Choosing the right mortgage can feel overwhelming, especially for first time home buyers. With so many programs and acronyms—FHA, VA, USDA, PMI—it’s hard to know what’s best for your situation. This guide breaks down the most common options available and helps you understand how each one works.
Whether you’re struggling with a limited down payment, a lower credit score, or just wondering how much house you can afford, we’ll explain how to match the right mortgage to your needs.
Two of the most popular options for first time buyers are FHA loans and conventional loans. Both can work well depending on your income, credit score, and financial goals.
FHA loans are backed by the Federal Housing Administration and are designed for borrowers with limited savings or lower credit scores. You can qualify with a credit score as low as 580 and a down payment of just 3.5%. These mortgage loans also allow for higher debt to income ratios than many other programs.
Conventional loans, by contrast, are not government-backed. They typically require stronger credit, more upfront payment, and lower loan-to-value ratios. However, they may come with lower interest rates and fewer long-term costs. Learn more from the FHA.
An FHA loan is a solid option if your credit history isn’t perfect. Because it’s insured by the government, lenders are more willing to approve qualified borrowers who might not qualify for conventional financing.
FHA home loans do require mortgage insurance, which protects the lender in case you do not pay your mortgage. This includes both an upfront premium and an annual cost added to your monthly payments.
You can use an FHA mortgage loan to buy a primary residence, including single family homes, condos, and approved multi-unit properties.
Conventional loans offer more flexibility if you have a strong credit profile and steady income. These loans are often underwritten to the standards set by Fannie Mae and Freddie Mac.
While conventional home loans typically require a higher credit score than FHA loans, some programs now offer options with as little as 3% down payment for eligible buyers, especially if you’re a first time buyer.
The biggest benefit of going conventional? You can often avoid private mortgage insurance once you build 20% equity, helping reduce long-term housing costs.
VA loans, backed by the U.S. Department of Veterans Affairs, are available to eligible members of the military, including active duty service members, veterans, and in some cases, a surviving spouse.
These loans offer excellent benefits: no down payment, no mortgage insurance, and competitive interest rates. However, you’ll need a valid Certificate of Eligibility, and your lender may still review your credit score and annual income.
For more details, check out USA.gov’s guide to government home loans.
USDA loans are another government backed loan option, but only for eligible rural areas. These programs are ideal for buyers with moderate income who want to live outside major cities.
Backed by the U.S. Department of Agriculture, USDA loans offer 100% financing, meaning no down payment is required. You’ll need to meet income limits and area median income guidelines to qualify.
To explore your options, visit the USDA’s Single Family Housing Programs page.
If you’re shopping for your first home, you have access to a wide range of first time homebuyer loans. Many programs are designed specifically for first time homebuyers, offering reduced rates, payment assistance, or lower upfront costs.
Some are run by state and local governments, while others are offered by credit unions, lenders, or national agencies like FHA and USDA. Be sure to compare loan types side by side.
To learn more about how each loan option works, see our guide to different types of home loans.
Down payment assistance programs (DPAs) help cover the upfront cost of buying a home. These can come in the form of grants, deferred payment loans, or second mortgages.
They’re often designed for first time home buyers with limited savings and are sometimes combined with closing cost assistance. To see if you’re eligible, check the income limits, credit score minimums, and whether the home will be your primary residence.
In addition to your down payment, you’ll need to budget for closing costs. These typically range from 2% to 5% of your home’s purchase price and include fees for title insurance, loan origination, appraisals, and more.
Some loans, such as VA and USDA, limit which fees a borrower can be charged. Others may allow closing cost assistance or seller contributions. If you’re using a payment grant, be sure to ask whether it covers payment and closing costs or only the down payment.
You’ll also need to plan for other factors like your home inspection, home search expenses, and any pre approved loan fees.
Lenders will help you figure out how much house you can afford by looking at your gross monthly income, credit information, and your debt to income ratio. The higher your income and the lower your debts, the more home you can typically afford.
Different programs may have different limits on loan amount, income, and credit score. You’ll also want to consider monthly payments, property taxes, mortgage insurance, and other costs.
Use this time to get pre approved and compare rates across loan products. Each payment option affects your long-term costs, so be sure to ask about interest rates, payment requirements, and total loan repayment.
The interest rate you receive can vary widely depending on the loan type, your credit score, and the lender you choose. While government programs like FHA and VA offer more stable rates, conventional loans may offer lower interest rates if you have good credit.
Don’t forget to factor in mortgage insurance, especially with FHA and low-down-payment conventional mortgage loans. Over time, this can significantly affect your payment and overall cost.
Also compare whether the loan has flexible requirements, such as relaxed income limits or credit union membership options for eligible members.
Here’s a quick example of how some of the most popular options compare:
Some states also offer first mortgage programs that pair a primary loan with down payment assistance or second mortgages. Always read the fine print and determine eligibility requirements.
Beyond FHA, VA, USDA, and conventional home loans, there are other programs that may suit your needs:
To compare more options, explore the CFPB’s guide to mortgage loan types.
There’s no one-size-fits-all answer for all homeowners. The best loan for you depends on:
You’ll also want to compare programs offered by different lenders. Not every lender participates in every program, and some may offer unique incentives or help provide access to loan types you didn’t know existed. See our guide to the different types of home lenders to learn more.
The most important step is contacting a housing counselor early in the process. Our HUD-certified counselors can help you understand your choices, estimate costs, and save money for homeownership.
No matter which loan you choose, a great first step is enrolling in homebuyer education. These courses walk you through the entire mortgage application process, explain your financing options, and prepare you for homeownership.
In some cases, completing a HUD-approved course is required to qualify for payment assistance programs or first time homebuyer programs. It’s also a smart way to understand the mortgage process, budget for monthly payments, and avoid common mistakes.
Sign up for one of our First-Time Homebuyer Education Classes to get started.
