First-Time Homebuyers

If you are purchasing a home it’s important to know where your down payment can come from.  Mortgages are subject to all of the laws and regulations the federal government sets for financial institutions. 

Your down payment can come from the following sources: 

• Checking Account
• Savings Account
• CD or Other Bank Accounts
• Retirement Accounts
• Investment Accounts
• Crypto* 
• Gift Funds
• Retirement Fund Loans 

Down payments cannot come from: 

• Cash 
• Loans
• Lender, Realtor, or Seller 

Related: Why Do I Have to Provide Bank Statements to Get a Mortgage? 

First Time Homebuyer Programs in Louisiana 

If you are a  first-time homebuyer in Louisiana you have many options available to you when it comes to financing your home. Only 13% of all homes purchased are purchased using cash so there is a good chance you’ll need to figure out which loan program is right for you. 

First-time homebuyers in Louisiana have many loan programs available to them. Choose your loan based on the amount of your down payment, credit score, and desired loan term. 

• If you have less than perfect credit, look at the government-backed options, such as FHA, VA, and USDA loans.

•  If you have ‘good’ credit, look at the conventional loan option.

No matter which loan you choose, there are attractive loan options that will help you buy your dream home. Let’s look at your options.

FHA Loans

FHA loans always had the reputation of a ‘first-time homebuyer’s loan program’ mostly because of the low down payment requirement. 

Today, it’s a great option for anyone who doesn’t qualify for a conventional loan whether due to a low credit score, blemished credit history, or low down payment. FHA loans are ‘regular’ loans offered by traditional lenders but backed by the FHA. Because of the guarantee, lenders offer more flexible guidelines.

FHA lenders follow the FHA guidelines, but may add their own requirements too – it depends on the situation and lender. You make payments directly to the lender or servicer and the home buying process works just as smoothly as any other loan. 

How to Qualify for an FHA Loan

Here’s where FHA loans shine. You don’t need perfect credit or a large down payment. Here’s how to qualify:

• Minimum 580 credit score
• Minimum 3.5% down payment
• Maximum 50% total debt ratio
• Stable income and employment history for the last 2 years
• Proof that you’ll occupy the home as your primary residence
• 2 years from a Chapter 7 bankruptcy discharge
• 1 year from a Chapter 13 bankruptcy with trustee approval
• 3 years from a foreclosure

READ: FHA Loans For First-Time Homebuyers

What you Should Know about FHA Loans

FHA loans have the most flexible guidelines out of any program. That being said, there are a few important things to know:

• 100% of your down payment can be gift funds 
• You can get an FHA loan with a credit score of 500 – 579 with a 10% down payment
• The loan program is only for borrowers who will live in the home full-time
• The FHA charges upfront mortgage insurance equal to 1.75% of the loan amount
• The FHA also charges an annual mortgage insurance premium equal to 0.85% of the loan’s outstanding balance (charged monthly)
• You pay the annual mortgage insurance for the life of the loan
• FHA loans don’t have a prepayment penalty
• You can secure a fixed or adjustable rate FHA loan.
• You can secure an FHA loan for 15 or 30 years.

VA Loans

VA loans are loans backed by the Veteran’s Administration and are specifically for veterans or current military members. Before we talk about qualifying for a VA loan, we must look at eligibility as only certain people are eligible. You must:

• Be a veteran with at least 180 days served during peacetime or 90 days during wartime
• Current military member with at least 180 days served during peacetime or 90 days during wartime
• Be a surviving spouse of an eligible veteran who died in the line of duty or because of his time on duty

You secure a VA loan from a traditional lender. VA lenders follow the VA guidelines, and some have additional requirements depending on the situation. You make payments to the lender and/or loan servicer. The home buying process works the same as any other loan without any issues with sellers or the property itself.

How to Qualify for a VA Loan

Once you’ve established VA loan eligibility, you should determine if you qualify for a VA loan:

• No down payment required
• At least a 500 credit score
• Maximum 65% debt ratio 
• Meet the disposable income guidelines for your family size and location
• Provide your Certificate of Eligibility 
• Stable income and employment for the last 2 years
• Proof that you’ll live in the property as your primary residence
• 2 years from a Chapter 7 bankruptcy discharge
• 1 year since a Chapter 13 bankruptcy with trustee approval
• 2 years since a foreclosure 

What you Should Know about VA Loans

VA loans, as you know, are for veterans only. But a few other things you should know include:

• The VA charges an upfront funding fee of 2.3% for most borrowers
• The VA doesn’t have credit score or debt ratio requirements so lenders can be flexible
• VA loans don’t have a prepayment penalty
• VA loans are assumable
• You can secure a fixed or adjustable-rate VA loan
• You can secure a 15 or 30 year VA loan

USDA Loans

The USDA program is for low to moderate-income families who buy a home in a rural area of Louisiana. The areas the USDA considers rural are much more lenient than you probably imagine (it’s not just areas surrounded by cornfields). 

USDA loans have flexible guidelines, making it easier for low-income families to secure a home, especially if you haven’t owned a home before. 

Before you determine if you qualify for a USDA loan, you must determine your eligibility. The USDA bases it on your household income – not just the borrower and co-borrower’s income. You can use this tool to determine if your household meets the requirements. In general, if your total household income is less than 115% of the area’s average income, you may be eligible.

How to Qualify for a USDA Loan

If you’ve established that you’re eligible for a USDA loan, here’s how to qualify:

• Minimum 640 credit score
• Maximum 43% total debt ratio
• No down payment is necessary (they provide 100% financing)
• Stable income and employment for the last 2 years
• Proof that you’ll occupy the home as your primary residence
• Proof that you don’t qualify for any other financing
• 3 years since a Chapter 7 bankruptcy discharge
• 1 year since a Chapter 13 bankruptcy with trustee approval
• 3 years since a foreclosure

What you Should Know about USDA Loans

USDA loans are only for a select set of households. If you are eligible, you should know the following:

• You must buy a home in a rural area
• The home must pass the Minimum Property Guidelines set by the USDA that ensures the home is safe, sound, and sanitary
• The USDA charges upfront mortgage insurance of 1.0% of the loan amount
• The USDA also charges annual mortgage insurance of 0.35% of the outstanding loan amount each year (paid monthly)
• You pay the annual mortgage insurance for the life of the loan no matter how much you owe
• The home must be reasonable for the area (no luxurious accommodations)
• You don’t need a down payment, but can make one if you have the funds

Conventional Loans

Conventional loans are the ‘traditional’ mortgages most people know. They have the strictest underwriting requirements but have favorable terms.

Conventional loans are backed by Fannie Mae and Freddie Mac, so lenders must follow their guidelines, and may add their own too. It’s not as hard as many people think to get a conventional loan in Louisiana, though. 

How to Qualify for a Conventional Loan

While the underwriting requirements are ‘stricter’ they aren’t impossible to meet.

• Minimum 620 – 680 credit score depending on the lender
• Maximum 50% total debt ratio
• Minimum 3% down payment for first-time homebuyers (5% if you’ve owned a home before)
• Stable income and employment over the last 2 years
• 4 years from a Chapter 7 bankruptcy discharge
• 2 years from a Chapter 13 bankruptcy discharge
• 2 years from a foreclosure discharge date

What you Should Know about Conventional Loans

Conventional loans are a bit more lenient since they aren’t ‘government-backed’ but there are still a few things you should know.

• You can use conventional loan financing on primary residences as well as investment or second homes
• Private Mortgage Insurance if you put less than 20% down on the home
• You can cancel the PMI once you owe less than 80% of the home’s value
• Conventional Loans range from 10 to 30 year terms
• You can secure a fixed or adjustable-rate loan

Home Ready & Home Possible 

What is Home Ready? 

Home Ready is a home loan program financed through Fannie Mae (FNMA). The HomeReady loan is designed to help borrowers with low to moderate-income. 

HomeReady does this by reducing the down payment requirement that is typical on Conventional loans. 

Instead of the normal 5% down payment requirement on Conventional, HomeReady borrowers can finance a home with just 3% down. 

What is Home Possible? 

Home Possible is a mortgage program from the Federal Home Loan Mortgage Corporation (Freddie Mac)

The purpose of Home Possible, like HomeReady, is to help low and moderate-income buyers purchase a home. 

HomeReady and Home Possible  Benefits: 

• Lower Down Payment
• Reduced PMI
• Lower Interest Rates
• Allows gift funds and grants 

HomeReady Requirements: 

• Earn less than 80% of the median income for your area 
• Complete Home Buyer Course 
• Credit Score of 620 or higher 
• Must purchase a primary residence 
• Debt to Income Ratio under 50% 

Home Possible Requirements 

• Credit Score of 620 or higher 
• Complete Home Buyer Course 
• Must purchase or refinance primary residence 
• Debt to Income Ratio under 47% 

As a first-time homebuyer in Louisiana, you have access to many different first-time homebuyer programs.  You also have access to many different home buying grants and down payment assistance programs. 

First Time Home Buyer Grants In Louisiana 

Capital Area Finance Authority (CAFA) 

The CAFA home buyer grants are programs offered to first-time homebuyers to assist with down payment and closing costs. 

These programs are designed to provide homebuyer assistance to first-time homebuyers in Louisiana to purchase homes in the state. 

The grant can range from 4-7% depending on which program and lender you use.  The funds can be used to cover your down payment, closing costs or prepaid items. 

CAFA Requirements: 

• Minimum Fico of 640 
• Debt to Income Ratio up to 50% 
• Must meet income limit (80% of Parish Median Income Limit) 
• Loan amount must be less than current loan limits 

Some of the programs provided by CAFA allow the grant to be forgiven if you stay in the home at least 7 years. Others will require you to take a higher interest rate on the primary loan in order to receive the down payment assistance. 

Louisiana Housing Corporation 

The Louisiana Housing Corporation administers federal and state funds through programs designed to help working families obtain affordable housing. 

Their mission is to ensure that every Louisiana resident is granted an opportunity to obtain safe, affordable, energy-efficient housing. 

The Mortgage Revenue Bond (MRB) Assisted Program 

THE MRB program helps home buyers who are at 80%AMI or less and don’t have enough money to meet down payment and closing cost requirements.  It offers below market interest rates as well. 

MRB Benefits:

 A Homebuyer grant is a  program targeted at Louisiana first-time homebuyers to help them cover the cost of their down payment and/or closing costs. 

Not all grant programs are free and most come with either a second mortgage attached to your primary mortgage or an increased interest rate on your primary mortgage. (Down Payment Assistance) 

• Down Payment Assistance between 5%-9% of the loan amount. 
• Reduced Mortgage Insurance on Conventional Loans 

MRB Requirements: 

• Must be a first-time homebuyer
• The property must be in Louisiana 
• Must meet income requirements
• Minimum credit score of 640

The MRB down payment assistance program is a “soft” second lien attached to your home. The amount of the lien is equal to 4% of your mortgage loan amount. 

Market Rate GNMA Program 

The Market Rate GNMA Program offers 30 year fixed rate mortgages using FHA, VA or USDA Rural Development Loans. 

Market Rate GNMA Program Benefits: 

• First-time and repeat home buyers allowed
• Up to 4% assistance available 
• No origination or discount fees
• No additional bond documents or compliance package

Program Requirements: 

• Single Family Home
• Property must be located in Louisiana 
• Household income under 115% of AMI
• Minimum credit score of 640

The Market Rate GNMA is not a soft second program which means repayment of the grant will come in the form of a higher interest rate on your primary mortgage. 

Delta 100 Program

The Delta 100 Program is a $2 million parish specific program designed to help first-time home buyers in Louisiana delta parishes.  

The Delta 100 offers 100% financing and up to 3% in closing cost assistance to eligible homebuyers. 

Where are the Delta Parishes? 

The Delta Parishes are Caldwell, Catahoula, Concordia, East Carroll, Franklin, Madison, Morehouse, Pointe Coupee, Richland, Tensas, West Carroll, And Ouchita (Excluding Monroe). 

Delta 100 Program Benefits: 

• Mortgage Insurance not required 
• Up to 3% for closing costs and prepaid items 
• Max loan amount of $242,000
• Household Income up to 80% of AMI
• Fixed 30 year loan with a 2% interest rate

Delta 100 Program Requirements: 

• Must purchase a home in the Delta Parishes 
• The borrower must produce 1% of purchase price or $1500 whichever is less 
• No minimum credit score 
• Homebuyer education required

The Delta 100 program is a great program if you are a low-income household in the Delta parishes. Unlike the other programs on our list, this loan will cost you less than a traditional loan. 

Mortgage Credit Certificate Program

The LHC Mortgage Credit Certificate is a $5million statewide program that is designed to assist first-time homebuyers in Louisiana in purchasing a home in designated areas. 

The MCC program allows eligible borrowers to take a federal tax credit fo up to 40% of their annual mortgage interest payments for the life of their loan.  

MCC Program Benefits: 

• Available to low and moderate-income families
• Take up to 40% of annual mortgage interest payments as a tax credit on their federal income tax return. ( Capped at $2,000 per year) 
• Credit continues as long as you occupy the home 
• Can be used in conjunction with LHC’s down payment assistance programs
• Available Statewide 

The MCC is designed to increase the borrower’s monthly disposable income by providing income tax credits. 

Is a First-Time Home Buyer Grant Right for You? 

As you can see, each program comes at a cost. (Except the Delta 100) Down payment assistance can be helpful if you don’t have the ability to save or come up with a down payment. 

For home buyers wanting to purchase a home inside the city limits without the ability to cover the costs of their down payment or closing costs, these can be great options. 

How Much Does it Cost to Buy a Home in Louisiana? 

Once you’ve decided to purchase a home in Louisiana, you need to understand what it’s going to cost you. Understanding the cost can you help you be better prepared to make the best financial decision. 

When it comes to buying a home you have two different types of costs to consider. 

1. 1.Monthly costs, which included your mortgage payment, taxes, and insurance.
2. 2. Upfront costs, which include your down payment and closing costs. 

Monthly Costs

Monthly Mortgage Payment

Your monthly mortgage payment is the amount you’ll spend each month paying back your mortgage. It also includes expenses like insurance, taxes, and HOA dues. 

The easiest way to understand your mortgage payment is through PITI: 

• Principal & Interest
• Taxes
• Insurance 

Principal and Interest 

Your principal and interest is the amount you spend paying back your mortgage. The principal portion is how much of your payment is actually going to pay down your balance. The interest portion of your payment is the amount of your payment that pays back the interest owed on the loan. 

Since most homebuyers take out 30-year mortgages, your mortgage payment will be mostly interest payments until you get closer to the end of the loan. 

Taxes

The tax portion of your payment refers to the amount you pay annual for your parish and city property taxes.  Since parishes often breakdown their tax rate by area, each parish will have a different tax rate. 

You can easily find parish tax rates by searching your parish plus tax assessor online. We use a rough estimate of 1% of the purchase price for an home over $150,000 and 0.5% of the purchase price for homes under $150,000.00

This will give you the annual amount which is then divided by twelve months and added into your mortgage payment. 

Insurance 

There are a few different types of insurance that you will pay each month in your mortgage payment. 

PMI or Mortgage Insurance is a payment you’ll make each month if you put less than 20 % down (unless you use a VA Loan).  Mortgage insurance helps to protect the lender from loss in the event you default on the loan. 

Hazard or Property Insurance is insurance that protects your home in the event of fire, wind damage, storm damage, or other events such a theft.  Property insurance varies wildly from homebuyer to homebuyer, so it’s best to get an estimate once you’ve found a home you like. 

We use an average of 1% to 1.5% to estimate the cost of your annual insurance depending on how old the home is and how close it’s located to the Gulf of Mexico. 

Flood Insurance is insurance to protect your home in the event of a flood. You are not required to purchase flood insurance if your home is located in Flood Zone X, but it is highly recommended. 

If you purchase homeowner’s insurance, flood is not included. So if you home is damaged as a result of rising water, which is often the case in Louisiana you’ll need flood insurance for protection. 

How Much are Closing Costs in Louisiana? 

You should expect to spend between 2% to 5% of the purchase price of your home in closing costs. A large portion of your closing costs are the annual tax and insurance  premiums charged upfront. 

Louisiana Closing Cost Charges: 

• Lender Fees: These include underwriting fees, origination chargers, points, processing fees, document fees, or any other fee listed under the lender. Working with a lender who doesn’t charge lender fees can drastically reduce your closing costs. (Bayou Mortgage charges no lender fees) 

• Third Party Fees: Credit report fees and appraisal fees are some of the charges you’ll see in this section. 

• Title Fees: Title search, examination, lenders title insurance, owners title insurace, document fees, and settlement fess will be included in these fees.

• Prepaids: Annual insurance premium, flood insurance, property taxes and prepaid interest are fees that show up in this section. 

Louisiana first-time homebuyers should expect to pay between $5,000-$10,000 in closing costs depending on the purchase price of the home. 

Who pays closing costs in Louisiana? 

The buyer is ultimately responsible for covering their closing costs, in addition to their down payment. This figure is known as your cash to close, and you must prove you have enough money to cover these costs. However, there are a couple of different options to paying either all or part of your closing costs with seller or lender paid credits.

Seller Paid Closing Costs 

Each of the first-time homebuyer programs we listed above allows the seller to pay a percentage of the closing costs for the buyer.  Seller paid closing costs have to be negotiated with the seller, and must be included on your purchase contract. 

What percentage of the cost can the seller pay? 

• FHA: 6% of the closing costs
• USDA: 6% of the closing costs
• VA: 4% of the closing costs
• Conventional: 3% to 6% of the closing cost depending on the down payment

It is fairly common for homebuyer to get between $5000 to $7,000 of their closing costs covered by the seller.  The only loan program that may not allow the seller to cover all of your closing costs is Conventional. If you put less than 10% down on a conventional mortgage, the seller can only contribute up to 3% in closing costs. 

Lender Credits 

In addition to seller paid closing costs, you can also see if the lender is able to provide you with a credit to help cover some of your closing costs. 

Lender credits are a credit that applied toward your closing cost by choosing a higher interest rate.  When you choose a higher interest rate, there is often a credit associated with that rate. It could be .5% or more of the loan amount. 

While taking a higher interest rate isn’t ideal, it can help you cover some costs if you find yourself short. 

Current Louisiana Mortgage Rates 

READ: First-Time Homebuyer Process

7 Louisiana First Time Home Buyer Tips 

1. Know how much you can afford before you shop for a home. Do your homework, get your pre-approval, and stick within your budget.
2. Have enough money set aside so that you have money left after the closing. Owning a home is a lot of responsibility. You want to make sure you have enough money for any emergencies that arise.
3. Research the neighborhood as much as you evaluate the home. When you buy a home you buy into the neighborhood. Make sure it fits your needs and is somewhere you’ll be comfortable for the next few years.
4. Work on your credit score early. It takes time to improve your credit. If you want the best terms, look at your credit at least 12 months before you decide to buy a home.
5. Explore all of your loan options, as there are many. I can help you understand each loan program and how it affects your eligibility, payment, and long-term goals.
6. Stick to your budget. Even if you have room in your approval for a higher payment than you budgeted, stick to your budget. It’s the number you’re comfortable with and what you should stick to so you can avoid getting overwhelmed in the future.
7. Make sure you have enough homeowner’s insurance. Lenders require you to have homeowner’s insurance, but make sure you have enough coverage should your home meet with total destruction. Make sure you have a deductible you can afford and premiums that are affordable too.

Are you Ready for your First Mortgage?

If you’re a first time homebuyer in Louisiana , we’re here to help you! We have worked with hundreds of first time home buyers in Louisiana, helping them to secure the best financing for their home. Let me help you understand your different options, how they affect your bottom line, and what you can afford.

I know how overwhelming and exciting buying your first home is and I’m here for you every step of the way. Let’s start by chatting about your situation and we’ll go from there. I look forward to helping you become a homeowner soon!