6 First-Time Home Buyer Loans and Programs

Becoming a homeowner can be a financially intimidating process, but there are several options from lenders and government sources designed to smooth the way. Qualified home buyers can secure loans with low down-payment minimums and participate in local buyer assistance programs. Some may even finance fixer-uppers that require more work but cost less upfront.

While a larger down payment (or even an all-cash offer) can make you a more competitive buyer, the conventional advice of saving 20% of the home’s value for a down payment is not a hard-and-fast rule. This is especially true if you qualify for a government-backed loan, meaning that you may be closer to a sufficient down payment than you think.

First-time home buyer loans and programs

Here are six first-time home buyer loans and programs that are worth exploring.

• FHA loans are insured mortgages that require just 3.5% down.

• VA loans are no-down-payment loans for borrowers with a military connection.

• USDA loans offer financing on rural properties with 0% down.

• Fannie Mae and Freddie Mac back conventional loans with just 3% down.

• State first-time home buyer programs offer assistance programs tailored to the borrower’s location.

• Home renovation loans allow you to buy a home and remodel it with one loan.

FHA loans

Loans backed by the Federal Housing Administration require just 3.5% down, making them a popular choice among first-time home buyers. According to the most recent federal data, nearly 73% of FHA borrowers put down less than 10% for loans originated in October and November 2021. However, if your credit score is under 580, you would be required to put 10% down. Loan limits will vary depending on where you live, with maximums ranging from $420,860 to $970,800 for 2022.

While you can technically qualify for an FHA loan with a credit score in the 500s, approved borrowers tend to have much higher scores. From January to November 2021, the average FHA borrower had a credit score of 678, according to data from ICE Mortgage Technology.

FHA loans also require mortgage insurance. This protects the lender’s stake in the loan if you default. Borrowers can pay an upfront premium as part of their closing costs and an ongoing premium as part of each monthly mortgage payment.

» MORE: Find the best FHA lender for you

VA loans

The Department of Veterans Affairs helps service members, veterans and surviving spouses buy homes. VA loans are especially generous, often requiring no down payment or mortgage insurance. They also allow borrowers to have higher debt-to-income ratios — and qualify for larger mortgages — than some other loan programs.

While the VA itself doesn’t set credit or income requirements, individual VA lenders will have their own criteria. According to data from ICE Mortgage Technology, the average credit score of VA borrowers was 722 from January to November 2021.

The standard VA loan limit is $647,200 for 2022, though high-cost areas can have limits as high as $970,800.

» MORE: Find the best VA lender for you

USDA loans

This one may surprise you. The U.S. Department of Agriculture has a home buyers’ assistance program. And no, you don’t have to live on a farm to get a USDA loan. The program targets rural and some suburban areas and allows 100% financing by offering lenders mortgage guarantees.

There are income limitations, which vary by region. For households with fewer than five members, the standard income limit is $91,900 for 2022. For households with five to eight members, this limit grows to $121,300.

» MORE: Find the best USDA lender for you

Fannie Mae and Freddie Mac

Fannie Mae and Freddie Mac are the engines behind the home loan machine, working with local mortgage lenders to offer a range of conventional loan products — some requiring very low down payments.

Fannie Mae’s HomeReady loan, for example, is designed for low-income borrowers with credit scores of 620 or higher (and preferably 680 or higher) and requires only 3% down. One advantage of this kind of loan is that borrowers could qualify to end their mortgage insurance once they’ve built up 20% equity in their home — unlike with FHA loans, where borrowers can cancel their mortgage insurance after 11 years only if they originally put 10% down.

Freddie Mac’s Home Possible loan is another product with a minimum down payment of just 3%. The loan is intended to serve “first-time home buyers, move-up borrowers and retirees,” and borrowers can apply sweat equity or funds from gifts, grants or loans toward the down payment and closing costs.

» MORE: Why Fannie Mae and Freddie Mac matter when getting a mortgage

State first-time home buyer programs

In addition to these national programs, many state and local governments offer assistance to home buyers. Browse NerdWallet's list of state first-time home buyer programs to learn more.