A Guide to First-Time Home Buyer Loans and Programs - NerdWallet (2024)

FAQs

What type of loan is strongly recommended for first-time buyers? ›

Overview: Best loans for first-time home buyers

FHA loans are government-insured mortgages that require as little as 3.5% down. VA loans are zero-down-payment loans for qualified military borrowers. USDA loans offer financing on rural and some suburban properties with 0% down.

FHA loan

They're one of the easiest mortgages to get approved for if you're a first-time homebuyer with a low credit score and minimal down payment savings. FHA loans offer 3.5% down payment options for those with credit scores of 580 or above.

Credit score and mortgages

The minimum credit score needed for most mortgages is typically around 620. However, government-backed mortgages like Federal Housing Administration (FHA) loans typically have lower credit requirements than conventional fixed-rate loans and adjustable-rate mortgages (ARMs).

FHA loan: Insured by the Federal Housing Administration, FHA loans allow you to buy a home with a minimum credit score of 580 and as little as 3.5 percent down, or a credit score as low as 500 with at least 10 percent down.

So, why would a first-time buyer sign up for a 30 or 40-year mortgage? For most people, it's to spread the cost. If, rather than going for a 25-year term, you choose a 30-year mortgage then your monthly payments will be reduced, giving you more cash to spend on things that are important to you.

Government-backed loan options, such as FHA, USDA and VA loans, are typically the easiest type of mortgage to get because they may have lower down payment and credit score requirements compared to conventional mortgage loans.

Conforming loan down payments can vary from 3% to 20% or more, so for a $500,000 home, you'd need between $15,000 and $100,000. Conforming loans, once again, follow Fannie Mae and Freddie Mac guidelines and usually offer competitive terms.

But is there a right age when these factors should be in place? Are these the factors Americans should consider when deciding to become a homeowner for the first time? In 2022, the average age of first-time homebuyers was 36, according to the National Association of Realtors (NAR). This is up from 33 in 2021.

Conventional loan | Credit score: 620

To qualify for a conventional loan, you'll need a credit score of at least 620, though some lenders may choose to approve conventional mortgage applications only for borrowers with credit scores of 680 and up.

Let's look at an example of how your loan term affects your mortgage payment. At a 7% interest rate, a 30-year fixed $200K mortgage has a monthly payment amount of $1,331, while a 15-year fixed $200K mortgage at the same interest rate has a monthly payment amount of $1,798.

What credit score is needed to buy a $400,000 house? ›

Your credit score has less bearing on your ability to get a mortgage than you might think. The minimum FICO score for a conventional loan is 620. The best rate comes with a score of 740 or higher.

Real estate agents, REALTORS ®, and brokers are licensed, trained professionals who help negotiate the purchase and sale of real estate.

Home sellers often prefer to work with buyers who make at least a 20% down payment. A bigger down payment is a strong signal that your finances are in order, so you may have an easier time getting a mortgage. This can give you an edge over other buyers, especially when the home is in a hot market.

The bill is designed to provide a tax credit for first-time buyers worth up to $15,000 or 10% of a home's purchase price, whichever is less.

Explanation: When considering loan options for first-time buyers, a fixed-rate loan is typically recommended due to its stability over time. However, an adjustable-rate mortgage (ARM) might be beneficial under certain conditions. An ARM provides flexibility with the interest rate varying with the rate of inflation.

Subsidized loans don't generally start accruing (accumulating) interest until you leave school (or drop below half-time enrollment), so accept a subsidized loan before an unsubsidized loan. Next, accept an unsubsidized loan before a PLUS loan.

If you have a strong credit score and can afford to make a sizable down payment, a conventional mortgage is the best pick.

Conditional Commitment Letter

A conditional mortgage approval letter is the most frequently encountered form, which signifies that you have been conditionally approved. Moreover, it means that the conditions laid out by the underwriter must be met before a clear to close can be issued*.