5 first-time home buyer loans

 5 first-time home buyer loans

1. FHA loans

FHA loans are “guaranteed” by the Federal Housing Administration. That doesn’t mean you’re guaranteed to be approved. Rather, the FHA will reimburse the lender if the borrower defaults on their mortgage loan.

Because FHA loans come with this built-in protection, they offer a lower barrier to entry than most other mortgage products.

FHA loan benefits for first-time home buyers

  • Minimum down payment requirement is 3.5% (on a $200,000 loan, that’s just $7,000)
  • Low interest rates
  • Lowest credit score requirements of all mortgage programs

To qualify for the 3.5% down payment, you’ll need a score of at least 580. But if you can put 10% down, your score can be as low as 500. 

FHA also provides flexible income guidelines. You don’t have to make a lot of money to qualify.

The big downside of FHA loans is that they require mortgage insurance. This comes as both an upfront fee at closing and then an annual fee, which is spread out across your monthly payments.

But for many, mortgage insurance is a small price to pay to get out of renting and start building equity.

Find out if you qualify for an FHA loan (Feb 1st, 2021)

2. The Conventional 97 loan

If you’re simply looking for a low down payment option, the Conventional 97 can be a smart choice. With these conventional loans, you need just 3% down to qualify.

Like FHA loans, they do require annual mortgage insurance. But you can actually cancel it after you’ve gained enough equity in the home.

On most FHA loans, by contrast, mortgage insurance is with you until you refinance into a different type of loan. 

Conventional 97 loan benefits for first-time home buyers

  • Buy with just 3% down
  • Mortgage insurance is cancellable
  • No upfront insurance fee
  • Minimum 620 credit score

Conventional loans also don’t require an upfront insurance fee, which can save you on your closing costs. (The upfront fee clocks in at $3,500 on a $200,000 FHA loan!)

Finally, conventional loans aren’t an option if you have poor credit.

You’ll need at least a 620 to qualify for a conventional loan, so if your score’s below that, an FHA loan may be a better choice.

Find out if you qualify for a Conventional 97 loan (Feb 1st, 2021)

3. Fannie Mae HomeReady and Freddie Mac Home Possible loans

HomeReady and Home Possible loans are two types of conventional mortgages that can help you get your foot in the door without too much cash up front. Both require just 3% down.

HomeReady and Home Possible benefits for first-time home buyers

  • Only 3% down required
  • Mortgage insurance can be canceled
  • Roommate income can help you qualify
  • Use gift funds for up to 100% of the down payment (Home Possible)
  • Credit scores starting at 620 accepted

If you’re a first-timer, you will need to take a homebuyer education course in order to qualify.

And like the Conventional 97, HomeReady and Home Possible come with cancelable mortgage insurance.

Again, these require at least fair credit. You’ll need a FICO score of 620 or higher to qualify for Fannie Mae’s HomeReady or Freddie Mac’s Home Possible.

Find out if you qualify for 3% down with Fannie or Freddie (Feb 1st, 2021)

4. USDA loans

If you’re willing to buy a home in a more rural part of the country, a USDA loan could be the best option.

USDA loans are backed (or sometimes even issued directly) by the U.S. Department of Agriculture. And like FHA loans, that government backing has big benefits for buyers.

USDA loan benefits for first-time home buyers

  • Zero down payment required
  • Low interest rates
  • Cheapest mortgage insurance
  • Designed to help lower-income home buyers

The catch? You can only buy a home in certain parts of the country. That’s because the USDA loan is meant to spur homeownership in less populated regions.

The USDA’s eligibility map tool breaks down which areas are eligible. It’s actually 97% of the U.S. landmass — but you won’t be able to buy in or around a big metro area.

Find out if you qualify for a zero-down USDA loan (Feb 1st, 2021)

5. VA loans

If you’re a military member or veteran (or your spouse is), then the VA mortgage is the single-best way to become a homeowner.

VA loan benefits for first-time home buyers

  • Zero down payment required
  • No ongoing mortgage insurance
  • Low rates
  • Lower closing costs
  • Lower credit scores accepted

There aren’t really any cons to using a VA loan. So if you can qualify for one, it’s definitely something you’ll want to consider.

Keep in mind, though: only certain lenders are approved to issue VA loans, so you’ll want to shop around.

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