How to Find the Best Lenders for First-Time Homebuyers

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More and more hurdles are being placed in front of first-time homebuyers — delaying the “American Dream” for many. 

Between 1981 and 2019, the average age of the first-time buyer increased from 29 to 33 according to recent data from the National Association of Realtors. This is based on a number of factors, including the “Great Recession” of 2009 and a rapidly changing real-estate marketplace. 

Despite these obstacles, buying real estate is still an opportunity for individuals and families to build long-standing wealth.

“In the grand scheme of things, the sooner you purchase a home, the sooner you build assets and can build wealth for your family,” says Mark Zhuk, loan coordinator with Helping Hands Team, a Seattle-based non-profit that helps first-time homebuyers secure mortgages. 

And a number of special mortgage programs are available to help first-time buyers get a leg up in the process. Although down payments are seen as the biggest hurdle, you may not necessarily need to scrimp and save for a major, upfront payment. For example some loan programs built for first time homebuyers can open doors with a down payment as little as 3.5%. 

Here’s what you need to know if you’re looking to buy your first home.

What Loan Programs Are Available to First Time Homebuyers?

The U.S. government provides three loan programs for first-time homebuyers. While the USDA Guaranteed Loan and FHA home loan are available to almost all buyers, the VA home loan is available only to qualifying active-duty military or National Guard, veterans, and qualifying surviving spouses. 

Loan TypeEligibility RequirementsMinimum Down PaymentPrivate Mortgage Insurance (PMI)Minimum Credit Score
USDA Guaranteed LoanMust meet location and income requirements0%No640
FHA Home LoanOpen to most first-time homeowners0%–10%, based on credit scoreYes500–580, based on down payment and lender
VA Home LoanMust be a qualified active duty service member, National Guard member, veteran or surviving spouse0%NoNo minimum credit score, but you must prove creditworthiness
Conventional Home LoanOpen to all homebuyers3%–20%Yes620 (depending on lender)

Before deciding on a loan, make sure to do your research to understand the pros and cons of each program. For instance: While the USDA mortgage program offers a zero-down-payment option, homeowners are limited to purchasing in rural areas defined by the program — usually suburbs and rural areas with a population under 30,000.

What’s the Easiest Type of Loan to Get for a First Time Homebuyer?

Of the three first-time homebuyer programs, the FHA loan is the easiest for many to get. This program, backed by the U.S. Department of Housing and Urban Development, offers the most lenient guidelines for credit, income-to-debt ratio, and closing-cost assistance. 

“What’s great about the FHA loan is that it doesn’t judge you that much in terms of credit,” says Jason Gelios, a real estate agent with Community Choice Realty in Ann Arbor, Michigan. “It helps people with all types of credit get a competitive interest rate, and they can still get a home.” 

In addition to being flexible with credit requirements, FHA loans give new homeowners the most options to come up with a down payment and closing costs. The down payment can come from first-time homebuyer assistance programs or as a gift from family members. In addition, the buyers can request up to 6% of the purchase price as concessions from sellers toward covering closing costs. 

Other programs can be a little more difficult to navigate, and may come with higher entry barriers. To qualify for a USDA loan, homeowners must meet strict income and credit score requirements, and are limited by where they can shop for a new home. If you meet those guidelines, potential rural homeowners still have to complete a lot of paperwork and wait six months or more to get approved for the program. 

Of the three programs, the VA loan offers the easiest pathway to homeownership from start to finish. However, it also has the strictest requirements: applicants must be a qualifying servicemember, veteran, or surviving spouse. Family members, including children of veterans, cannot apply for a VA loan.  

What Type of Loan Is the Best for a First Time Home Buyer? 

The best type of loan for first time homebuyers depends on several factors, including their personal goals and which programs they may qualify for. Although the FHA loan program is the most popular first-time homebuyer loan option, those who qualify for a VA loan or USDA loan programs may be able to get through the front door without a down payment or private mortgage insurance

Before shopping for a home, potential homeowners are best served talking to a real estate agent in their area about their goals and loan options. In addition, a mortgage broker can help individuals navigate all the options available to them — not just those packaged by lenders. 

“A mortgage broker is able to cast a wider net,” says ShirleyAnn Robertson, a Prudential financial advisor based in Chicago. “A mortgage broker is in a position to look at your financial status, and based on your payment history, cash flow, and credit score, and help you navigate the path toward the right loan.” 

If you don’t have a mortgage broker in your network, experts recommend you start with your bank or credit union because they have the most insight into your finances. From there, always talk to multiple lenders to compare rates, options, and which loan officers have the most experience working with first time homeowners. 

Which Lenders Offer Low Down Payment Home Loan Options?

Once you’ve determined which program works best for your needs and financial situation, you can start shopping between lenders to find the right loan. Working with a loan officer or mortgage broker can help you uncover the right combination of loan terms and homebuyer assistance programs to unlock the front door of your first home.   

LenderMinimum Down PaymentPMIMinimum Credit Score
Navy FCU0%No620
Movement Mortgage3.5%Yes640
Better Mortgage3%Yes620
Quicken Loans3%Yes680
Bank of America3%No, on Affordable Loan Solution mortgage (Yes otherwise)620

Even though some lenders offer no-down-payment mortgage programs, they may not be the best fit for everyone. Even though credit unions are community-focused, their loan requirements or interest rates on zero-down home loans may not be as competitive as other products. While they may look like the best option, experts say it’s important to shop around for the best fit for your personal situation. 

“Credit unions often have their own set of guidelines, and tend to be more strict on certain terms,” says Gelios. “Mortgage brokers can look at a variety of lenders, and potentially find better options.” 

Bottom Line

While navigating the homebuying process can be difficult, programs built for first-time owners can make the process easier and much more accessible. To get started down the right path, experts recommend you educate yourself on the programs you may qualify for, and use that as a starting point on your journey towards closing on your first true home. 

Pro Tip

Before deciding on a lender, be sure to shop around to find the best one for your specific situation. A mortgage broker can help first-time homebuyers deal with multiple lenders to find the right option within the right program.