Buying your first home can be exciting, but choosing the right mortgage is one of the most important financial decisions you’ll make. The best option depends on your income, credit profile, savings, location, and whether you qualify for a government-backed program.
For U.S. home buyers, common options include conventional, FHA, VA, USDA, and state or local first-time-buyer programs. The Consumer Financial Protection Bureau recommends comparing different loan programs and getting offers from multiple lenders rather than focusing on a single lender.
1. Conventional Mortgages
Conventional mortgages are offered by private lenders and are commonly backed by Fannie Mae or Freddie Mac.
They can be attractive for first-time buyers who have good credit and enough savings for a down payment. Some conventional programs allow relatively small down payments, although putting less than 20% down can generally result in private mortgage insurance.
Conventional loans may also offer competitive pricing for borrowers with stronger credit profiles.
Before choosing one, compare the interest rate, mortgage insurance, closing costs, and required down payment.
2. FHA Loans
FHA-insured mortgages are designed in part to make homeownership accessible to borrowers who may have smaller down payments or less-than-perfect credit.
The CFPB describes FHA loans as having low down-payment requirements and being available to borrowers with lower credit scores than some conventional options.
FHA loans can therefore be worth investigating if saving a large down payment is your biggest obstacle.
However, FHA loans involve mortgage insurance costs, so compare the total cost of the loan, not simply the amount required upfront.
3. VA Home Loans
Eligible veterans, active-duty service members, and certain surviving spouses may qualify for VA-backed mortgages.
A major feature is that a VA-backed purchase loan can allow no down payment when the purchase price does not exceed the home’s appraised value, subject to eligibility and lender requirements. VA loans also generally don’t require private mortgage insurance.
A VA loan isn’t limited to first-time buyers—you can use the benefit more than once if you meet the applicable requirements.
Eligible borrowers should also account for the potential VA funding fee and other closing costs. Some borrowers are exempt from the funding fee.
4. USDA Loans
If you’re purchasing a home in an eligible rural area and meet the applicable income requirements, a USDA-backed mortgage may be another option.
The CFPB identifies USDA loans as a government-backed option for borrowers purchasing homes in rural areas, particularly those with low-to-moderate incomes.
Eligibility depends on the property location, household income, and other program requirements, so check the specific property before assuming it qualifies.
5. State and Local First-Time-Buyer Programs
First-time buyers should also investigate programs offered by their state or local housing finance agency.
These programs can sometimes provide assistance with down payments or closing costs, depending on eligibility.
The CFPB specifically recommends that first-time buyers with low or moderate incomes investigate programs offered through state housing finance agencies.
How to Compare Mortgage Options
Don’t compare mortgages based solely on the advertised interest rate.
Look at:
- Interest rate
- Annual percentage rate (APR)
- Down payment
- Mortgage insurance
- Closing costs
- Loan term
- Monthly principal and interest
- Property taxes
- Homeowners insurance
- Points and lender fees
- Prepayment terms
- Total interest over the life of the loan
For example, a mortgage with a slightly lower interest rate could still cost more if it has substantially higher upfront fees.
Get Multiple Mortgage Offers
Once you’ve identified the programs you may qualify for, request offers from multiple lenders.
The CFPB recommends asking lenders for offers that reflect the same loan type, program and term so that you can make a meaningful comparison.
When comparing offers, look at the Loan Estimate, which provides standardized information about the loan’s projected costs.
How Much Should You Put Down?
A larger down payment can reduce the amount you borrow, but putting every dollar of your savings into the home isn’t necessarily appropriate.
Remember to budget for:
- Closing costs
- Moving expenses
- Repairs
- Furniture and appliances
- Property taxes
- Homeowners insurance
- Emergency savings
The right down payment depends on your financial circumstances and the requirements of the mortgage program you choose.
Final Thoughts
First-time buyers have several mortgage options, including conventional, FHA, VA, USDA and state or local assistance programs.
Rather than choosing based on the smallest down payment or lowest advertised interest rate, compare the complete cost of each mortgage and consider how the monthly payment fits into your budget.
Getting several Loan Estimates from different lenders can help you see the differences in rates, fees, mortgage insurance and other costs before you commit to a mortgage.
