Step 5: Choosing the Right Loan
Not all home loans are created equal—and not every loan is the right fit for every buyer.
Step 5 is where we explore the loan options available for first-time homebuyers and explain how each one works. From low-down-payment programs to government-backed loans, the right mortgage depends on your credit, income, goals, and the property you’re purchasing. Scroll down for more information regarding typical first-time homebuyer loan options. If you would like to learn about all of the available loan options for new and existing homeowners, click the link below.
Common Loan Types
Below is a list of the most common types of loans available to new and first-time homebuyers. Below each description is a list of typical minimum requirements for each category. We go into more detail about each loan category in the loan options page above!
Conventional Loans
Conventional loans are offered by private lenders and ideal for buyers with strong credit and steady income. They typically require:
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Minimum down payment of 3% for first-time buyers
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Private Mortgage Insurance (PMI) required if putting down less than 20%
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PMI usually drops off automatically once your equity reaches 20%
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Minimum credit score of 620 (though higher scores receive better rates)
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Stricter debt-to-income limits compared to government-backed loans
FHA Loans
FHA loans are insured by the Federal Housing Administration and designed for buyers with limited savings or lower credit scores:
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Down payment as low as 3.5%
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Requires Mortgage Insurance Premium (MIP), both upfront and monthly
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MIP stays for the life of the loan if putting less than 10% down
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Minimum credit score of 580 (or as low as 500 with 10% down)
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More flexible approval standards for credit and DTI
VA Loans
VA loans are exclusive to eligible veterans, active-duty service members, and surviving spouses:
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No down payment required
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No monthly mortgage insurance (a huge savings)
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One-time funding fee may apply
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Flexible credit guidelines
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Often lower interest rates compared to conventional loans
USDA Loans
USDA loans are backed by the U.S. Department of Agriculture for buyers in eligible rural areas:
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No down payment required
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Low interest rates and reduced mortgage insurance
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Income limits apply (varies by location and family size)
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Property must be in a USDA-eligible area
Uncommon Loan Types
Non-QM Loans (Non-Qualified Mortgage)
Not everyone fits neatly into the standard loan requirements. Non-QM loans are designed for buyers with unique income situations:
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Common options include bank statement loans, asset-based loans, or 1099-only income verification
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Great for self-employed individuals, investors, or retirees
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Typically require higher down payments (10–20%)
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May have higher interest rates and stricter reserve requirements
These loans don’t follow the conventional underwriting rules, but they can be the best (or only) path to homeownership for many qualified buyers who can show the ability to repay.
What to Consider When Comparing Loans
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Down Payment Requirements – How much are you putting down?
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Mortgage Insurance – Will you pay PMI or MIP? For how long?
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Credit Score Minimums – Different loans have different score thresholds.
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Debt-to-Income Limits – Some loans are more flexible than others.
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Rate Type – Fixed vs. adjustable rates can impact your budget.
Pro-Tip
Some buyers might qualify for multiple loan types. Comparing the total monthly cost, upfront fees, and long-term interest savings is key to making the right decision.
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If you’re unsure which loan is best for you, you’re not alone. Most first-time buyers need help weighing the pros and cons. Schedule a free consultation to get a personalized loan comparison.
Coming Up in Step 6
Now that you know which loans are available, it’s time to start looking at homes that fit your budget and loan requirements.