First-Time Home Buyer Guide: Mortgage Options and How to Qualify

Buying your first home is an exciting milestone, but navigating the mortgage process can feel overwhelming. The good news is that there are several mortgage options specifically designed to help first-time home buyers achieve homeownership, even if they have limited savings or less-than-perfect credit.

Understanding your financing options and knowing what lenders look for can significantly improve your chances of securing a mortgage and finding a home that fits your budget. It’s also important to understand the housing market.

According to the National Association of Realtors’ 2025 Profile of Home Buyers and Sellers report, the number of first-time home buyers sunk to an all-time low making up just 21% of the home market, the lowest since the NAR began tracking this data in 1981. First-time home buyers are defined as someone who buys a home after not owning a primary residence in the past three years.

Mortgage Options for First-Time Home Buyers 

Conventional Loans 

Conventional loans are among the most common mortgage options and are not backed by the government. Mortgage underwriting for conventional loans generally considers a borrower's credit history, income, existing debts, assets and the value of the property. 

Benefits: 

• Down payments as low as 3%

• Competitive interest rates

• Flexible loan terms

• Available through most lenders

Typical Requirements: 

• Credit score of at least 620, according to Fannie Mae

• Stable income and employment history

• Debt-to-income ratio is typically below 45%

While conventional loans often require private mortgage insurance (PMI) when putting down less than 20%, PMI can be removed once you’ve built enough equity in your home. 

FHA Loans 

FHA loans, which are insured by the Federal Housing Administration, are popular for first-time buyers because of their flexible requirements. These loans, which have been around since 1934, are available for first-time buyers and seniors over the age of 62.  

While the Department of Housing and Urban Development’s FHA Single Family Housing Policy Handbook establishes program minimums for underwriting these types of loans, an individual lender can impose stricter underwriting requirements. 

Benefits: 

• Down payments as low as 3.5%

• Lower credit score requirements, starting at 580 or more, although lower could still qualify if able to provide a higher down payment

• Easier qualification standards

Typical Requirements: 

• Credit score of 580 or higher for 3.5% down

• Proof of steady income

• Property must meet FHA standards

FHA loans can be especially helpful for buyers who are still building their credit profile. Learn more about how to build your credit in our blog, “How to Build Credit from Scratch in 7 Steps.” 

VA Loans 

If you are a member of the military, a veteran, or a surviving spouse of a fallen soldier, you may qualify for a VA loan backed by the U.S. Department of Veterans Affairs. VA loans are provided by private lenders such as banks and mortgage companies, so the VA does not establish underwriting requirements. Individual lenders may set their own requirements, and underwriting considers factors including credit history, income, debts, assets and residual income. The Department offers a buyer’s guide to provide essential guidance and instructions to secure this type of loan.

Underwriting for VA loans can fluctuate by the lender and be dependent upon credit history, credit score, income, debt, and assets. 

Benefits:

• No down payment required

• No private mortgage insurance

• Competitive interest rates

• Lower closing costs

Typical Requirements: 

• Eligible military service history

• Certificate of Eligibility (COE)

• Ability to meet lender income requirements

USDA Loans 

The United States Department of Agriculture offers home loans for eligible rural and suburban properties. Many suburban communities qualify for USDA loans, making them worth exploring even if you're not moving to a rural area. Learn more about these loans and how to apply.  
Benefits: 

• No down payment required

• Reduced mortgage insurance costs

• Competitive rates

Typical Requirements: 

• Home must be located in an eligible area

• Household income must meet program limits

• Credit and income verification

State and Local First-Time Home Buyer Programs

Many states, counties, and cities have assistance programs that can help with down payments, closing costs, reducing your interest rate, and more. Often, these programs can often be combined with FHA, VA, USDA, or conventional loans.

Steps to Secure a Mortgage as a First-Time Buyer 

When you are ready to buy your first home, it’s important to know your credit score, be able to show you have stable income, have some understanding of your debt-to-income ratio, and have a plan for your down payment.  

Determine a Budget 

When you know these factors, now it’s time to determine your budget. Just because a lender might approve you for a certain amount doesn't mean you should spend that much. You will want to consider the monthly payment, property taxes, homeowners’ insurance, and any HOA fees or maintenance costs that will be added to the total bill. Choose a payment that fits comfortably within your overall financial plan. 

Get Pre-Approved 

Do this FIRST before you start house hunting! It’s better to know your limits so you can be realistic about the homes you spend time researching or viewing. A mortgage pre-approval identifies your buying power, shows sellers you are serious about buying, and allows you to move quickly when you find the right home. At this stage, lenders will evaluate your finances and provide an estimated loan amount. 

Compare Multiple Lenders 

Interest rates, fees, and loan terms can vary significantly between lenders. Get quotes from at least three lenders and compare interest rates, closing costs, loan terms and customer service reviews. Even a small difference in rate can save thousands of dollars over the life of the loan.

Explore Assistance Programs 

Now is the time to seek assistance that might help. Programs such as down payment grants, any of the first-time buyer incentives listed above, employer-sponsored housing or state and city aid should be considered.  

Avoid These Mistakes

When you’ve decided it’s time to buy your first home, there are certain things you should avoid. For example, do not finance a car, furniture, or any other large purchase when buying your first home. This could negatively impact the processing of your mortgage. Another rule is to maintain your current job. Changing jobs during the home-buying process can delay or jeopardize your loan approval.

Make sure you continue to pay all your bills on time and keep an eye on your savings or emergency funds. Unexpected repairs or maintenance costs are common for new homeowners, so you will want to have money available just in case. 

Planning and Mortgage Strategy are Key 

Buying your first home may feel complicated, but many mortgage options are designed specifically to help you succeed. Whether you're considering a conventional loan, FHA loan, VA loan, USDA loan, or a local assistance program, preparation is key.

By improving your credit, managing debt, saving for upfront costs, and obtaining pre-approval before house hunting, you'll put yourself in a stronger position to secure financing and purchase your first home with confidence. Homeownership is a major financial commitment, but with the right planning and mortgage strategy, it can also be one of the most rewarding investments you'll ever make.