For a comparison of all major mortgage types — conventional, FHA, VA, USDA, ARM, and jumbo — see the Mortgage Loan Types hub.
Buying your first home is the largest financial decision most people make, and the lending landscape can be overwhelming. First-time buyers have access to programs that repeat buyers don’t — lower down payments, rate discounts, and down payment grants — but finding the right lender is key to taking advantage of them.
This guide covers the loan types, programs, and lender qualities that matter most when you’re buying for the first time.
First-Time Buyer Loan Options at a Glance
| Loan Type | Min. Down Payment | Min. Credit Score | Mortgage Insurance | Best For |
|---|---|---|---|---|
| Conventional 97 | 3% | 620 | PMI until 20% equity (cancellable) | Good credit, want to cancel PMI later |
| FHA | 3.5% | 580 (3.5% down) or 500 (10% down) | MIP for life of loan | Lower credit scores, limited savings |
| VA | 0% | No official minimum (lenders want 580–620) | None | Veterans, active military, eligible spouses |
| USDA | 0% | 640 (most lenders) | Guarantee fee (lower than PMI) | Rural/suburban properties, income limits apply |
| HomeReady (Fannie Mae) | 3% | 620 | Reduced PMI, cancellable | Low-to-moderate income buyers |
| Home Possible (Freddie Mac) | 3% | 620 | Reduced PMI, cancellable | Low-to-moderate income buyers |
| State HFA programs | Varies (often 0–3%) | Varies | Varies | State-specific benefits, down payment help |
FHA vs. Conventional: Which Costs Less?
This is the most important decision for most first-time buyers. The answer depends on your credit score and how long you’ll keep the loan.
| Credit Score | FHA Total Cost (First 7 Years) | Conventional Total Cost (First 7 Years) | Better Option |
|---|---|---|---|
| 580–619 | Lower monthly, MIP forever | May not qualify or very expensive PMI | FHA |
| 620–679 | Lower rate, MIP forever | Higher rate, PMI cancellable at 20% | FHA short-term; Conventional long-term |
| 680–719 | Competitive rate, MIP forever | Competitive rate, PMI cancellable | Conventional (PMI cancellation wins) |
| 720+ | Good rate, MIP forever | Best rate, lowest PMI, cancellable | Conventional (clear winner) |
Key difference: FHA mortgage insurance premiums (MIP) last the entire life of the loan unless you put down 10%+. Conventional PMI cancels automatically when you reach 22% equity (or by request at 20%). Over a 30-year loan, the ability to cancel PMI can save $20,000–$50,000.
For current FHA rates, see our FHA loan rates page. For conventional rates, see mortgage rates.
Down Payment Assistance Programs
Most first-time buyers don’t realize these programs exist. All 50 states offer some form of down payment assistance, and many local governments and nonprofits add additional programs on top.
Types of Down Payment Assistance
| Type | How It Works | Repayment | Typical Amount |
|---|---|---|---|
| Grant | Free money, no repayment required | None | $3,000–$15,000 |
| Forgivable second mortgage | Loan forgiven after 5–10 years of living in the home | None if you stay | $5,000–$25,000 |
| Deferred second mortgage | No payments until you sell, refinance, or pay off first mortgage | Due at sale/refi | $5,000–$20,000 |
| Matched savings | Government matches your savings 2:1 or 3:1 | None | $2,000–$10,000 |
| Interest rate buydown | Lender or state subsidizes your rate for 1–3 years | None | 1–3% rate reduction |
Where to Find Programs
- Your state’s Housing Finance Agency (HFA) — Every state has one. Search “[your state] housing finance agency first-time buyer.”
- HUD’s local homebuying programs — HUD.gov lists programs by state and city.
- Your lender — Not all lenders participate in all programs. Ask specifically about down payment assistance before applying.
- Your employer — Some large employers offer homebuying assistance as a benefit.
What Makes a Good First-Time Buyer Lender
Not all mortgage lenders cater to first-time buyers equally. Here’s what separates a good first-time buyer lender from the rest.
| Quality | Why It Matters | Questions to Ask |
|---|---|---|
| Offers multiple low-down-payment programs | You want options — FHA, conventional 97, HomeReady, state programs | “What low-down-payment loans do you offer?” |
| Participates in state/local DPA programs | Not all lenders work with all programs | “Do you work with [state] HFA programs?” |
| Has first-time buyer rate discounts | Some lenders offer 0.125–0.25% off for first-time buyers | “Do you offer first-time buyer rate reductions?” |
| Provides homebuyer education | Required for some programs; helpful for all buyers | “Do you have a homebuyer education course?” |
| Manual underwriting experience | Important if you have non-traditional credit or are self-employed | “Do you offer manual underwriting?” |
| Responsive loan officers | First-time buyers have more questions — you need someone patient | Read reviews about communication and responsiveness |
| Transparent about costs | No surprises at the closing table | “Can you itemize all fees before I apply?” |
True Cost of Buying Your First Home
Your down payment is just the beginning. Here’s the complete picture of what you’ll need.
| Cost | Amount | When It’s Due |
|---|---|---|
| Down payment | 3–20% of purchase price | At closing |
| Closing costs | 2–5% of loan amount | At closing |
| Home inspection | $300–$600 | Before closing |
| Appraisal | $400–$700 | Before closing |
| Moving expenses | $1,000–$5,000+ | After closing |
| Immediate repairs/updates | $500–$5,000 | After move-in |
| Emergency fund (3 months housing) | $3,000–$10,000 | Keep in savings |
Example on a $300,000 home with 5% down:
- Down payment: $15,000
- Closing costs (~3%): $8,550
- Inspection + appraisal: $900
- Moving: $2,000
- Immediate needs: $2,000
- Total cash needed: ~$28,450 (before down payment assistance)
See our average closing costs guide and how to save for a down payment for detailed strategies.
First-Time Buyer Mistakes That Cost Thousands
| Mistake | How Much It Costs | What to Do Instead |
|---|---|---|
| Not getting preapproved | Lost offers in competitive markets | Get preapproved before house hunting — see preapproval guide |
| Only applying to one lender | $10,000–$40,000+ in extra interest | Compare 3–5 lenders within a 2-week window |
| Skipping the inspection | $5,000–$50,000+ in surprise repairs | Always get a full inspection, even on new construction |
| Buying the most house you qualify for | Financial stress, no buffer for surprises | Budget 20–25% of gross income for housing, not the 28–36% maximum |
| Emptying savings for down payment | One emergency away from missing payments | Keep 3–6 months of expenses in reserve after closing |
| Choosing FHA with high credit score | $20,000–$50,000 in unnecessary MIP | If your score is 720+, conventional is almost always cheaper |
| Ignoring closing date in offer | Losing the deal or paying rate lock extension fees | Confirm your lender’s typical closing timeline before making offers |
| Not shopping for homeowners insurance | $500–$1,500/year overpayment | Get 3+ quotes — rates for the same home vary enormously |
How to Get Preapproved
Preapproval is the first step in the actual buying process. Here’s what you’ll need and what to expect.
Documents Needed
- Income: Last 2 years of W-2s, last 30 days of pay stubs, 2 years of tax returns (if self-employed)
- Assets: Last 2 months of bank statements, retirement account statements
- Identity: Government-issued ID, Social Security number
- Debts: Student loans, car loans, credit card statements
- Renting history: 12 months of rent payment verification (if no credit history)
What Happens During Preapproval
- Lender pulls your credit report (hard inquiry)
- You submit income and asset documentation
- Underwriter reviews your debt-to-income ratio
- Lender issues a preapproval letter (valid 60–90 days)
- Letter states maximum loan amount you qualify for
Important: Getting preapproved by multiple lenders within 14–45 days counts as a single credit inquiry for FICO scoring purposes. Don’t let fear of credit score impact prevent you from shopping.
Step-by-Step: Your First Home Purchase Timeline
| Week | Action | Details |
|---|---|---|
| 1–2 | Check credit & finances | Pull free credit reports, calculate budget, start saving |
| 3–4 | Get preapproved by 3–5 lenders | Submit applications within a 2-week window |
| 5–6 | Choose a lender and real estate agent | Compare Loan Estimates, interview agents |
| 7–18 | House hunt and make an offer | Tour homes, submit offers with preapproval letter |
| 18–19 | Offer accepted — submit formal application | Provide all documentation to your chosen lender |
| 19–20 | Home inspection | Hire inspector, negotiate repairs if needed |
| 20–22 | Appraisal and underwriting | Lender orders appraisal, reviews your file |
| 22–24 | Conditional approval | Respond to any lender requests promptly |
| 24–25 | Clear to close | Final walkthrough, review closing disclosure |
| 25–26 | Closing day | Sign documents, pay closing costs, get keys |
First-Time Buyer Tax Benefits
| Benefit | Value | Who Qualifies |
|---|---|---|
| Mortgage interest deduction | Deduct interest on up to $750K of mortgage debt | All homeowners who itemize |
| Property tax deduction | Deduct up to $10,000 in state/local taxes (SALT cap) | All homeowners who itemize |
| Mortgage credit certificate (MCC) | 20–40% of mortgage interest as a direct tax credit | First-time buyers with MCC from state HFA |
| Capital gains exclusion | Exclude $250K/$500K in gains when selling | Live in home 2+ of last 5 years |
| IRA penalty-free withdrawal | Withdraw up to $10,000 from IRA without 10% penalty | First-time buyers for down payment |
The Mortgage Credit Certificate (MCC) is particularly valuable — it’s a dollar-for-dollar tax credit (not just a deduction), which means a much bigger tax benefit. Not all lenders offer MCCs, so ask specifically. Your state HFA is the best source.
The Bottom Line
First-time buyers have more options than most people realize — from 0–3% down payment loans to grants that don’t need to be repaid. The key is finding a lender that participates in the programs you qualify for and offers competitive rates on top.
Start by checking your state’s Housing Finance Agency for local programs, then get preapproved by at least 3 lenders — including one that specializes in first-time buyers. The few hours of shopping can save you tens of thousands over the life of your mortgage.
Next steps:
- Check current mortgage rates
- Use our how much house can I afford calculator
- Read the full first-time home buyer guide
- Review first-time home buyer programs
Sources
- Internal Revenue Service. “Tax Information for Individuals.” irs.gov
- U.S. Department of Labor. “Wages and the Fair Labor Standards Act.” dol.gov/agencies/whd/flsa
- Social Security Administration. “Benefits and Eligibility Information.” ssa.gov/benefits
- Freddie Mac. “Primary Mortgage Market Survey.” freddiemac.com/pmms
- Fannie Mae. “Housing and Mortgage Data.” fanniemae.com/research-and-insights
- U.S. Department of Housing and Urban Development. “FHA Mortgage Insurance Programs.” hud.gov/federal_housing_administration
- U.S. Department of Agriculture. “Single Family Housing Programs.” rd.usda.gov/programs-services/single-family-housing-programs
The content on Wealthvieu is for informational purposes only and should not be considered financial, tax, or investment advice. Consult a qualified professional before making financial decisions. Full disclaimer · Editorial policy