Buying a house or apartment can feel daunting at times, especially for first-time homebuyers. The good news: A variety of specialized programs and loans can help you navigate and secure your new place. While you have many things to learn and decisions to make in the search, it’s easier than ever to qualify for home financing you can afford.

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What is a first-time homebuyer loan?

If you’re new to homeownership, you won’t run into something called “the first-time homebuyer loan.” Rather, many mortgages have features that help newbies, such as lower qualification standards around credit scores, debt, income, and down payments, that make it easier to secure a loan and gain the keys to that first house.

In general, mortgages that help first-time buyers allow for moderate credit scores, a lower down payment, assistance with down payments, and sometimes aid with closing costs. These features can be critical for new buyers, who don’t have an old house to sell (to raise funding for the new one).

Types of home loans for first-time buyers

While veteran homebuyers can also take advantage of many of these programs, they tend to aid buyers who have lower incomes, weaker credit scores, or less in savings. Those three factors also tend to skew toward younger and first-time buyers.

1. HomeReady mortgage

Available through federal government-backed Fannie Mae, HomeReady® mortgages offer competitive interest rates to low-income home buyers with good credit. They allow you to get 100% of your down payment and closing costs from outside sources such as gifts, grants, or secondary loans (like from a family member). Note: If both you and your spouse are new homebuyers, one of you will have to complete homeownership education and counseling to qualify.

Best for: Low-income buyers with credit scores of at least 620

2. Home Possible mortgage

Offered through the other government mortgage originator, Freddie Mac, Home Possible® loans allow buyers to put sweat equity toward their entire down payment and closing costs by making improvements to the home before they close. (The improvements replace the down payment.) You can also get help from outside sources such as gifts, grants, or secondary loans. To qualify, your income can’t exceed 80% of the area median in the location where you want to buy.

Best for: Very low- to moderate-income homebuyers

3. FHA loan

Buyers with low credit scores will find FHA (Federal Housing Administration) loans easier to qualify for than, say, HomeReady loans. The reason: You only need a credit score of 500 when you put down 10% of the purchase price, or 580 with as little as 3.5% down. The trade-off: Your initial costs will probably be higher than with other programs because you can’t avoid paying a down payment, and you’ll have to buy private mortgage insurance (PMI) that stays in place until your equity reaches the standard 20% of the home’s value.

Best for: Homebuyers with credit scores below 620

4. FHA 203(k) mortgage

Aimed largely at boosting homeownership in lower-income areas, the FHA 203(k) mortgage enables buyers to spend at least $5,000 to “rehab” the home they want. You can make structural changes ranging from fixing up the kitchen to tearing down a home to the foundation and rebuilding it. (FHA’s “Limited 203(k)” mortgage program enables smaller renovations up to $35,000.) It also lets you finance both the purchase price and home improvement costs. One thing you can’t do? Add a pool.

Best for: Homebuyers with ambitious renovation plans

5. HomeStyle Renovation Mortgage

With 3% down and a credit score of at least 620, you can use Fannie Mae’s HomeStyle® loan to buy a home that needs a lot of work, as long as it’s a permanent change you want to make to the property. The loan allows you to also secure a secondary loan to finance your down payment and closing costs, if needed. (Note that you’ll probably need to buy private mortgage insurance if your down payment is below 20%.)

Best for: Financing repairs and upgrades that cost up to 75% of the home’s post-renovation value

6. Community Seconds/Affordable Seconds

Certain loans allow secondary financing to cover your down payment and closing costs if you don’t have the cash. Fannie Mae calls their program Community Seconds, while Freddie Mac calls theirs Affordable Seconds. The loan itself will come from a federal agency, state or municipality, a nonprofit organization, or employer, among other sources. This enables you to get into a home even if you don’t have enough initial savings to do so.

Best for: Buyers who can’t afford a down payment.

7. VA loan

The U.S. Department of Veterans Affairs subsidizes mortgages for military service members who meet length and character-of-service requirements, and spouses of service members who were killed, taken prisoner, or went missing in action. With a VA Home Loan, you can put nothing down and pay no monthly mortgage insurance. Most borrowers have to cover a funding fee, which you can pay up-front or through financing. Veterans of Native American descent (or whose spouse is Native American) can also qualify for the Native American Direct Loan, which may offer even lower interest rates.

Best for: Qualifying military service members and surviving spouses

8. USDA Guaranteed Loan

To increase homeownership in rural areas, the U.S. Department of Agriculture’s Rural Development agency helps lenders make guaranteed, no-down-payment mortgages available to borrowers in areas with populations below 35,000. The one caveat? Your income can’t surpass 115% of the area’s median.

Best for: Moderate-income homebuyers in less-populated areas

9. USDA Direct Loan

Home buyers who can’t qualify for a USDA Guaranteed Loan can try for a Direct Loan. The agency issues its own funds for below-market-rate loans to applicants who don’t have enough for safe, secure, and sanitary housing. It provides an option for lower-income buyers who seek a house or apartment in a more rural area of the country. (The amount of financial assistance you can get depends on your adjusted gross income and the area where you plan to buy.)

Best for: “Very low- and low-income” homebuyers in less-populated areas

How first-time homebuyer programs can help

First-time buyer loan options all have at least one feature that makes it easier to own a home. Putting less money down, securing lower interest rates, or cutting closing costs can all offer valuable ways to reduce the cost of the mortgage over the life of the loan. Among the benefits:

Low or no down payment. A conventional down payment may require 20%, but even buyers who aren’t first-timers can put as little as 0% down with some of these programs.
Help with closing costs. With average closing costs running between 2% and 5% of the loan, you’d have to pay $6,000 to $15,000 to snag a $300,000 mortgage. This can be a deal breaker for many but assistance greatly reduces this expense or gets rid of it altogether.
Lower interest rate. First-time home loans often feature the best available market rates (and sometimes even less), which means a lower monthly payment. If you get a fixed-rate mortgage, your monthly payments will likely stay low for the life of the loan.
Lower credit score requirements. Lenders generally require a credit score in the mid-700s or higher to get the best interest rate on a mortgage, but first-time buyer programs are more generous and don’t always charge higher rates to borrowers with lower scores.
Opportunity to buy a fixer-upper. You can greatly reduce mortgage costs when you buy a home that needs work. A renovation loan can help you secure the loan and even earn sweat equity in some cases.

Go to AnnualCreditReport.com to get your free credit report from each of the Big Three credit bureaus—TransUnion, Equifax and Experian—and make sure the information is accurate. (If not, follow the bureaus’ directions to get them corrected or launch disputes.) Then, use a free credit score service (provided with many bank and credit card accounts these days) to see where you stand and what aspects of your credit you may need to work on. If you find you have to pay back debt to secure a mortgage, form a plan to start paying some of it off and better position yourself to score a home loan.

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