July 3, 2022

Best First-Time Homebuyer Loans

Many first-time homebuyers struggle to come up with the cash for a down payment and closing costs. The right first-time homebuyer program can help you become a homeowner without perfect credit or a traditional 20% down payment.

If you’re in the market for your first home, here’s what you need to know to help you find the best first-time homebuyer loan.

What you’ll learn here:

  • Which loan is best for first-time homebuyers?
  • How can a first-time homebuyer get a loan?
  • What’s a good interest rate for first-time homebuyers?
  • Do first-time homebuyers need mortgage insurance?

The Best First-Time Homebuyer Loans of 2021

PNC Bank

3% Min. Down Payment
Not disclosed Min. Credit Score

Chase

3% Min. Down Payment
620 Min. Credit Score

McGlone

5% Min. Down Payment
Not disclosed Min. Credit Score

Lender

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3% Min. Down Payment
Not disclosed Min. Credit Score

Lender

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3% Min. Down Payment
620 Min. Credit Score

Lender

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5% Min. Down Payment
Not disclosed Min. Credit Score

Best for bad credit

Carrington Mortgage Services makes a range of mortgages, including refinancing, available to borrowers nationwide. The company, which provides conventional and government-backed mortgages, has funded $22 billion in home loans since 2011.

Before You Apply

  • Mortgage types: conventional, FHA, VA, USDA, ARM, Carrington Flexible Advantage, first-time buyers, refinancing
  • Minimum FICO credit score: 500
  • Maximum loan amount: $2.5 million
  • Better Business Bureau rating: A+

Best Features

  • Applicants with credit scores as low as 500 are accepted for some products.

  • Conventional loans are offered with down payments as low as 3%.

See full profile

Best for product availability

Fairway Independent Mortgage Corp. is based in Madison, Wisconsin, and has funded billions of dollars in loans since the company began in 1996 – and more than $58 billion in 2020 alone. The lender offers several mortgage products, including conventional, Federal Housing Administration, U.S. Department of Agriculture, U.S. Department of Veterans Affairs and refinancing loans. Fairway Independent Mortgage also provides jumbo loans for home purchases in high-cost markets, renovation loans, adjustable-rate mortgages and reverse mortgages. Fairway is an independent mortgage company and serves as a mortgage broker and direct lender.

Before You Apply

  • Mortgage types: fixed rate, ARM, conventional, USDA/Rural Development, FHA, VA, jumbo, refinance, renovation, reverse mortgage
  • Minimum FICO credit score: 580
  • Maximum loan amount: undisclosed
  • Better Business Bureau rating: A+

Best Features

  • The selection of mortgages includes VA and USDA loans, which often have no down payment requirements.

  • The company has an A+ customer service rating with the Better Business Bureau.

  • Renovation loan options include the HomeStyle Renovation Loan, which combines the cost of remodeling and the mortgage into one loan.

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Best for consumers with credit scores between poor and good

NBKC Bank is a Kansas-based mortgage lender. It originates home loans in all 50 states.

Before You Apply

  • Mortgage types: conventional, fixed rate, ARM, FHA, refinance, VA, FHA Streamline Refinance, Refi Plus, VA Streamline Refinance
  • Minimum FICO credit score: 620
  • Maximum loan amount: Not disclosed
  • Better Business Bureau rating: A+

Best Features

  • Borrowers with fair credit may qualify.

  • It features a simple online application process.

  • VA loan borrowers aren’t charged lender fees.

See full profile

Best for product selection

Guild Mortgage, founded in 1960, specializes in home loans and serves borrowers nationwide. The lender’s full suite of products includes conventional and government-backed mortgages and home renovation loans.

Before You Apply

  • Mortgage types: conventional, FHA, VA, USDA, ARM, refinancing, renovation, jumbo
  • Minimum FICO credit score: 620
  • Maximum loan amount: $2 million
  • Better Business Bureau rating: A+

Best Features

  • A broad range of mortgage products are offered.

  • Special mortgage programs for first-time buyers and manufactured homebuyers are available.

See full profile

Best for VA loans

Veterans United Home Loans provides mortgages to veterans and military families in all 50 states and Washington, D.C., and specializes in VA loans.

Before You Apply

  • Mortgage types: VA, VA jumbo, refinance
  • Minimum FICO credit score: 640
  • Maximum loan amount: $1.5 million
  • Better Business Bureau rating: A+

Best Features

  • No down payment or PMI are required.

See full profile

Best online bank for customer service

Ally Bank is a Detroit-based online bank. Ally offers traditional banking products and services, such as conventional mortgages, as well as refinance loans and jumbo home loans.

Before You Apply

  • Mortgage types: fixed rate, ARM, home equity loans, refinancing, HomeReady for first-time homebuyers
  • Minimum FICO credit score: 620
  • Maximum loan amount: $4 million
  • Better Business Bureau rating: A+

Best Features

  • A program is available for first-time homebuyers.

  • Existing Ally customers can get a closing cost discount.

See full profile

Best for large loan amounts

Bank of America serves roughly 66 million customers in all 50 states. The lender offers conventional, Federal Housing Administration, Department of Veterans Affairs and jumbo loans, as well as home equity lines of credit and mortgage refinancing.

Before You Apply

  • Mortgage types: fixed rate, Affordable Loan Solution, FHA, VA, ARM, home equity line of credit, fixed-rate refinancing, FHA refinancing, VA refinancing, cash-out refinancing, adjustable-rate refinancing, jumbo
  • Minimum FICO credit score: Not disclosed
  • Maximum loan amount: $2.5 million
  • Better Business Bureau rating: A+

Best Features

  • Bank of America has a wide variety of mortgage products.

  • The lender offers origination fee discounts for qualifying Bank of America and Merrill Lynch clients.

  • Home equity lines of credit have no annual, application or cash advance fees or closing costs.

  • Bank of America offers a first-time homebuyer program.

See full profile

Best for low down payment

PNC Bank is one of the largest U.S. banks, serving more than 8 million customers in all 50 states. PNC offers most types of mortgages.

Before You Apply

  • Mortgage types: fixed rate, FHA, VA, USDA, ARM, home equity line of credit, refinancing, medical professional mortgage program, jumbo, PNC Community
  • Minimum FICO credit score: Not disclosed
  • Maximum loan amount: $5 million
  • Better Business Bureau rating: A+

Best Features

  • Multiple types of mortgages are available.

  • Some mortgage options require no or low down payments.

  • PNC supplies an online home ownership cost tool.

See full profile

Best for no down payment

Alliant Credit Union is a nonprofit financial cooperative. The credit union serves customers in all 50 states. Mortgage products include conventional, jumbo and refinancing loans, and home equity lines of credit.

Before You Apply

  • Mortgage types: Traditional, ARM, refinancing, home equity line of credit, Alliant Advantage Mortgage
  • Minimum FICO credit score: 620
  • Maximum loan amount: $2.5 million
  • Better Business Bureau rating: A+

Best Features

  • No-down-payment mortgages are available for first-time homebuyers with excellent credit.

  • Mortgages are available to borrowers with FICO credit scores as low as 620.

See full profile

Who’s a First-Time Homebuyer?

There are different definitions of what it means to be a first-time homebuyer, says Tammy Andrews, vice president and branch manager for Motto Mortgage United in Fulton, Maryland. “From a lender’s perspective, it can be not ever owning a home, period. But for different grant programs, it might mean not having owned a home in the last three years,” she says.

Which Loan Is Best for First-Time Homebuyers?

A low down payment is usually the main characteristic of a first-time homebuyer loan. Genworth Mortgage Insurance’s First-Time Homebuyer Market Report indicates more than 80% of first-time homebuyers have used some form of low down payment mortgages, including conventional, Federal Housing Administration, U.S. Department of Veterans Affairs and U.S. Department of Agriculture loans.

  • FHA: A 3.5% down payment is required. It’s good for borrowers with lower credit scores and usually has looser debt-to-income ratio requirements than conventional loans. It carries an upfront mortgage insurance premium and monthly mortgage insurance payments.
  • VA: No down payment required. If you are a veteran or serving in the military, you may be eligible for these loans, which also don’t require private mortgage insurance but do have upfront costs.
  • USDA: No down payment required.To qualify, the property must be in an eligible rural location. You will need to pay an annual guarantee fee each year.
  • Fannie Mae and Freddie Mac conventional loans: Required down payments can be as low as 3%. These have higher credit requirements but potentially lower interest rates. You will have to pay private mortgage insurance until you reach 20% equity.

“FHA and VA have been the classic first-time homebuyer programs mostly because of the low down payment,” says Anna DeSimone, author of “Housing Finance 2020,” a comprehensive guide to the mortgage process. However, she points out, Fannie Mae and Freddie Mac both have conventional loan programs that only require 3% down.

The main difference between the loan types is the credit score requirements. “FHA will accept a lower credit score,” she says.

As far as which loan program is best, there isn’t a one-size-fits-all answer. It really depends on your financial situation and the cost and location of the home you are looking to buy.

For example, while you might assume an FHA loan is the best entry point for those with less-than-stellar credit, Andrews says that program is also the strictest when it comes to student loan debt. The FHA’s formula counts student loans in a way that typically raises a borrower’s debt-to-income ratio.

Whichever loan you go with, don’t forget to ask about state programs for down payment and closing cost assistance for first-time homebuyers. They can come in the form of grants or forgivable second mortgages.

How Can a First-Time Homebuyer Get a Mortgage?

There are a couple of ways to begin your research. DeSimone recommends starting with your state’s housing financing agency, which offers affordable mortgages based on housing characteristics and prices for its areas. “They are subsidized by their state and they work with FHA, VA, and Freddie and Fannie loans,” she says. When buyers contact their agency, she says, they’ll get an unbiased, independent opinion and will be referred to approved lenders.

In addition to affordable mortgage programs, state agencies can give first-time homebuyers advice, and some states also help with home energy improvements and payment protection in case a borrower loses his or her job, says DeSimone.

Another route to try is to work with a local lender or mortgage broker in your area who knows about grant programs and what the requirements are for particular areas, says Andrews. “It’s absolutely a great idea to shop around and ask a lot of questions,” she says, adding that a mortgage broker can do that shopping for you.

How Much Can You Get Approved For as a First-Time Homebuyer?

Whether you’re a first-time or repeat homebuyer, getting approved for a loan will depend on your ability to repay the loan. “You have to build a picture to the mortgage lender that you have the strengths and responsibility to successfully finance the home mortgage,” says DeSimone. That will include a number of factors including your income, your assets, your existing debt and your credit score.

If you’re debt free, have a steady income and have an excellent credit score, that will, of course, be a big plus. Lenders can also look at compensating factors in order to extend your borrowing power even further, says DeSimone, like if you have large cash reserves, additional recurring income, or a long history of paying rent on time. A key number that lenders look at is debt-to-income ratio, or how much of a borrower’s income is going toward paying off existing debts and housing costs.

You should aim to have a debt-to-income ratio of less than 43% – that’s the highest ratio a borrower can have and still get a qualified mortgage. Don’t worry if you’re above that threshold as a first-time homebuyer, though. “Some programs are allowed to loosen ratios up to 50% for people who have compensating factors,” says DeSimone.

Start thinking like a lender to ensure you can get approved for the amount you need. Build a picture that shows you can responsibly finance the loan, and gather documents to prove it.

From there, you should reach out to a mortgage professional and do a buyer consultation, says Andrews.

“The old-school way of thinking is to go to a real estate agent first, but the key component is the money piece,” she says. Speaking with a mortgage professional is grounding and can help you get a ballpark of the budget you’ll be working with and the credit score you will need.

What Is a Good Interest Rate for First-Time Homebuyers?

>Your interest rate will depend on your credit whether or not you’re a first-time homebuyer. Interest rates are higher for people who have lower credit scores, says DeSimone. “The riskier it is to take on this debt, the more they are going to charge.”

That said, it’s important to look at the entire loan package and not just the interest rate when choosing your best option. Many first-time homebuyers believe that the loan with the lowest interest rate is the only way to go, but there are other factors to consider.

“If you’re getting a mortgage and have plenty of money to pay closing costs, and the house is in perfect condition, you can afford to shop around to try to get the best rate,” says DeSimone. But if you’re strapped for cash or buying a house that needs a little work, it might be worth paying a higher rate if it means you can keep more cash on hand.

“If it makes a difference between being a homeowner now or waiting, it might make more sense to spend a little bit more now,” says DeSimone.

Crunch the numbers to figure out what a higher rate will really cost you. For example, if one loan option comes out to $18 more per month because of a higher interest rate, how does that compare with putting off homeownership and paying rent for another year or two so you can save for a bigger down payment loan with a lower rate? If housing prices rise, you could end up paying just as much anyway.

Do First-Time Homebuyers Need Mortgage Insurance?

In addition to shopping interest rates, you’ll also want to compare the amount of mortgage insurance and upfront costs you’ll have to pay with various types of loans. If you’re paying less than 20% of the loan for a down payment, you’ll likely need to get mortgage insurance.

For FHA loans, the upfront cost is 1.75% of the loan, which will be added to the total borrowed. Then, you’ll also pay monthly premiums that vary based on the loan amount for the life of the loan. The exception is if your down payment is 10% or more, then monthly premiums can end after 11 years.

VA loans don’t require borrowers to carry insurance, but they do have an upfront cost of 1.4% to 2.3% for first-time homebuyers, depending on the size of the down payment. USDA loans do have recurring payments, but they are considerably cheaper than FHA loans – 1% upfront, and then 0.35% of the remaining loan principal each year.

With a conventional loan, you may have to pay mortgage insurance as well, at a higher rate than the federal programs. Private mortgage insurance rates generally range from 0.55% to 2.25% of your original loan amount. PMI can be removed once your mortgage balance hits 78% of the original purchase price.

First-time homebuyers have a lot to think about before they make what is likely the biggest purchase of their lives. Don’t wait until you find the house of your dreams to start doing your mortgage research. Work with a professional who can guide you to the right first-time homebuyer loan for your needs.

View More Best First-Time Homebuyer Loans

Best for online service

Caliber Home Loans of Coppell, Texas, offers mortgage and home equity products nationwide. Options include conventional, adjustable-rate, refinancing, Federal Housing Administration, U.S. Department of Agriculture and Veterans Affairs loans. Caliber has been in business since 2008, and is focused on home lending products.

Before You Apply

  • Mortgage types: conventional, FHA, VA, USDA, ARM, refinancing, bond, renovation, Freddie Mac HomeOne, Freddie Mac Home Possible, Fannie Mae HomeReady
  • Minimum FICO credit score: 620
  • Maximum loan amount: $3 million
  • Better Business Bureau rating: A

Best Features

  • The first-time homebuyer program HomeOne can require a down payment of as little as 3% and borrowers may qualify with a minimum 620 credit score.

  • Government-insured loans including Federal Housing Administration, Veterans Affairs, and United States Department of Agriculture programs are available.

See full profile

Best for product range

CMG Financial is a privately held mortgage banking firm operating nationwide with localized support, founded in 1993 and based in San Ramon, California. The lender offers a range of products including conventional, government and specialty mortgages, like jumbo loans.

Before You Apply

  • Mortgage types: conventional, FHA, VA, USDA, jumbo, All in One Loan, 203K Renovation Loan, Fannie Mae HomeReady, Freddie Mac Home Possible, HomeFundIt, refinance
  • Minimum FICO credit score: 620
  • Maximum loan amount: $3 million
  • Better Business Bureau rating: A+

Best Features

  • Exclusive mortgage products include the HomeFundIt for crowdfunding a down payment.

  • The lender has a national presence with regional fulfillment and local support.

  • CMG Financial offers a mobile app.

See full profile

Best for low costs

Chase, one of the nation’s largest banks, offers mortgages, refinance loans and home equity loans for qualified borrowers.

Before You Apply

  • Mortgage types offered: conventional, ARM, conforming, FHA, DreaMaker, VA, jumbo, refinancing
  • Minimum FICO credit score: 620
  • Maximum loan amount: $3 million
  • Better Business Bureau rating: A+

Best Features

  • Down payments as low as 3% are accepted.

  • Fixed- and adjustable-rate mortgages are available.

See full profile

Best for fair credit

Flagstar offers banking and lending products in every state. Borrowers can select from conventional or government-backed mortgages, such as FHA, VA and U.S. Department of Agriculture loans, and opt for adjustable-rate mortgages. Other choices include home equity loans and lines of credit.

Before You Apply

  • Mortgage types: conventional, VA, ARM, FHA, USDA, jumbo, refinance, home equity
  • Minimum FICO credit score: Not disclosed
  • Maximum loan amount: $3 million
  • Better Business Bureau rating: A+

Best Features

  • Flagstar Bank provides a broad selection of mortgages and home equity loans.

  • Some mortgages require no or a low down payment.

  • Borrowers can apply for loans online.

See full profile

Best for digital mortgages

LoanDepot is an online lender operating in all 50 states with more than 200 in-person branches. The company was founded in 2010 and is headquartered in Southern California. LoanDepot offers Federal Housing Administration and Department of Veterans Affairs loans, as well as home equity and refinancing loans.

Before You Apply

  • Mortgage types: refinance, jumbo, hybrid ARM, fixed rate, HARP, VA, FHA, 203k loan
  • Minimum FICO credit score: 620
  • Maximum loan amount: $3 million
  • Better Business Bureau rating: A+

Best Features

  • LoanDepot mortgages have a lifetime guarantee, which means if you ever decide to refinance an existing LoanDepot loan, the company will waive the lender fees and reimburse appraisal fees.

  • The company offers a variety of mortgage products.

  • It’s licensed in all 50 states.

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Best for digital customer care

PrimeLending is a Dallas-based mortgage lender with several mortgage loan options, including conventional loans, jumbo loans, government-backed loans and refinance loans. The lender is a subsidiary of PlainsCapital Bank.

Before You Apply

  • Mortgage types: fixed rate, ARM, conventional, cash-out refinance, refinance, jumbo, FHA, VA, USDA, new construction, interest rate reduction refinance loan
  • Minimum FICO credit score: 640
  • Maximum loan amount: undisclosed
  • Better Business Bureau rating: A+

Best Features

  • Homebuyers can choose from a variety of mortgage products.

  • Home loans are available nationwide.

  • Down payment and closing cost assistance is available.

See full profile

Best for array of products

Founded in 1999, McGlone Mortgage Group is licensed in multiple states to offer purchase and refinance home loans. Headquartered in Appleton, Wisconsin, McGlone Mortgage Group offers many different mortgage options.

Before You Apply

  • Mortgage types: conventional, jumbo, FHA, VA, USDA, HomeReady, High Balance/Super Conforming, Energy Efficient Mortgage, FHA
  • Minimum FICO credit score: Not disclosed
  • Maximum loan amount: $2 million
  • Better Business Bureau rating: A+

Best Features

  • Varied loan options are available.

  • McGlone Mortgage Group offers mortgage calculators and other tools.

  • Co-signers are allowed for most loans.

See full profile

Best for conventional mortgage

Citizens Bank is a regional bank based in Providence, Rhode Island. It offers traditional banking services and products, including home loans and mortgage refinance loans.

Before You Apply

  • Mortgage types: conventional, ARM, refinance, HELOC, jumbo, fixed rate
  • Minimum FICO credit score: undisclosed
  • Maximum loan amount: undisclosed
  • Better Business Bureau rating: A+

Best Features

  • Citizens Bank provides a homebuying service with rewards for borrowers in select states.

  • Homebuyers can get an interest rate discount for qualifying automatic payments.

  • Borrowers can apply online.

See full profile

Best for government loans

Founded in 2008, PennyMac is a national mortgage lender with more than $402 billion in loans serviced. PennyMac offers a range of home loans, including conventional, Federal Housing Administration, Veterans Affairs and investment property mortgages.

Before You Apply

  • Mortgage types: conventional, FHA, VA, ARM, refinancing
  • Minimum FICO credit score: 620
  • Maximum loan amount: $765,600
  • Better Business Bureau rating: A+

Best Features

  • PennyMac accepts a 50% debt-to-income ratio for conventional loans in some instances.

  • Online capabilities include a 24/7 access center and email status updates.

See full profile

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