Choosing your loan is the single biggest financial decision of your first home purchase — it shapes your down payment, your monthly cost, and how much house you can afford. The good news: for first-time buyers, four programs cover almost everyone. Here’s how they compare, in plain English.
The four programs at a glance
- FHA loan — 3.5% down, credit scores from ~580. The most forgiving on credit. Tradeoff: mortgage insurance usually lasts the life of the loan.
- USDA loan — 0% down in eligible (often surprisingly suburban) areas, with income limits. Unbeatable if you qualify by location.
- VA loan — 0% down, no monthly mortgage insurance, for veterans and active-duty service members. Almost always the best deal if you’re eligible.
- Conventional 97 / HomeReady / Home Possible — 3% down for first-time and lower-income buyers. Best long-term cost if your credit is strong (~680+), because you can drop PMI at 20% equity.
How to think about which is right for you
Start with the two zero-down options. If you or your spouse served in the military, a VA loan is usually the clear winner. If not, check whether the home’s address is USDA-eligible — the map is broader than “rural” implies, and a no-down-payment loan is hard to beat.
If neither fits, it comes down to your credit. Scores in the high-500s to low-600s usually point to FHA. Scores around 680 and up often make a conventional 3%-down loan cheaper over time, because you can cancel private mortgage insurance once you build 20% equity — something FHA generally won’t let you do.
Remember: whichever loan you pick, you can often stack down payment assistance or a grant on top of it to cover your down payment and closing costs. And your loan choice interacts with your credit score — improving your score even a little before you apply can change which programs are open to you.
Not sure where you stand? Our complete first-time buyer guide walks through the whole picture, money and process.