First-Time Home Buyer Loan Programs

FHA Loans (3.5% Down, 580 Credit)

FHA loans are insured by the Federal Housing Administration and are the most popular option for first-time home buyers with limited savings or lower credit scores. The key features of FHA loans include a minimum down payment of just 3.5% for borrowers with credit scores of 580 or higher. Borrowers with credit scores between 500 and 579 can still qualify but need a 10% down payment. FHA loans have more flexible underwriting standards than conventional loans, making them accessible to buyers who might not qualify otherwise. The trade-off is that FHA loans require mortgage insurance premium (MIP) — an upfront premium of 1.75% of the loan amount (which can be rolled into the loan) and an annual premium of 0.15% to 0.75% of the loan balance, paid monthly. This MIP is required for the life of the loan if you put less than 10% down, or for 11 years if you put 10% or more down. FHA loan limits vary by county and are adjusted annually — in 2026, the limit for a single-family home in most areas is $498,257, with higher limits in expensive markets up to $1,149,825. FHA loans can be used for primary residences only, not investment properties or second homes.

Conventional 97 Loans (3% Down)

Conventional 97 loans, also known as Fannie Mae HomeReady or Freddie Mac HomeOne and Home Possible, are conventional mortgages that allow as little as 3% down payment. These loans are designed for first-time home buyers (defined as not having owned a home in the past three years). The credit score requirement is typically 620 or higher, though a score of 680 or above gets you better pricing. Unlike FHA loans, conventional 97 loans require private mortgage insurance (PMI) when the down payment is less than 20%, but PMI can be canceled once you reach 20% equity in the home. This is a significant advantage over FHA loans where MIP may be required for the loan's life. Income limits apply to HomeReady and Home Possible loans — the borrower's income cannot exceed 80% of the area median income (AMI), though this restriction varies by location and property census tract. Conventional 97 loans also allow for non-occupant co-borrowers, meaning a parent or other family member can be added to the loan to help qualify without living in the home. These loans require only one borrower to be a first-time home buyer. The loan limits for conventional loans in 2026 are $766,550 for most areas and up to $1,149,825 in high-cost areas.

VA Loans (0% Down, No PMI)

VA loans are available to active-duty military members, veterans, and eligible surviving spouses, and they offer some of the most favorable terms of any mortgage program. The signature benefit is zero down payment — qualified borrowers can finance 100% of the home's purchase price with no down payment required. VA loans also have no monthly mortgage insurance requirement, saving borrowers hundreds of dollars per month compared to FHA or conventional loans with low down payments. The funding fee (which ranges from 1.25% to 3.3% depending on your down payment amount and whether it is your first VA loan) can be rolled into the loan amount, so no upfront cash is required. VA loans have no minimum credit score set by the Department of Veterans Affairs, but most lenders impose their own minimums, typically 620. There is no loan limit for VA loans for borrowers with full entitlement, though there are limits for those with partial entitlement. VA loans can only be used for primary residences, and the property must meet minimum property requirements (MPR) to ensure it is safe, sanitary, and structurally sound. VA loans are assumable, which can be an attractive feature if you sell the home later and the buyer takes over your low-rate loan. The funding fee is waived for veterans receiving VA disability compensation.

USDA Loans (0% Down for Rural Areas)

USDA loans are backed by the US Department of Agriculture and offer zero down payment for homes in eligible rural and suburban areas. Despite the name, USDA-eligible areas include many suburban communities, not just farms and remote rural locations. Over 97% of the US land mass is eligible, though the program is limited to about 30% of the population by design. The key requirements include a minimum credit score of 640 (though some lenders accept lower scores with compensating factors), and the borrower's income cannot exceed 115% of the area median income for the location where the home is being purchased. USDA loans have an upfront guarantee fee (typically 1% of the loan amount, which can be rolled into the loan) and an annual fee (0.35% of the average loan balance). Both fees are lower than FHA mortgage insurance. The property must be located in a USDA-eligible area and must be a primary residence. The home must also meet minimum property standards. USDA loans are a great option for buyers with moderate incomes who are looking in qualifying areas. The loan limits vary by county but are generally lower than FHA and conventional limits. The program is sometimes called the USDA Rural Development Guaranteed Housing Loan program.

Down Payment Assistance Programs

Down payment assistance (DPA) programs provide grants, forgivable loans, or low-interest loans to help first-time home buyers cover their down payment and closing costs. These programs are offered by state housing finance agencies, local governments, non-profit organizations, and some employers. DPA programs typically provide $5,000 to $50,000 depending on the program and location. Some programs offer grants that never need to be repaid, while others offer forgivable loans that are canceled after a certain period of occupancy (typically 3 to 10 years). Deferred-payment loans are another common structure — they charge no interest and require no payments until you sell the home, refinance, or pay off the first mortgage. Eligibility for DPA programs typically requires being a first-time home buyer, completing a home buyer education course, having a credit score at or above a minimum threshold (often 640 or 660), and meeting income limits (usually 80% to 120% of AMI). Many DPA programs can be combined with FHA, conventional, or VA loans. The best way to find DPA programs in your area is to contact your state housing finance agency or a local lender familiar with first-time buyer programs. Your real estate agent may also be able to connect you with local resources.

State-Specific First-Time Buyer Programs

Every state in the US offers its own set of first-time home buyer programs through its housing finance agency. These programs often include below-market interest rate mortgages, down payment assistance, and tax credits. For example, the California Housing Finance Agency (CalHFA) offers multiple loan programs with down payment assistance of up to 3.5% of the purchase price. The Texas Department of Housing and Community Affairs offers the My First Texas Home program with a 30-year fixed-rate mortgage and down payment assistance. Florida Housing offers the Florida First program with down payment assistance up to $10,000. New York's State of New York Mortgage Agency (SONYMA) offers several low-interest rate mortgage programs for first-time buyers. Many state programs also offer a Mortgage Credit Certificate (MCC), which provides a federal tax credit worth up to 20% of the mortgage interest paid each year. The MCC can save first-time buyers thousands of dollars annually in federal income taxes. State programs typically have income limits, purchase price limits, and require completion of a home buyer education course. To find your state's program, search for your state housing finance agency website or ask a local lender who specializes in first-time home buyer loans.

First-Time Home Buyer Tax Credits

Beyond loan programs, first-time home buyers may qualify for tax credits and deductions that reduce the cost of homeownership. The most significant is the Mortgage Credit Certificate (MCC) program, available through many state housing finance agencies. The MCC provides a dollar-for-dollar federal tax credit worth up to 20% of the annual mortgage interest paid (up to $2,000 per year typically). Unlike a deduction, a tax credit directly reduces the amount of tax you owe. If the credit exceeds your tax liability, you may carry the unused portion forward for up to three years. Homeowners can also deduct mortgage interest on loans up to $750,000 and property taxes up to $10,000 ($5,000 if married filing separately) on their federal tax return if they itemize deductions. Some states offer additional tax credits or deductions for first-time home buyers. The federal government periodically introduces temporary first-time home buyer tax credits as part of economic stimulus legislation — though none are currently active in 2026, they are worth watching for. Consult with a tax professional to understand what credits and deductions you may qualify for in your specific situation.

Common First-Time Buyer Mistakes

First-time home buyers often make a set of predictable mistakes that can cost them money or cause them to miss out on the best loan programs. One common error is not getting preapproved before house hunting, which leads to falling in love with a home that is out of budget. Another mistake is choosing the wrong loan program — many buyers default to FHA loans when they might qualify for conventional loans with better terms, or overlook VA or USDA loans that could save them money. Not budgeting for closing costs is another pitfall — many first-time buyers focus only on the down payment and are surprised by the additional 2% to 5% in closing costs. Failing to shop multiple lenders can lead to paying a higher rate than necessary. Making big purchases after preapproval — such as buying a car or new furniture — can change your debt-to-income ratio and jeopardize your loan approval. Skipping the home inspection to save money can lead to expensive surprises later. Not exploring down payment assistance programs leaves free money on the table. Finally, rushing into a purchase without fully understanding the ongoing costs of homeownership can lead to financial strain. Take your time, do your research, and work with experienced professionals to avoid these common mistakes.

FAQs

What is the best loan program for a first-time home buyer?

The best program depends on your situation — FHA loans are great for lower credit scores and small down payments, conventional 97 loans offer cancelable PMI, VA loans offer zero down with no PMI for eligible veterans, and USDA loans offer zero down in eligible areas. Compare your credit score, down payment savings, and eligibility to find the best fit.

How much down payment do I need as a first-time buyer?

First-time buyers can put down as little as 0% with VA or USDA loans, 3% with conventional 97 loans, or 3.5% with FHA loans. Down payment assistance programs can help cover part or all of the down payment. The amount you need depends on the loan program you choose and your financial situation.

Do I have to be a first-time buyer to use these programs?

Some programs specifically require first-time buyer status (not having owned a home in the past three years), while others do not. FHA, VA, and USDA loans are available to repeat buyers. Conventional 97 loans typically require at least one borrower to be a first-time buyer. State-specific programs usually require first-time buyer status.

What credit score do I need for a first-time buyer loan?

Credit score requirements vary by program: FHA loans accept scores as low as 580 with 3.5% down, conventional loans typically require 620 or higher, USDA loans generally require 640, and VA loans have no official minimum but most lenders prefer 620 or higher. Higher scores qualify for better interest rates.

Can I use down payment assistance with any loan type?

Down payment assistance can typically be combined with FHA, conventional, VA, and USDA loans, though specific restrictions vary by program. Some DPA programs are tied to specific loan types, while others are flexible. Your lender and state housing finance agency can help you find DPA options that work with your chosen loan program.