6 Types of First-Time Homebuyer Loans: Everything New Buyers Should Know

Which loan is right for you?

• Conventional loans: You have a credit score of 620+, stable income, and can put at least 3% down.
• FHA loans: You have a credit score of 580+ (or 500+ with 10% down) and a higher DTI ratio.
• VA loans: You’re an eligible veteran, active-duty service member, or surviving spouse.
• USDA loans: You’re purchasing in a qualified rural or suburban area with low-to-moderate income.

Saving up to buy your first home can seem daunting, especially if you’re aiming for a 20% down payment. But here’s the good news: First-time homebuyers have access to loan options designed to make becoming a homeowner easier with more affordable rates and flexible requirements, like lower down payments and credit scores. 

Whether you’re buying a home in Houston, TX, or in St. Paul, MN, there are options for buyers across all income levels and credit scores. In this Redfin guide, we’ll cover six types of first-time homebuyer loans and other assistance programs. Keep reading to find out which is best for you. 

In this article:

• Loan type comparison
• Conventional loans
• FHA loans
• VA loans
• USDA loans
• Fannie Mae and Freddie Mac
• First-time homebuyer programs
• FAQs

Overview

1. Conventional loans

Offered by private lenders such as banks and mortgage companies, Conventional loans are one of the most common choices for first-time buyers. 

These loans are not government-backed and are known for their competitive rates and terms, making them ideal for borrowers with good credit and financial standing. A higher down payment can qualify you for better terms, a lower rate, and reduced private mortgage insurance.

Requirements

• Down payment: as low as 3%
• Minimum credit score: 620
• Debt-to-income (DTI): Typically below 36%
• Loan limits: $806,500 in most areas in 2025; up to $1,209,750 in high-cost markets
• Private mortgage insurance (PMI) required if putting down less than 20%

Advantages of conventional loans

• Conventional loans offer low costs if you have a high credit score and strong finances.
• You’ll have flexibility to choose between fixed and variable-rate financing with different repayment periods.
• Loan limits are generally higher than government-backed loans, ideal for pricier properties or larger loans.

Disadvantages to consider

• Strict eligibility requirements make it hard to qualify if you don’t have a solid financial standing and financial history.
• Higher down payment requirements may apply, with some loans requiring at least 5-20% down.
• High interest rates for lower credit scores mean you’ll need excellent credit to access the best terms – otherwise, government-backed loans provide better rates.

2. FHA loans

FHA loans are another popular mortgage type with less strict financial requirements. These loans are offered from private lenders and are backed by the Federal Housing Administration (FHA). An FHA loan may be ideal for those with a lower credit score or a higher debt-to-income ratio.

Requirements

• Down payment: 3.5% minimum down
• Minimum credit score: 580 to qualify for 3.5% down; 500–579 requires 10% down
• Mortgage insurance premiums (MIP) required for the life of the loan
• Property must meet certain condition standards
• Loan limits are set at $524,225 in low-cost regions and $1,209,750 in high-cost markets in 2025
• Must be used as a primary residence as opposed to an investment property or vacation home
• Must intend to live in the home within 60 days of closing

Advantages of FHA loans

• Low down payment options make it possible to buy a home with as little as 3.5% down.
• Lower credit score requirements make owning a home accessible for borrowers with credit scores as low as 580, or even 500 with a higher down payment.
• No income limits, which can be beneficial for both low and high-income borrowers.

Disadvantages to consider

• Higher mortgage insurance costs come with a required mortgage insurance premium (MIP), which increases the overall cost of the loan.
• Loan limits can be strict, potentially limiting your purchasing options.
• Firm property standards can be an issue if the property has structural or safety issues. This can be a drawback for those looking to purchase a fixer-upper. 

3. VA loans

VA home loans are offered by the Department of Veteran Affairs (VA) for eligible veterans, service members, and their family members.

Requirements

• • Down payment: 0% down
  • Minimum credit score: No minimum score, but most lenders prefer at least 620
  • Must be an eligible veteran, spouse, or beneficiary. Service requirements apply.
  • Property must be your primary residence
  • Must intend to live in the home within specified timeframe (typically within 60 days of closing)

Advantages of VA loans

• Zero-down-payment requirement makes it easier to buy a home without saving for a large upfront cost – especially helpful for active-duty service members.
• No private mortgage insurance (PMI) means lower monthly payments and longer-term savings.
• Lower credit requirements than most conventional loan options, though the exact credit score varies by lender.

Disadvantages to consider

• Funding fee requirement adds to the total cost of the loan, normally ranging from 2.3-3.6%. This can be lowered with a 5% down payment.
• Strict appraisal standards require homes to be safe, and repairs from appraisal must be completed before closing (costs can be covered by either party).
• Less equity at the start can make it harder to refinance or sell in the short-term, since there’s no down payment upfront.

4. USDA loans

USDA loans are government-backed mortgages requiring zero down. These are available to low-to-moderate income buyers in eligible suburban and rural areas.

Requirements

• • Down payment: 0% down
  • Minimum credit score: 580
  • Income must be stable and fall within program limits
  • Home must be located in a USDA-eligible area
  • Must be a U.S. citizen, noncitizen national, or permanent resident

Advantages of USDA loans

• • USDA loans don’t require a down payment since they’re insured by the federal government.
  • These loans have flexible credit requirements, making them accessible for borrowers with lower credit scores.
  • Cash reserves aren’t required at closing, which eases the financial burden for buyers with limited savings.

Disadvantages to consider

• There are location restrictions as properties must be located in an eligible suburban or rural area.
• Have an income limit of $119,850 for households of 1-4 people, and $158,250 for homes with 5-8 members.
• Take longer to process and underwrite since they require approval from both the lender and USDA.
• Include upfront and annual guarantee fees paid at the time of closing and annually during the life of the loan.

5. Fannie Mae and Freddie Mac

Fannie Mae and Freddie Mac are government-sponsored enterprises that back conventional loans, making homeownership more accessible – especially for first-time buyers with lower income or limited credit. Both are overseen by the FHFA but differ in how they operate.

Fannie Mae works with larger banks and offers loans with stricter credit, income, and down payment requirements. Its HomeReady program targets low to moderate-income buyers and provides access to competitive rates, though qualifying can be more difficult.

Freddie Mac partners with smaller lenders like credit unions and regional banks. Its Home Possible program offers more flexible qualifying standards, though loan terms may vary more by lender.

HomeReady (Fannie Mae) requirements

• • Down payment: 3% down
  • Minimum credit score: 620
  • Income limits: 80% of area median income (AMI)
  • Home must meet certain eligibility standards
  • LTV, CLTV, or HCLTV ratios above 95% are subject to additional requirements

Home Possible (Freddie Mac) requirements

• • Down payment: 3% down
  • Minimum credit score: 660
  • Income limits: 80% of area median income (AMI)
  • Home must meet certain eligibility standards

6. First-time homebuyer programs

In addition to loans, you can also receive assistance through first-time homebuyer programs. These programs are designed especially for first-time buyers, offering loans, grants, and credits to cover down payments, closing costs, and other home buying costs. There are over 2,500 homebuyer programs in the U.S., including many offered locally.

There are three main types of first-time homebuyer programs:

1. Grants: You normally don’t have to pay back a grant.
2. Loans: You eventually have to pay back a loan. Sometimes those loans are interest-free.
3. Tax credits: These reduce the amount of tax you owe as a way to make homeownership more affordable.

Each organization and program has its own rules, but many have income limits. Some base how much they’ll give you on the home’s sale price, while others only contribute a flat amount. Be sure to ask about any restrictions on renting the home out or selling it within a certain timeframe.

You may be required to participate in a class on homeownership or responsible borrowing to take advantage of certain programs. But if you’re a first-time homebuyer, these classes can be extremely beneficial.

>>Read: First-Time Home Buyer Benefits and How to Qualify

Which first-time homebuyer loan is right for you?

Choosing the right home loan comes down to your financial situation, location, and the loan or program’s requirements.

• Determine your budget: Use a home affordability calculator to estimate how much mortgage you can qualify for based on your income and debt.
• Check your credit: Your credit score impacts loan eligibility, so review it beforehand to avoid surprises.
• Shop around: Compare assistance programs at the national, state, and local levels to find the best fit for your needs and budget.
• Speak to a lender or real estate agent: Talking to professionals can help you navigate programs and loan options will help you find the best fit for you. 

FAQs: First-time homebuyer loans

1. Who is considered a first-time homebuyer?

Generally, a first-time homebuyer is anyone who hasn’t owned a home in the past three years. You’re also considered a first-time buyer if: 

• You’ve shared ownership of a house with a spouse in the past, but are now buying alone.
• You’ve been renting or living with family members.
• You haven’t held a mortgage in three years.
• You’re buying in a designated redevelopment area, where certain programs have more relaxed rules.
• You’ve only owned a mobile home or a home that’s not permanently fixed to a foundation.
• You owned a home that didn’t meet building standards and was too costly to fix.

2. What are government-backed loans?

These are home loans insured by the U.S. government. FHA, VA, and USDA loans all fall under this category. Because these loans are government-backed, lenders can be less strict with their requirements, making it easier to qualify. 

It’s important to note that there are some disadvantages. Homes must meet a certain standard, meaning there are fewer options to choose from. You must also live in the home as your primary residence rather than using it as an investment or rental property.

3. Are there loans available for buyers in specific professions?

If you’re a teacher, law enforcement professional, firefighter, or EMT, talk to your loan officer about lending options that may help you save even more money, such as the Good Neighbor Next Door program. 

There are also special physician loans that can help medical doctors and dentists buy a home, even while carrying significant medical school debt.

4. Are first-time homebuyer loans a good idea?

First-time homebuyer loans can be a great idea for eligible individuals looking for homeownership with accessible financing. It’s best to speak with a mortgage lender to understand if specific program details align with your circumstances.

5. Why does the debt-to-income ratio matter for my loan?

This is a key measure lenders use to assess your ability to manage monthly mortgage payments in addition to existing debts. Typically, lenders prefer a debt-to-income ratio below 43%, although some programs allow higher ratios. A lower DTI can help improve your chances of loan approval and qualify you for better terms.

>>Read: How is Debt-to-Income Ratio Calculated?

6. How do you apply for a first-time homebuyer loan?

Speak with a mortgage lender to find out if you qualify for a first-time homebuyer loan or program. You can also visit your state’s housing finance agency website to explore options and check availability. Right now is a good time to start boosting your credit and saving for upfront costs like your down payment and closing fees.

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