First-Time Homebuyer Loans: Types, Eligibility, and Programs

Several government-backed and conventional loan programs are available to first-time homebuyers. These programs aim to make homeownership more accessible for new home loan borrowers.

Each loan program comes with its own requirements, down payment rules, and borrower qualifications. Understanding the choices available before you apply can save you time and help you pick the loan that’s the best fit.

Eligibility often depends on factors like your credit, household income, military service, and where you plan to buy a house.

Best First-Time Homebuyer Loans at a Glance

First-time homebuyers typically choose between government-backed loans and conventional mortgages. Each serves a different type of borrower depending on income, credit, and location.

The following table breaks down each loan type, key benefits, and who it’s best for.

Loan Type	Key Benefit	Best for
Conventional	Competitive interest rates	Buyers with strong finances
Federal Housing Administration (FHA)	Low down payment and closing costs	Buyers with lower credit scores
Veterans Affairs (VA)	No down payment or private mortgage insurance (PMI)	Military members and veterans
U.S. Department of Agriculture (USDA)	Zero down in eligible areas	Low- to moderate-income rural buyers

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How Do First-Time Homebuyer Loans Compare to Standard Mortgages?

A first-time homebuyer loan is a mortgage program that helps new buyers qualify for homeownership more easily. Compared to traditional mortgages, these loans offer more flexible credit requirements, lower down payments, and help with closing costs.

Unlike traditional mortgages, they’re a great fit for buyers who may not have significant savings or perfect credit. Traditional mortgage loans often require higher credit scores and bigger down payments.

In contrast, first-time homebuyer programs focus on accessibility and affordability for low- and moderate-income applicants.

Types of First-Time Homebuyer Loans

First-time homebuyers have multiple loan options to choose from. Each loan type has specific requirements and benefits.

The most common types of loans for new buyers include:

• FHA loan: Offers down payment and closing cost help for less-qualified buyers^[1]

• VA loan: Guarantees a portion of the loan, allowing participating lenders to offer better terms to military members, veterans, and eligible surviving spouses^[2]

• USDA loan: Provides no-down-payment loans to people buying a primary residence in an eligible rural area who meet income limits

Let’s take a closer look at how each mortgage program works.

FHA loans

FHA loans are government-backed loans for first-time homebuyers with lower credit scores or limited savings. Buyers with a credit score of 580 or higher can put down as little as 3.5%.

If your credit score is between 500 and 579, you’ll need a 10% down payment — if you’re able to find a lender. You’ll also need to pay a mortgage insurance premium (MIP) as part of your monthly mortgage payment.

VA loans

VA loans are available to active-duty service members, honorably discharged veterans, and some surviving spouses. The U.S. Department of Veterans Affairs guarantees the loan, so you won’t have to pay a down payment or for PMI.

Although the VA doesn’t have a minimum credit score requirement, your mortgage lender may require a minimum of 620 unless you have a large down payment.

First-time borrowers may have a funding fee of 1.25%–2.15% of the loan amount. Lenders require a certificate of eligibility (COE) confirming you qualify for a VA loan.

USDA loans

The U.S. Department of Agriculture offers fixed-rate USDA loans for eligible borrowers with no minimum down payment or credit score requirements. Homeowners pay 1% of the loan amount up front and an annual 0.35% fee, which you can roll into your monthly mortgage payment.

The home purchased with a USDA loan must be your primary residence and be within a USDA-eligible rural or suburban area. Income limits vary by household size and county.

Very-low-income homeowners may qualify for payment assistance that reduces their monthly mortgage payments.

How First-Time Homebuyer Loans Compare

Comparing your options is the best way to find the right first-time homebuyer loan for your financial situation. Each loan type has different requirements for credit, down payment, and mortgage insurance.

Loan Type	Minimum Down Payment	Minimum Credit Score	Mortgage Insurance	Borrower Eligibility
Conventional	3%	620	PMI for down payments less than 20%	Borrowers with solid credit and finances
FHA	3.5% 10%	580 500	Required	Borrowers with lower credit scores or limited savings
VA	0%	No set minimum; lenders prefer at least 620	Not required	Eligible military borrowers
USDA	0%	None	No mortgage insurance, but an annual 0.35% guarantee fee	Low- to middle-income rural borrowers

The Best First-Time Homebuyer Loans by Situation

A real estate agent can help you navigate the ever-changing real estate market. Government homebuyer programs can help you afford your first house. The best first-time home loan depends on your finances, credit history, and where you want to live.

Conventional loans: Best for buyers with strong credit and finances

Conventional loans are ideal if you have a solid credit history, steady income, and a large down payment. You can avoid mortgage insurance by putting down 20%, which can also lower your mortgage rates and improve your approval odds.

You also have more loan term options and interest rate types, including fixed-rate and adjustable-rate (ARM) mortgages.

FHA loans: Best for lower credit scores

Federal Housing Administration (FHA) loans are a good fit if your credit isn’t perfect and you have limited savings for a down payment. An FHA loan’s flexible approval standards make it one of the most common choices for first-time buyers.

But you’ll pay PMI as part of your mortgage payment, which may limit how much house you can afford.

VA loans: Best for military borrowers

Because private lenders issue VA loans, many of the same guidelines apply. You can choose a loan with either a 15- or 30-year term and a fixed or adjustable rate.

But VA loan rates may be higher than conventional loan rates, depending on your credit. You’ll still need to qualify for a mortgage, and specific eligibility requirements can vary by lender.

USDA loans: Best for rural buyers

Borrowers with limited income or savings looking to buy their first home in an eligible area may want to consider a USDA loan. It requires no money down, and you can usually roll up-front expenses — such as closing, escrow, or even home repair costs — into your financing.

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Who’s Eligible for a First-Time Homebuyer Loan?

A first-time homebuyer is typically someone who hasn’t owned a primary residence in the past three years. Single parents or displaced homemakers who have only ever owned a house with a spouse may also qualify.

Many first-time homebuyer programs share common requirements, though details vary by loan type and lender. These often include:

• Credit score: Typically 500–620, depending on the loan

• Income and debt-to-income ratio (DTI): Stable income with a DTI typically below 50%, though many lenders prefer 36% or lower

• Employment history: At least two years of steady employment

• Property type restrictions: Must be your primary residence and meet program standards

• Residency status: U.S. citizen, permanent resident, or eligible noncitizen

Conventional loans usually require strong credit and higher down payments to qualify for competitive interest rates. Government-backed programs typically require down payments of 10% or less, and FHA loans allow for lower credit scores.

VA and USDA loans don’t have minimum credit score requirements, though lenders who issue these loans typically do.

How to Qualify for Your First Mortgage

Use this step-by-step home-buying process to qualify for your first mortgage.

1. Apply for a COE if using a VA loan. The certificate of eligibility confirms eligibility and shows your remaining entitlement if you’ve already used your loan benefit.

2. Check your credit score and report to ensure it’s free of errors and to know where you stand.

3. Set your mortgage budget and home purchase price. Consider your income, debt, savings, and any up-front costs you’ll need to pay at closing. Use a calculator to help you determine how much mortgage you can afford.

4. Choose a lender. Compare multiple lenders to get the best interest rate and loan terms.

5. Confirm that you meet your lender’s first-time homebuyer requirements. Lenders will typically review your bank activity and savings history. They’ll also need additional information for your co-borrower, if you’re using one.

6. Get pre-approved by a lender to confirm your borrowing power.

7. Complete the loan application. Submit documentation, including pay stubs, tax returns, and bank statements, and proof of homeowners insurance.

8. Close on your loan. The loan process typically takes 25 to 60 days from application.

Lenders may decline your application if your DTI is too high, your income is inconsistent, or your credit score is too low.

What Down Payment Assistance Programs Options Are There?

Many state and local governments offer down payment and closing cost assistance programs for first-time buyers. A local housing counselor can help you find programs in your area.

These programs may include grants, low-interest loans, or “silent second” mortgages that defer payments until you sell or refinance. Some programs even forgive the loan after a set period.

Most have income limits and location requirements. You also usually have to complete a homebuyer education class before closing.

For example, buyers who are at or below 80% of the area median income (AMI) in Virginia may qualify for a down payment assistance (DPA) deferred loan of up to $50,000.^[3]

Colorado residents who meet income limits, contribute at least $1,000 toward the home purchase, and have a credit score of 620 or higher can qualify for a DPA grant of up to $25,000.^[4]

While DPA loans typically stack on top of your primary first-time buyer loan and act as a second mortgage, you typically won’t need to repay grants.

First-Time Homebuyer Loans FAQs