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    First-Time Homebuyer Loan Options

    Updated: April 28 2026 • 6 min read
    Written by Bennett Leckrone
    Bennett Leckrone

    Written by
    Bennett Leckrone
    Writer / Reviewer / Expert

    Bennett Leckrone is the editorial manager and an analyst for Lower. He specializes in making complicated mortgage topics accessible for consumers. That includes both in-depth product guides and analysis on what economic moves mean for homebuyers and refinancers. He is also a licensed loan officer in Ohio, NMLS ID 2782574. He was previously a business reporter with a focus on higher education and fintech at BestColleges. In that role, he reported on the development of fintech and AI curriculum, as well as the rapidly changing nature of finance education. He also wrote guides to help business students navigate AI and online education. He also reported on state politics at Maryland Matters, with a focus on how policy affected people and businesses. He holds a bachelor of science in journalism degree from Ohio University.
    Our Editorial Standards

    Key Takeaways

    • Conventional and FHA loans are both common first-time homebuyer options.
    • Some conventional programs allow down payments as low as 3% for qualifying buyers, including many first-time homebuyers.
    • FHA loans can come with down payment requirements as low as 3.5% if you have a credit score of 580 or higher.
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    First-time homebuyers have options when it comes to homeownership.

    Some programs have low down payment options tailored to first-time homebuyers, and other loan options have flexible credit score and income requirements built in.

    First-Time Homebuyer Loan Options At A Glance

    From conventional loan programs with special incentives for first-time homebuyers to FHA loans with flexible credit score requirements, here’s a list of common options for first-time homebuyers.

    Loan Type

    At A Glance

    FHA Loan

    Government-backed mortgage with flexible credit standards, as little as 3.5% down with a 580+ score, mortgage insurance applies.

    Conventional 97

    3% down conventional loan for eligible first-time buyers, PMI typically applies, PMI can be canceled at 80% LTV and must terminate at 78% if current.

    HomeReady, Home Possible

    3% down conventional options for low- to moderate-income buyers, Home Possible uses an 80% AMI qualifying income limit, HomeReady has AMI-based limits with location-based exceptions.

    VA Loan

    0% down for eligible veterans, active-duty, and some surviving spouses. No monthly mortgage insurance, VA funding fee may apply.

    USDA Loan

    0% down in eligible rural areas, income and location limits apply, primary residence requirement.

    Renovation Loans

    Finance a home purchase and improvements in one mortgage, examples include FHA 203(k), HomeStyle, CHOICERenovation.

    Down Payment Assistance (DPA)

    Grants or second mortgages that can help cover down payment and closing costs for eligible buyers.

    FHA Loans

    An FHA loan can come with flexible credit score requirements and low down payment options for first-time homebuyers.

    An FHA loan is a government-backed mortgage that can allow for as little as 3.5% down with a credit score of 580 or higher. Borrowers with scores of 500–579 are limited to a maximum 90% loan-to-value, which typically means 10% down.

    FHA loans require both an upfront mortgage insurance premium and annual mortgage insurance. For many borrowers who put less than 10% down, annual MIP can last for the life of the loan.

    Conventional 97 Loans

    A Conventional 97 is a low-down-payment conventional mortgage that allows eligible first-time buyers to put 3% down. Fannie Mae’s 97% loan-to-value options are designed to help lenders serve first-time homebuyers.

    Because the down payment is under 20%, PMI is typically required. Under the Homeowners Protection Act, borrowers can request PMI cancellation at 80% loan-to-value in standard scenarios, and PMI must automatically terminate at 78% of the original value if the borrower is current.

    FHA Vs. Conventional 97

    Feature

    FHA

    Conventional 97

    Minimum down payment

    3.5% with 580+ score

    3%

    Typical minimum credit score

    580 for maximum financing

    Many lenders start around 620

    Mortgage insurance

    Upfront plus annual MIP

    PMI, cancellable at 80% LTV and auto at 78% if current

    Best fit

    Lower scores, limited savings

    Stronger credit aiming to remove PMI

    Fannie Mae HomeReady And Freddie Mac Home Possible Loans

    HomeReady and Home Possible are 3% down conventional options designed for low- to moderate-income buyers.

    Home Possible qualifying income limit is 80% of area median income. HomeReady uses AMI-based limits and has location-based exceptions, including no income limit in some low-income census tracts.

    Homeownership education is required for HomeReady purchase loans when all occupying borrowers are first-time homebuyers, and at least one borrower must complete the course.

    Because these are conventional loans, PMI can be removed once cancellation criteria are met.

    Feature

    HomeReady

    Home Possible

    Minimum down payment

    3%

    3%

    Income limits

    AMI-based limits with location-based exceptions

    80% AMI

    PMI removal

    Allowed with criteria

    Allowed with criteria

    VA Loans

    VA loans have zero down payment and no monthly mortgage insurance, but eligibility is limited to veterans, active-duty service members, and some surviving spouses.

    Many borrowers pay a one-time VA funding fee, though some borrowers may be exempt, including certain veterans receiving disability compensation.

    USDA Loans

    USDA loans help eligible buyers purchase a primary residence in eligible rural areas through approved lenders. The program is income-based and location-based.

    Topic

    Key Details

    Down payment

    0% for eligible buyers

    Property location

    Must be in an eligible area, primary residence

    Income limits

    Household income must meet program caps

    Best for

    Buyers who qualify by income and location and want 0% down

    Renovation Loans

    Renovation loans roll your home purchase and approved improvement costs into one mortgage. This can help you buy a home that needs work and finance upgrades in a single closing.

    Common options include:

    Those loans let you finance both the purchase and renovation of your home in one loan, and can help you expand your home search to homes that need updates. But they might also require additional inspections, appraisals, and more documentation as well as contractor coordination.

    Down Payment Assistance Programs

    Down payment assistance, or DPA, can help cover down payment and closing costs if you meet program requirements. DPA can come as grants or second mortgages that are forgivable, deferred, or low-interest, depending on the program.

    DPA often comes in the form of grants or forgivable second mortgages. Low-interest and deferred-payment second mortgages are also common options.

    Check with your state housing finance agency for down payment forgiveness programs in your state.

    The Bottom Line

    First-time homebuyers have multiple options to purchase a home.

    That includes conventional loan programs that allow a down payment as low as 3% for qualifying first-time homebuyers, FHA loans with flexible credit score and low down payment requirements, and VA and USDA loans with limited eligibility but zero down payment requirement for those who qualify.

    Frequently Asked Questions About First-Time Homebuyer Loans

    What Are The Main Loan Options For First-Time Homebuyers?

    The main options are FHA, VA, USDA, and conventional loans, including 3% down programs. Each balances credit, down payment, insurance, and eligibility differently.

    What Are The Down Payment Requirements For Each Loan Type?

    FHA starts at 3.5% down with a 580 credit score for maximum financing, and borrowers with 500–579 are limited to 90% LTV.
     VA and USDA can offer 0% down for eligible borrowers.
     Conventional first-time buyer options can start at 3% down.

    How Does Mortgage Insurance Work On FHA Loans?

    FHA loans require an upfront mortgage insurance premium and annual mortgage insurance. For many borrowers with less than 10% down, annual MIP can last for the life of the loan.

    Which Loan Is Best For Veterans?

    VA loans are often best for eligible borrowers because they can offer 0% down and no monthly mortgage insurance. A VA funding fee may apply, and some borrowers may be exempt.

    What Assistance Is Available Beyond Loans?

    Some buyers qualify for down payment assistance through grants or second mortgages offered by state and local programs to reduce upfront cash.

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