Finding The Right Loan: First Time Home Buyer Mortgage Options

Man, woman, and dog sitting on the wooden floor of an empty house

Owning your first house is exciting! It's an enviable financial milestone we all aspire to reach, especially while still young. Although the high cost of home ownership today can be discouraging, lenders have special first-time homebuyer mortgage loans to make the homeownership journey easier. In fact, there are so many mortgage loan options you're spoilt for choice.

This article discusses some mortgages we consider the best mortgage options for first-time buyers.

First-Time Homebuyer Mortgage Loan Options

The mortgage options for first-time homebuyers worth exploring include:

FHA Loans

FHA loans are fixed-rate mortgages backed by the Federal Housing Administration. They are the easiest first-time homebuyer mortgages to get approved for. With a credit score of 580 and above, the loan offers a 3.5% down payment and for a 500-579 score, you get a 10% down payment requirement.

FHA loans require a steady employment history, a 43% or less debt ratio, and a private mortgage insurance (PMI) premium of 1.75% of the loan amount upfront. The annual cost for the PMI is between 0.45%-1.05% of the home loan amount, but the actual price depends on the amount of financing and the down payment placed. Also, you must truly be a first-time homebuyer mortgage applicant.

VA Loans

VA loans are known to be very generous and are one of the best mortgage options for first-time buyers. The Department of Veteran Affairs backs VA loans and avails them to active service members, veterans, and surviving spouses. This first-time homebuyer mortgage loan has no down payment or private mortgage insurance requirements. All you have to do is pay a 1.4%-2.3% origination fee, which is typically rolled into your mortgage loan.

You must have a verifiable income and a Certificate of Eligibility. Lenders do not ask for a minimum credit score, but it's best to have a score of 640 or higher.

USDA Loans

Homes located in the countryside

Backed by the US Department of Agriculture, this first-time homebuyer mortgage loan has a fixed rate and a 30-year term. It is designed for low- to moderate-income first-time buyers living in rural America, but you could qualify in a suburb or just outside a city.

The USDA loan option offers 100% loan financing, meaning you do not need a down payment. You don't need a PMI, either. All that's required is a 1% upfront funding fee at closing and to pay a 0.35% annual fee, which is rolled over into our monthly mortgage payments. Typically, lenders require a credit score of 640 or higher but check with your lender to determine the exact figure.

Freddie Mac Home Possible Loan

This conventional first-time homebuyer mortgage loan is one of the best mortgage options for first-time buyers and among the easiest to qualify for because you are only required to put 3% as a down payment. But, it would help if you had a credit score of 660 or higher and if the home was in an underserved area where your income is not higher than 80% of the medium income in the area. A PMI is required if your down payment is less than 20% of the home loan amount, and you can cancel it after reaching 20% equity on your home.

Fannie Mae Conventional Loan

The Fannie Mae conventional loan is a popular first-time homebuyer mortgage loan in America, offering fixed mortgages with 15-year- or 30-year terms. You are asked to put down a minimum of 3% of the loan amount and to have PMI if your down payment is less than 20%, which you can cancel after reaching 20% equity on your home. The credit score requirement is at least 620 for a fixed-rate mortgage and 640 for an adjustable mortgage loan. The flexibility in the requirements makes this loan one of the best mortgage options for first-time buyers because they do not have a lengthy credit history.

Fannie Mae HomeReady Loan

The Fannie Mae HomeReady mortgage loan is just like the Freddie Mac loan, but it's easier to qualify for with a lower credit score. You only have a minimum of 620 and a 3% down payment. There are no minimum personal funds requirements, and you can also have friends, churches, nonprofits, grants, and others chip in towards your down payment. But, you must have a PMI if your down payment is less than 20%, which you can cancel after the 20% equity mark.

Good Neighbor Next Door Loan

Teacher seated with her students teaching them from a book

The Good Neighbor Next Door Loan is the ideal first-time homebuyer mortgage loan for law enforcement officers, firefighters, emergency medical technicians, and teachers (pre-K to 12th grade). It grants first-time homebuyer mortgage applicants a 50% discount on the property's listed price, with a down payment as low as $100 and a credit score as low as 500 to 580. But, there's a minimum three-year occupancy requirement in the revitalization areas approved by the US Department of Housing and Urban Development.

Apply for a First-Time Homebuyer Mortgage Loan Today

A mortgage loan is necessary for most Americans because it makes homeownership accessible and affordable. We have picked six of the best mortgage options for first-time buyers and listed the requirements for each; it should be easy to decide between lenders. Contact for more information and advice on navigating the property market as a first-time buyer. We'll help you get the best offer.