First-Time Homebuyer Guide (May 2026)
Four federally-backed loan programs and one conventional 3% down option give first-time buyers more entry paths than ever. We compared FHA, VA, USDA, and conventional 97% LTV programs against credit, down payment, and property criteria to map you to the right product.
Quick Answer: Which loan program fits you?
- Active duty / veteran / eligible spouse: VA loan — 0% down, no monthly mortgage insurance, lowest cost.
- FICO 700+ with 5-20% down: Conventional — lowest long-term cost, PMI cancels at 20% equity.
- FICO 580-680 with 3.5%+ down:FHA — most accessible, but MIP lasts life of loan if <10% down.
- Buying in eligible rural/suburban area + income under 115% AMI: USDA — 0% down, lower MI than FHA.
- Conventional 97% LTV (3% down): Fannie Mae HomeReady or Freddie Mac Home Possible — for 700+ FICO with minimal down.
- Buying a fixer-upper: FHA 203(k) renovation loan — finances purchase + repairs in single mortgage.
- Need help with down payment: Check state Down Payment Assistance programs ($5K-$25K typical).
FHA mortgage insurance lasts the LIFE of the loan if you put less than 10% down
The biggest gotcha for first-time buyers choosing FHA: if your down payment is less than 10%, the monthly MIP (0.55% annually) lasts for the entire life of the loan, not just until you build 20% equity. To stop paying MIP, you'd need to refinance to a conventional loan once you reach 20% equity. On a $350K loan, that's ~$160/month for 30 years if you don't refinance — over $50,000 in MIP. Conventional PMI cancels automatically at 78% LTV.
First-Time Buyer Loan Program Comparison
| Feature | Conventional 97% | FHA | VA | USDA |
|---|---|---|---|---|
| Minimum down payment | 3% (Fannie Mae HomeReady / Freddie Mac Home Possible) | 3.5% (with 580+ FICO) | 0% — no down payment required | 0% — no down payment required |
| Minimum credit score | 620 (most lenders) | 580 (3.5% down) or 500 (10% down) | No federal minimum (lender typically 620) | 640 (most lenders) |
| Mortgage insurance | PMI required if <20% down (~0.5-1.5%/yr); CANCELS at 20% equity | UFMIP 1.75% upfront + MIP 0.55%/yr; LASTS LIFE OF LOAN if <10% down | VA funding fee 1.25-3.3% (one-time); NO ongoing MIBest | USDA upfront fee 1% + 0.35%/yr ongoing; cancels at 20% equity |
| Loan limits (2026) | $766,550 conforming / up to $1,149,825 high-cost areas | $541,287 standard / up to $1,249,125 high-cost | VA loan limits removed (no maximum for full entitlement borrowers)Best | Varies by county but no formal maximum |
| Property eligibility | Primary residence, second home, investment | Primary residence only; property must meet FHA minimum standards | Primary residence only | Primary residence only; property must be in USDA-eligible rural/suburban area |
| Income limits | HomeReady/Home Possible cap at 80% area median income | No income limits | No income limits | Income capped at 115% area median income |
| Eligibility restrictions | Anyone qualifying on credit + income | Anyone qualifying on credit + property | Active duty military, veterans, surviving spouses, certain reservists/National Guard | Property in USDA-eligible area + income limit |
| Best fit | Standard buyer with 5-20% down + 700+ FICO who wants flexible property options | Lower credit (580-680), low down payment, or buying property requiring minor work | Eligible military/veteran — almost always wins on cost | Buying in eligible suburban/rural area within income limits |
Worked example: $350,000 home with different down payments
Comparing total cash to close + monthly payment for a 720 FICO first-time buyer at different down payment levels. Sample APR 6.85% (May 2026).
| Loan Program | Down Payment | Mortgage Amount | Monthly P&I | Monthly MI | Total Monthly |
|---|---|---|---|---|---|
| Conventional 97% LTV | $10,500 (3%) | $339,500 | $2,225 | $200 (PMI) | $2,425 |
| FHA | $12,250 (3.5%) | $337,750 + $5,910 UFMIP financed | $2,253 | $157 (MIP) | $2,410 |
| VA (eligible borrower) | $0 | $350,000 + $7,875 funding fee financed | $2,348 | $0 | $2,348 |
| Conventional 20% down | $70,000 (20%) | $280,000 | $1,835 | $0 | $1,835 |
The take:20% down conventional has the cheapest monthly payment ($1,835) but requires $70K cash. For low-down-payment buyers, FHA and conventional 97% are similar in monthly cost (~$2,400) but very different in long-term cost — conventional PMI eventually cancels, FHA MIP doesn't (with <10% down). VA wins outright for eligible borrowers — $0 down + $0 ongoing MI beats every other option.
Which first-time buyer loan should you choose?
Match the program to your credit, down payment, and eligibility:
- 740+ FICO, 20%+ down payment available→ Conventional loan (no PMI)With 20% down + excellent credit, conventional loans win on cost: lowest rates, no PMI, no MIP, fewest restrictions on property type. PMI cancellation isn't even an issue because you start at 80% LTV. Trade-off: requires the largest cash outlay. For prime borrowers who can swing 20% down, conventional almost always beats FHA, VA (if eligible), and USDA on total cost.
- Active duty military, veteran, or eligible spouse→ VA loan (almost always best)VA loans are the most generous mortgage product in America: 0% down required, no monthly mortgage insurance, no minimum credit score federally (lenders typically want 620), competitive rates. The one-time VA funding fee (1.25-3.3% of loan, can be financed) is meaningfully less than years of FHA MIP or conventional PMI. For eligible borrowers, the only reason to choose conventional or FHA over VA is if you're using your VA entitlement on a different property simultaneously.
- FICO 580-680, less than 5% down available→ FHA loanFHA is the most accessible loan for borrowers with sub-680 FICO or minimal down payment. 580 FICO + 3.5% down qualifies. Trade-off: MIP lasts the life of the loan if you start with less than 10% down (you'd need to refinance to a conventional loan after building 20% equity to drop the insurance). For most credit-challenged first-time buyers, FHA is the practical entry point. Plan to refi to conventional in 5-7 years once equity and credit improve.
- Buying in a rural or eligible suburban area, household income under 115% AMI→ USDA loanUSDA loans offer 0% down + competitive rates + lower mortgage insurance than FHA. The catch: property must be in a USDA-eligible area (use the USDA property eligibility map at eligibility.sc.egov.usda.gov), and household income can't exceed 115% of area median. "Rural" per USDA includes many suburban areas — not just farms. For income-eligible buyers in eligible areas, USDA is often cheaper than FHA.
- FICO 700+, only 3-10% down available, want to avoid lifetime FHA MIP→ Conventional with PMI (HomeReady or Home Possible)Conventional 97% LTV programs (Fannie Mae HomeReady, Freddie Mac Home Possible) accept as little as 3% down with PMI. The PMI is more expensive monthly than FHA MIP but CANCELS automatically once you reach 20% equity (or you can request cancellation at 80% LTV based on original purchase price). Over a 5-10 year ownership timeline, conventional with cancellable PMI usually beats FHA with lifetime MIP.
- Buying a fixer-upper that needs significant work→ FHA 203(k) renovation loanThe FHA 203(k) loan finances both the home purchase AND renovation costs in a single mortgage. Required if the property doesn't meet FHA's minimum standards in current condition (peeling lead paint, structural issues, missing systems, code violations). Available through specialized lenders — loanDepot is one of the major online lenders offering this. Standard FHA without 203(k) wouldn't close on a property needing repairs above ~$5,000.
- Purchase price above $766,550 (conforming limit)→ Jumbo loan or VA loan (if eligible)Above the conforming loan limit ($766,550 in most counties, higher in HCOL areas), you need either: (a) a jumbo loan from Rocket, Better, loanDepot, or other lenders — typically requires 700+ FICO and 10-20% down with stricter underwriting, OR (b) a VA loan if eligible (no loan limits for full-entitlement borrowers since 2020). Most first-time buyers in HCOL markets (CA, NY, MA, etc.) need jumbo financing.
- Looking for down payment assistance→ Check state-specific Down Payment Assistance (DPA) programsMost states offer Down Payment Assistance programs through state Housing Finance Agencies (HFAs) — typically grants or low-interest second mortgages of $5,000-$25,000 specifically for first-time buyers. Examples: CalHFA in California, SONYMA in New York, MyHome Assistance in CA. Income limits, property limits, and residency requirements vary. Most DPA programs work alongside FHA, VA, USDA, or conventional first mortgages. Find your state's program at hud.gov/buying/loans or via your state HFA website.
State Down Payment Assistance (DPA) programs
Most states offer DPA through state Housing Finance Agencies (HFAs). Programs typically take the form of:
- •Grants: Free money toward down payment — no repayment ever required. $5K-$15K typical.
- •Forgivable second mortgages: Loan forgiven over 5-10 years if you stay in the home. $10K-$25K typical.
- •Deferred-payment second mortgages: No payments until you sell or refinance. Repaid in full at sale.
- •Closing cost assistance: Smaller amounts ($2K-$5K) toward closing costs only.
Common eligibility requirements: first-time buyer status (no homeownership in past 3 years), income limits (typically 80-120% of area median income), property price caps, completion of HUD-approved homebuyer education course (4-8 hours, $0-$100).
Find your state's programs:HUD's state-by-state list at hud.gov/buying/loans, or search "[your state] housing finance agency." Most state HFAs also offer their own bond-backed mortgage programs with below-market rates for first-time buyers — sometimes 0.5-1.0 percentage point below standard market rates.
Check your credit before applying for a mortgage
Credit score is the single largest factor in your mortgage rate. The difference between 680 and 740 FICO can be 0.5-1.0 percentage points on a 30-year loan — $30,000-$60,000 in extra interest on a $350K mortgage. Credit Sesame gives you a free credit score and credit monitoring — soft pull, no impact, $0 to start. Know your score before applying.
See My Free ScoreSponsored partner
Frequently Asked Questions
How we built this
Loan program details verified May 2026 against HUD.gov FHA guidelines, USDA Rural Development eligibility maps, VA Home Loan benefit pages (va.gov/housing-assistance/home-loans), Fannie Mae HomeReady and Freddie Mac Home Possible product pages, and 2026 conforming loan limits from the Federal Housing Finance Agency. Down Payment Assistance program structures verified against state Housing Finance Agency websites and HUD's state-by-state DPA directory.