Author: AskMyFinance Editorial Team

Closing costs catch many first-time buyers off guard. You have saved for your down payment, found a home you love, and then discover you also need an additional 2–5% of the loan amount on closing day. This guide breaks down every fee, explains what it pays for, and shows you how to reduce costs where possible.

Compare lenders to find the lowest fees: Shop closing costs on LendingTree — lenders vary significantly on origination fees and discount points.

What Are Closing Costs?

Closing costs are the fees and prepaid expenses you pay to complete a home purchase. They are separate from your down payment and are due at the time you sign the final loan documents. On a $300,000 home, closing costs typically run $6,000–$15,000 depending on your location, lender, and loan type.

Average Closing Costs by Loan Amount

Loan Amount	Estimated Closing Costs (2–5%)
$200,000	$4,000 – $10,000
$300,000	$6,000 – $15,000
$400,000	$8,000 – $20,000
$500,000	$10,000 – $25,000

Lender Fees (Paid to Your Mortgage Lender)

Origination Fee

This is the lender’s charge for processing your loan. It typically runs 0.5–1% of the loan amount. On a $300,000 loan, that is $1,500–$3,000. Some lenders advertise “no origination fee” loans, but these often come with a higher interest rate — always compare the full APR.

Discount Points

Optional. Each point costs 1% of the loan amount and typically reduces your interest rate by 0.25%. Buying points makes sense if you plan to stay in the home long enough to recoup the upfront cost through lower monthly payments. Ask your lender for a break-even analysis.

Application Fee

Some lenders charge $200–$500 to process your application. Many do not. This is one of the easiest fees to avoid by choosing a lender that does not charge it.

Underwriting Fee

Typically $300–$900 for the lender’s cost to evaluate and approve your loan. Varies by lender and is sometimes included in the origination fee.

Rate Lock Fee

Some lenders charge to lock your interest rate for 30–60 days. Others include this at no cost. If rates are volatile, a rate lock protects you from increases between application and closing.

Third-Party Fees

Appraisal Fee

Your lender requires an independent appraisal to verify the home is worth the purchase price. Cost: $300–$700 for a standard single-family home. Paid upfront, before closing, in most cases.

Title Search and Title Insurance

A title search checks public records to confirm the seller has the legal right to sell the property and that there are no outstanding liens. Title insurance protects you (owner’s policy) and the lender (lender’s policy) against future title disputes.

• Title search: $200–$400
• Lender’s title insurance: $500–$1,000 (required by most lenders)
• Owner’s title insurance: $700–$1,500 (optional but highly recommended)

Survey Fee

Some lenders or title companies require a property survey confirming boundary lines. Cost: $300–$700. May not be required if a recent survey already exists.

Attorney Fees

Required in some states. An attorney reviews the closing documents and may represent you at the table. Cost: $500–$1,500 depending on the state and attorney.

Home Inspection

Not a closing cost per se, but paid before closing. A standard inspection costs $300–$500. Specialty inspections (radon, mold, sewer) add to this. See: Home Inspection Guide for First-Time Buyers.

Prepaid Costs and Escrow Items

These are not fees — they are advance payments for ongoing expenses that your lender holds in escrow.

Homeowners Insurance Prepayment

Most lenders require you to pay the first year’s homeowners insurance premium upfront at closing. National average: around $1,400/year, but varies significantly by location and coverage level.

Property Tax Prepayment

Lenders typically collect 2–3 months of property taxes upfront to fund your escrow account. On a $300,000 home in a state with a 1.2% tax rate, that is about $720–$1,080 upfront.

Prepaid Interest (Per Diem Interest)

Interest that accrues between your closing date and the end of the month. Closing at the end of the month minimizes this cost. Closing on the 1st means you pay a full month of prepaid interest; closing on the 29th means just a couple of days.

Initial Escrow Payment

The lender collects 2–3 months of property taxes and insurance to establish your escrow cushion. This typically adds $1,500–$3,000 to your closing costs.

Government Fees

Recording Fees

The county or municipality charges a fee to record the deed and mortgage documents. Typically $100–$250.

Transfer Taxes

Some states and counties charge a tax when property changes hands. Rates vary widely — some states charge nothing; others charge 1–2% of the purchase price. Your title company or real estate agent can tell you what applies in your area.

FHA and VA-Specific Costs

FHA Upfront Mortgage Insurance Premium (UFMIP)

1.75% of the loan amount, financed into the loan. On a $290,000 loan (after 3.5% down on $300,000), UFMIP adds $5,075 to your loan balance. See: FHA Loan Requirements for First-Time Buyers.

VA Funding Fee

For most first-time VA borrowers with no down payment, the funding fee is 2.15% of the loan amount. Financed into the loan. Veterans with service-connected disabilities may be exempt. See: VA Loans for First-Time Military Buyers.

USDA Guarantee Fee

1% of the loan amount upfront (financed into the loan) plus 0.35% annual fee. See: USDA Loans for First-Time Buyers.

How to Reduce Your Closing Costs

Shop Multiple Lenders

Origination fees and lender costs vary significantly. Getting Loan Estimates from at least three lenders allows you to compare total closing costs directly. A lender with a slightly higher rate but lower fees may be the better deal depending on how long you plan to keep the loan.

Compare lender closing costs on LendingTree in one place.

Ask the Seller to Cover Costs

Seller concessions — where the seller pays some or all of your closing costs — are common in buyer-favorable markets. Limits apply by loan type:

• Conventional: 2–9% depending on down payment
• FHA: up to 6% of sales price
• VA: up to 4% of sales price (plus all customary closing costs)
• USDA: up to 6% of sales price

Negotiate with the Lender

Lender fees like origination charges and underwriting fees are sometimes negotiable, especially if you are a strong borrower. Ask whether they can waive or reduce fees, or match a competitor’s Loan Estimate.

Close Near the End of the Month

This minimizes prepaid interest, which can save $200–$600 depending on your loan amount.

Use Down Payment Assistance Programs

Some DPA programs also cover closing costs. See: Down Payment Assistance Programs by State.

What to Expect on Closing Day

Three business days before closing, your lender sends a Closing Disclosure itemizing every cost. Review it carefully against the Loan Estimate you received when you applied — fees should not change significantly. If you see new charges, ask for an explanation.

Bring to closing:

• Government-issued photo ID
• Cashier’s check or wire transfer confirmation for your closing costs and down payment
• Your checkbook for any small adjustments

Lenders That Offer Competitive Closing Costs

Lender	Est. Rate Range	Min Credit Score	Min Down Payment	Best For
LendingTree	Varies by lender	580 (FHA) / 620 (conv.)	3.5% (FHA) / 3% (conv.)	Comparing multiple offers at once
Rocket Mortgage	Competitive market rates	580 (FHA) / 620 (conv.)	3.5% (FHA) / 1% (ONE+ program)	Fast digital approval process
Better.com	Competitive market rates	620	3%	Low-fee online experience
New American Funding	Competitive market rates	500 (FHA) / 620 (conv.)	3.5% (FHA) / 3% (conv.)	Buyers with lower credit scores

The most effective way to minimize closing costs is to get multiple Loan Estimates and compare them directly. LendingTree lets you see offers from multiple lenders in one place so you can compare fees side by side.

Bottom Line

Budget 2–5% of your loan amount for closing costs in addition to your down payment. The biggest variables are lender fees, title insurance, and local transfer taxes. Shop at least three lenders, consider seller concessions, and time your closing near the end of the month to reduce prepaid interest. Your Closing Disclosure will itemize everything — review it carefully before signing.

Compare lender fees and closing costs on LendingTree to find the best deal for your situation.

Buying your first home changes your tax situation in meaningful ways. Several deductions and credits are available to homeowners that renters cannot access. Understanding them before filing your taxes can reduce your bill or increase your refund.

Before you get to tax benefits, you need the right mortgage: Compare mortgage rates on LendingTree to start on the right foot.

Important Note on Tax Law

Tax rules change. The information in this guide reflects federal tax law as of the 2025 tax year. State tax rules vary significantly. Always verify current rules with IRS.gov or a qualified tax professional before filing. Nothing here constitutes tax advice.

Mortgage Interest Deduction

The mortgage interest deduction is the most significant ongoing tax benefit for homeowners. You can deduct the interest you pay on your mortgage each year if you itemize deductions.

How It Works

• Deductible on mortgage debt up to $750,000 (for loans originated after December 15, 2017)
• The $750,000 limit applies to the total mortgage debt on your primary and secondary residence combined
• Older loans (originated before December 16, 2017) have a higher $1 million limit
• Your lender sends Form 1098 in January showing the mortgage interest paid during the year

When It Makes Sense to Itemize

The standard deduction for 2025 is $15,000 for single filers and $30,000 for married filing jointly. You only benefit from the mortgage interest deduction if your total itemized deductions exceed the standard deduction for your filing status. Early in your mortgage when the interest portion is highest, itemizing is more likely to help.

Example

On a $300,000 mortgage at 7%, you pay roughly $20,900 in interest in the first year. If you are married filing jointly with no other itemized deductions, the standard deduction ($30,000) still exceeds your mortgage interest alone, so itemizing would not help — unless you add property taxes and other deductions to reach the threshold.

Property Tax Deduction

You can deduct state and local property taxes (as well as state and local income taxes or sales taxes) up to a combined limit of $10,000 per year ($5,000 if married filing separately). This is the SALT deduction cap established by the 2017 Tax Cuts and Jobs Act.

Property taxes vary widely by location. In high-tax states like New Jersey (average effective rate ~2.1%) or Illinois (~2.0%), property taxes on a $300,000 home run $6,000–$6,300 per year. In low-tax states like Hawaii (~0.3%), you might pay under $1,000.

Deducting Mortgage Points

If you paid discount points to lower your interest rate when you took out your mortgage, those points are generally fully deductible in the year you paid them — if the loan was used to buy your primary residence. This is a unique advantage: unlike refinance points (which must be deducted over the loan term), purchase points are deductible upfront.

Requirements:

• Points must be clearly listed on your Closing Disclosure
• Paid directly by you (not rolled into the loan)
• The loan must be for your primary residence
• The amount must be in the normal range for your area

Mortgage Insurance Premium Deduction

The deduction for private mortgage insurance (PMI) and FHA mortgage insurance premiums has expired and been extended multiple times. As of the time of writing, confirm its current status at IRS.gov — it is not a reliable planning tool due to its history of annual expiration and retroactive renewal.

Energy Efficiency Credits

The Inflation Reduction Act extended and expanded residential energy credits available to homeowners:

Energy Efficient Home Improvement Credit (25C)

Up to 30% of the cost of qualifying energy-efficient upgrades, capped at $3,200 per year. Eligible improvements include:

• Heat pumps and heat pump water heaters ($2,000 sub-limit)
• Insulation, windows, and doors ($600/$1,200 sub-limit)
• Electrical panel upgrades (when tied to qualifying improvements)
• Home energy audits ($150 cap)

Residential Clean Energy Credit (25D)

30% of the cost of solar panels, solar water heaters, battery storage, small wind turbines, and geothermal heat pumps installed through 2032. This credit has no dollar cap and carries forward to future years if it exceeds your tax liability.

Home Office Deduction

If you are self-employed and use part of your home exclusively and regularly for business, you may be able to deduct a portion of your housing costs as a home office. W-2 employees cannot claim the home office deduction under current law.

Two methods are available:

• Simplified method: $5 per square foot, up to 300 square feet ($1,500 max)
• Regular method: Calculate the percentage of your home used for business and apply that to actual home expenses (mortgage interest, property taxes, utilities, repairs)

Capital Gains Exclusion When You Sell

This is not relevant at purchase but matters when you eventually sell. If you have lived in your home as your primary residence for at least 2 of the last 5 years, you can exclude up to $250,000 of capital gains from taxes ($500,000 if married filing jointly). This exclusion can be used once every two years.

First-Time Home Buyer State Tax Credits

Many states offer their own first-time buyer programs, including mortgage credit certificates (MCCs). An MCC converts a portion of your mortgage interest into a federal tax credit rather than just a deduction — a credit is more valuable because it reduces your tax bill dollar-for-dollar rather than reducing taxable income. MCC programs are administered through state housing finance agencies. Check your state’s HFA website or ask your lender.

IRA Withdrawals for First-Time Home Purchase

First-time buyers can withdraw up to $10,000 from a traditional IRA without paying the normal 10% early withdrawal penalty (though ordinary income tax still applies). For a Roth IRA, contributions can always be withdrawn penalty- and tax-free, and up to $10,000 in earnings can also be withdrawn penalty-free for a first-time home purchase if the account has been open at least 5 years.

The IRS definition of “first-time buyer” here is lenient: you qualify if you have not owned a principal residence in the past two years.

What Homeowners Cannot Deduct

• Down payment or principal payments on your mortgage (only interest is deductible)
• Home insurance premiums (not a federal deduction for primary residences)
• Home repairs and maintenance (unless home office applies)
• Homeowners association fees
• Utilities
• Mortgage life or disability insurance

Get the Right Mortgage to Maximize Tax Benefits

Lender	Est. Rate Range	Min Credit Score	Min Down Payment	Best For
LendingTree	Varies by lender	580 (FHA) / 620 (conv.)	3.5% (FHA) / 3% (conv.)	Comparing multiple offers at once
Rocket Mortgage	Competitive market rates	580 (FHA) / 620 (conv.)	3.5% (FHA) / 1% (ONE+ program)	Fast digital approval process
Better.com	Competitive market rates	620	3%	Low-fee online experience
New American Funding	Competitive market rates	500 (FHA) / 620 (conv.)	3.5% (FHA) / 3% (conv.)	Buyers with lower credit scores

A higher loan amount means more mortgage interest paid — and potentially more to deduct if you itemize. But the best mortgage is the one with the lowest total cost, not the highest interest. Compare rates and fees on LendingTree to find the right balance.

Bottom Line

The biggest ongoing tax benefit of homeownership is the mortgage interest deduction, though it only helps if your total itemized deductions exceed the standard deduction. Property taxes, points, and energy-efficiency credits add further value. Keep your Form 1098 from your lender, your property tax statements, and receipts for any qualifying home improvements. Consult a tax professional in your first year of homeownership to make sure you capture every available deduction.

Start with the right mortgage: compare rates on LendingTree before you close.

USDA loans are one of the best-kept secrets in mortgage financing. They offer zero down payment, competitive interest rates, and lower mortgage insurance costs than FHA loans — for buyers who meet the income and location requirements. If you are buying in a rural or suburban area, it is worth checking whether you qualify before settling on FHA or conventional financing.

Check whether you qualify for USDA and compare with other loan options: See loan options on LendingTree.

What Is a USDA Loan?

USDA loans are guaranteed by the U.S. Department of Agriculture through its Rural Development program. The program’s goal is to encourage homeownership in rural and certain suburban areas by making mortgage financing accessible to low-to-moderate income buyers. The most common type is the USDA Guaranteed Loan, where a private lender issues the loan and the USDA insures it against default.

There is also the USDA Direct Loan program, which is funded and issued directly by the USDA for very low income borrowers. Direct loans have even stricter income limits and are available at a single USDA office per state — most buyers use the Guaranteed Loan through a private lender.

USDA Loan Eligibility Requirements

1. Property Location

The home must be in a USDA-eligible area. “Rural” under USDA’s definition is broader than many buyers expect. Many towns with populations up to 35,000 and suburban areas outside major metros qualify. Areas near large cities that feel suburban to most buyers are often eligible.

Check eligibility at the USDA property eligibility map tool at eligibility.sc.egov.usda.gov. Enter the address of any home you are considering — the tool gives you an instant answer.

2. Income Limits

Household income must not exceed 115% of the area median income (AMI) for your county. The limit accounts for all household members’ income, not just those on the loan.

Example income limits (approximate 2025 figures — verify at USDA’s website):

Household Size	Typical Limit Range (varies by county)
1–4 persons	$90,300 – $110,000+
5–8 persons	$119,200 – $145,000+

High-cost areas have higher limits. Use USDA’s income eligibility tool to look up limits for your specific county.

3. Credit Score

USDA does not set a minimum credit score, but most approved lenders require a 640 score for automated underwriting approval. Borrowers with scores below 640 may still qualify through manual underwriting, which takes longer and requires additional documentation.

4. Primary Residence Only

USDA loans are only for primary residences. You cannot use one to buy an investment property, vacation home, or second home.

5. U.S. Citizenship or Permanent Residency

Borrowers must be U.S. citizens, non-citizen nationals, or qualified aliens with legal permanent residency.

6. Ability to Repay

Lenders verify stable income and employment (typically 2 years) and calculate debt-to-income ratios. USDA guidelines target:

• Front-end DTI (housing costs): 29% or less
• Back-end DTI (total debt): 41% or less

USDA Loan Fees

Upfront Guarantee Fee

1% of the loan amount. This fee is typically financed into the loan rather than paid in cash. On a $250,000 loan, this adds $2,500 to your loan balance.

Annual Fee (Ongoing)

0.35% of the outstanding loan balance per year, divided into monthly payments. On a $250,000 loan, this is about $729/year or $61/month added to your payment. Unlike FHA MIP, the annual fee on USDA loans is lower and also decreases as your loan balance decreases.

Comparison to FHA Costs

FHA upfront MIP is 1.75% vs. USDA’s 1%, and FHA annual MIP is 0.55% vs. USDA’s 0.35%. For buyers who qualify for both, USDA typically has lower mortgage insurance costs. However, USDA’s income and location limits mean many buyers do not have the choice.

USDA vs. Other Zero-Down Loan Programs

Feature	USDA	VA
Down payment	0%	0%
Who qualifies	Low-to-moderate income in eligible areas	Veterans/active military/surviving spouses
Mortgage insurance	Annual fee 0.35%	None (funding fee instead)
Income limit	115% of AMI	None
Location restriction	USDA-eligible areas only	Any location
Upfront fee	1% guarantee fee	2.15% funding fee (first use, no down)

If you are an eligible veteran, VA is generally a better deal than USDA. See: VA Loans for First-Time Military Buyers.

Types of Homes That Qualify for USDA

USDA loans can be used to purchase:

• Single-family homes (primary residence)
• Condos and townhouses (in approved developments)
• New construction (through a USDA-approved builder)
• Manufactured homes (certain conditions apply)

The property must meet USDA’s minimum property standards, which are similar to FHA standards — safe, structurally sound, and functional utilities.

How to Apply for a USDA Loan

1. Verify location eligibility: Check the USDA eligibility map before you start shopping for homes
2. Verify income eligibility: Use the USDA income eligibility tool for your county and household size
3. Get pre-approved by a USDA-approved lender: Not all lenders offer USDA loans — look for ones that specifically list USDA on their website
4. Find a home in an eligible area: Once pre-approved, focus your search on USDA-eligible zones
5. Submit your full application: Your lender submits the file to USDA for a conditional commitment (this adds 1–2 weeks compared to conventional loans)
6. Close on the home

USDA loans take slightly longer to close than conventional loans because of the extra USDA review step — budget 30–45 days from application to closing.

Lenders That Offer USDA Loans

Lender	Est. Rate Range	Min Credit Score	Min Down Payment	Best For
LendingTree	Varies by lender	580 (FHA) / 620 (conv.)	3.5% (FHA) / 3% (conv.)	Comparing multiple offers at once
Rocket Mortgage	Competitive market rates	580 (FHA) / 620 (conv.)	3.5% (FHA) / 1% (ONE+ program)	Fast digital approval process
Better.com	Competitive market rates	620	3%	Low-fee online experience
New American Funding	Competitive market rates	500 (FHA) / 620 (conv.)	3.5% (FHA) / 3% (conv.)	Buyers with lower credit scores

Check which lenders in LendingTree’s network offer USDA financing for eligible rural properties.

Bottom Line

USDA loans are an underutilized option for first-time buyers in eligible areas. Zero down payment, lower mortgage insurance than FHA, and competitive rates make USDA one of the strongest loan products available for qualifying buyers. Check the USDA eligibility map early in your home search — you may be surprised how many suburban areas qualify. For a full comparison of your loan options, see: First-Time Home Buyer Loan Comparison: FHA vs. Conventional vs. VA vs. USDA.

Compare USDA lenders on LendingTree to see current rates and fees.

Closing costs catch a lot of first-time buyers off guard. You spend months saving for a down payment, then a week before closing you get a list of fees that can add up to several thousand dollars. Understanding what those costs cover — and which ones you can negotiate — puts you in a much stronger position at the closing table.

Before you go under contract, compare lenders to see who charges the lowest origination fees and third-party service costs. LendingTree lets you see competing mortgage offers side by side, so you can spot the best deal before you commit.

What Are Closing Costs?

Closing costs are the fees and expenses you pay on the day you take ownership of a home. They are separate from your down payment. On average, first-time buyers in the U.S. pay between 2% and 5% of the loan amount in closing costs. On a $300,000 mortgage, that is $6,000 to $15,000.

Some costs go to the lender, some go to third-party service providers, and some are prepaid expenses like property taxes and homeowner’s insurance. Here is a breakdown of the most common line items.

Lender Fees

These are the fees charged by the mortgage lender:

• Origination fee: Covers the lender’s cost to process your loan. Typically 0.5% to 1% of the loan amount. Some lenders, like Better.com, charge no origination fee.
• Discount points: Optional prepaid interest to lower your rate. One point equals 1% of the loan amount and typically reduces your rate by about 0.25%.
• Underwriting fee: The cost to evaluate your loan application. Usually $300 to $900.
• Rate lock fee: Some lenders charge to lock your interest rate. Others do not — ask upfront.

Third-Party Service Fees

These are paid to outside providers, not the lender:

• Appraisal fee: A licensed appraiser confirms the home’s value. Typically $300 to $500. Required by nearly all lenders.
• Title search and title insurance: The title company checks for liens or ownership disputes on the property. Title insurance protects you (owner’s policy) and the lender (lender’s policy). Combined cost is often $700 to $1,500 depending on your state.
• Home inspection: Not always required by lenders, but strongly recommended. A general inspection costs $300 to $500. Specialty inspections (pest, roof, sewer) are extra. Learn more in our complete first-time home buyer guide.
• Survey fee: Confirms property boundaries. Required in some states. Usually $300 to $700.
• Attorney fees: Some states require a real estate attorney at closing. Fees vary widely.

Prepaid Expenses and Escrow Deposits

These are not fees — they are expenses paid in advance or held in escrow:

• Prepaid homeowner’s insurance: Most lenders require the first year’s premium paid at closing. The average U.S. homeowner pays about $1,400 per year.
• Prepaid property taxes: You may need to deposit several months of property taxes into an escrow account at closing.
• Prepaid interest: Interest that accrues from the closing date to the end of that month. If you close on the 15th, you prepay 15 days of interest.
• PMI deposit: If your down payment is less than 20%, you may need to deposit two months of private mortgage insurance (PMI) premiums upfront.

Government and Recording Fees

• Transfer taxes: Charged by the state, county, or city to transfer ownership. Rates vary significantly by location — some states charge no transfer tax, others charge 2% or more.
• Recording fees: The county charges a fee to record the deed and mortgage. Usually $50 to $250.

How Much Should You Budget?

A good rule of thumb is to budget 3% of the purchase price for closing costs if you are getting a conventional loan, and 4% if you are getting an FHA loan (FHA has higher upfront mortgage insurance costs). For a $250,000 home, that means setting aside $7,500 to $10,000 on top of your down payment.

Your lender is required to give you a Loan Estimate within three business days of your application. Review it carefully. Compare your Loan Estimate from each lender — fees vary significantly. Using Rocket Mortgage or another lender with a transparent online process makes it easier to review and compare line-item costs before choosing.

Compare Lenders to Minimize Closing Costs

Lender	Best For	Min Credit Score	Min Down Payment	Notable Feature
LendingTree	Comparing multiple offers	580 (FHA) / 620 (conventional)	3.5% (FHA) / 3% (conventional)	See rates from up to 5 lenders at once
Rocket Mortgage	Fast digital process	580 (FHA) / 620 (conventional)	3.5% (FHA) / 3% (conventional)	Fully online application, fast closings
Better.com	Low fees	620	3%	No lender fees or commissions
New American Funding	Flexible credit situations	580	3.5%	Manual underwriting available

Ways to Reduce Closing Costs

Negotiate with the Seller

In a buyer’s market, you can ask the seller to cover some or all of your closing costs as part of your offer. This is called “seller concessions.” FHA loans allow up to 6% in seller concessions. Conventional loans allow up to 3% on a down payment under 10%, and up to 6% with a larger down payment.

Shop Third-Party Services

Your lender is required to let you shop for your own title company, settlement agent, and some other services. Prices vary — get at least two quotes for title insurance.

Ask About Lender Credits

You can sometimes accept a slightly higher interest rate in exchange for the lender covering part of your closing costs (lender credits). This can make sense if you plan to sell or refinance within a few years. Better.com and similar lenders often have flexible credit options worth exploring.

Roll Costs Into the Loan

On some loan types, you can roll closing costs into the loan balance. This increases your monthly payment but reduces the cash needed upfront. Ask your lender about this option.

Closing Cost Assistance Programs

Many states and local governments offer first-time buyer programs that provide grants or forgivable loans for closing costs. Check your state housing finance agency’s website. Some programs from New American Funding are also designed to help buyers cover upfront costs — ask a loan officer what is available in your area.

The Closing Disclosure: Your Final Numbers

Three business days before closing, you will receive a Closing Disclosure. This is the final accounting of every fee you will pay. Compare it line by line with your Loan Estimate. By law, certain fees (like lender fees) cannot increase from the Loan Estimate. Others can change within limits.

If anything looks different or new, ask your lender to explain it before closing day. Do not sign until you understand every line.

What to Bring to Closing

• Cashier’s check or wire transfer confirmation for the closing amount
• Government-issued photo ID
• Any outstanding documents your lender requested

Closing day is the finish line — but it is only painless if you have prepared. Start by understanding your full cost picture early. Compare multiple lenders on LendingTree to find the lowest fees and rate for your situation.

For more on the full homebuying process, see our complete first-time home buyer guide for 2026 and our article on how to get pre-approved for a mortgage.

Buying a home does not just build equity — it can also reduce your tax bill. First-time buyers often miss deductions they are entitled to because no one explains them clearly. This guide covers every major federal and state tax benefit available to new homeowners, so you can use them from day one.

Before you get to tax time, getting the right mortgage matters just as much. LendingTree makes it easy to compare lenders and find the best rate for your credit profile and down payment.

Is There a Federal First-Time Home Buyer Tax Credit?

As of 2026, there is no active federal tax credit specifically for first-time home buyers. The original First-Time Home Buyer Credit from 2008 expired years ago. Congress has proposed new versions, but none has been enacted into law at the time of writing. Check the IRS website or consult a tax professional for the latest status.

That said, homeownership comes with several valuable deductions that lower your taxable income. These are not credits (which reduce taxes dollar-for-dollar) but they still add up to meaningful savings.

Mortgage Interest Deduction

This is the largest tax benefit most homeowners use. If you itemize deductions, you can deduct the interest you paid on your mortgage during the year.

For mortgages taken out after December 15, 2017, the deduction applies to the first $750,000 of loan principal (or $375,000 if married filing separately). For mortgages taken out before that date, the limit is $1 million.

Example: If you have a $300,000 mortgage at 7% interest, you will pay roughly $20,900 in interest in your first full year. You can deduct that $20,900 from your taxable income if you itemize.

Keep in mind that itemizing only saves you money if your total itemized deductions exceed the standard deduction. In 2026, the standard deduction is approximately $14,600 for single filers and $29,200 for married couples filing jointly. Many first-time buyers, especially those with larger mortgages, do benefit from itemizing.

Property Tax Deduction

You can deduct state and local taxes (SALT), including property taxes, up to a combined limit of $10,000 per year ($5,000 for married filing separately). This limit was introduced by the 2017 Tax Cuts and Jobs Act and remains in place.

If you live in a high-tax state like California, New York, or New Jersey, this cap may limit the benefit. In lower-tax states, you may be able to deduct most or all of your property tax bill.

Mortgage Points Deduction

When you close on your home, you may pay “points” (also called discount points) to lower your interest rate. In most cases, points paid at purchase are fully deductible in the year you buy the home, as long as certain conditions are met:

• The loan is secured by your primary home
• The points are a percentage of the loan amount (not a flat fee)
• Paying points is an established practice in your area
• The points do not exceed the amount typically charged in your area

Points paid on a refinance must generally be deducted over the life of the loan, not all at once. Consult a tax professional if you are unsure.

Private Mortgage Insurance (PMI) Deduction

If your down payment was less than 20%, you likely pay PMI. PMI deductibility has come and gone over the years as Congress extends or lets the provision expire. Check IRS Publication 936 or consult a tax professional for its current status in 2026.

Home Office Deduction (If You Work From Home)

If you use part of your home exclusively and regularly for self-employment or business work, you may qualify for the home office deduction. This applies to freelancers, independent contractors, and some business owners — but not W-2 employees who work remotely.

You can calculate the deduction using the simplified method ($5 per square foot, up to 300 square feet) or the regular method (actual home expenses prorated by the percentage of your home used for business).

Energy Efficiency Tax Credits

The Inflation Reduction Act of 2022 extended and expanded tax credits for energy-efficient home improvements:

• Energy Efficient Home Improvement Credit: Up to $3,200 per year for qualifying improvements like insulation, efficient windows, heat pumps, and electric panel upgrades.
• Residential Clean Energy Credit: 30% credit for solar panels, battery storage systems, and geothermal heat pumps installed through 2032.

These are actual credits — meaning they reduce your tax bill dollar-for-dollar, not just your taxable income.

Compare Lenders Who Help You Maximize Your Tax Position

Lender	Best For	Min Credit Score	Min Down Payment	Notable Feature
LendingTree	Comparing multiple offers	580 (FHA) / 620 (conventional)	3.5% (FHA) / 3% (conventional)	See rates from up to 5 lenders at once
Rocket Mortgage	Fast digital process	580 (FHA) / 620 (conventional)	3.5% (FHA) / 3% (conventional)	Fully online application, fast closings
Better.com	Low fees	620	3%	No lender fees or commissions
New American Funding	Flexible credit situations	580	3.5%	Manual underwriting available

State and Local First-Time Buyer Tax Benefits

Many states offer their own tax credits or deductions for first-time home buyers. Examples include:

• Mortgage Credit Certificates (MCCs): Available in many states, these allow eligible first-time buyers to claim a tax credit equal to a percentage of the mortgage interest paid each year — on top of the federal deduction. The credit typically ranges from 20% to 25% of annual interest. MCCs are issued through state housing agencies and must be obtained at the time of purchase.
• State property tax exemptions: Some states offer homestead exemptions that reduce the taxable value of your primary residence.
• First-time buyer savings accounts: A growing number of states allow tax-deductible contributions to dedicated first-time homebuyer savings accounts (similar to an IRA for a down payment).

Your state housing finance agency website is the best place to check what programs are available where you live. Ask your lender about MCCs early in the process — Rocket Mortgage and other large lenders can help you apply for an MCC alongside your loan in qualifying states.

IRA Withdrawals for First-Time Buyers

The IRS defines “first-time home buyer” broadly for IRA purposes — you qualify if you have not owned a primary residence in the past two years. Under this rule:

• Traditional IRA: You can withdraw up to $10,000 without paying the 10% early withdrawal penalty. You will still owe regular income tax on the amount.
• Roth IRA: You can withdraw contributions at any time tax- and penalty-free. You can also withdraw up to $10,000 in earnings penalty-free if the account has been open for at least five years.

This is a lifetime limit, not annual. It applies to each individual — a married couple can each withdraw up to $10,000.

What Records to Keep

Save the following documents to support your deductions:

• Form 1098 (Mortgage Interest Statement) — your lender sends this each January
• Closing Disclosure from your purchase (shows points paid)
• Property tax bills and receipts
• Receipts for any energy-efficient improvements
• MCC certificate if your state issued one

Should You Itemize or Take the Standard Deduction?

Whether homeownership tips the scales toward itemizing depends on your total deductions. Add up your mortgage interest, property taxes (up to $10,000 SALT cap), and any other itemized deductions like charitable contributions. Compare that number to the standard deduction for your filing status. If itemizing gives you more, use it.

A tax professional or software like TurboTax can run both scenarios and tell you which method saves more in your specific situation.

The mortgage interest deduction alone makes homeownership more financially rewarding for many buyers. To get there, start with the right mortgage. Compare lenders on LendingTree and find the rate and terms that work for your budget.

For more on the buying process, see our complete first-time home buyer guide and our breakdown of loan types for first-time buyers.

Most first-time buyers assume they need a down payment to buy a home. USDA loans break that rule. If you are buying in an eligible rural or suburban area and your income falls within the program’s limits, you can finance 100% of the purchase price — no down payment required.

Not every lender offers USDA loans or specializes in them. LendingTree can match you with lenders who work with USDA programs so you can compare options before you apply.

What Is a USDA Loan?

A USDA loan is a government-backed mortgage guaranteed by the U.S. Department of Agriculture. The USDA created the program to encourage homeownership in rural and less-densely populated areas. The main benefit is zero down payment — one of the only mortgage programs in the U.S. that still allows this.

There are two main types of USDA loans for home buyers:

• USDA Guaranteed Loan: Issued by approved private lenders and backed by the USDA. This is the most common type for first-time buyers with regular employment income. You apply through a bank, credit union, or mortgage lender.
• USDA Direct Loan: Issued directly by the USDA for very-low to low-income borrowers. Income limits are lower, but interest rates are subsidized and can be very attractive. You apply directly through the USDA.

This guide focuses primarily on the Guaranteed Loan program, which is available through mainstream lenders.

USDA Loan Requirements

Location

The property must be in a USDA-eligible rural or suburban area. “Rural” is broader than many people expect — USDA maps often include smaller cities, towns on the outskirts of major metro areas, and suburban communities. You can check any address at the USDA’s eligibility map (eligibility.sc.egov.usda.gov).

As a general rule, areas with populations under 35,000 often qualify, though the USDA updates its maps periodically. Areas that were eligible during prior census cycles may lose eligibility as populations grow — check the current map before assuming a property qualifies.

Income Limits

USDA income limits are based on household size and county. For the Guaranteed Loan program, your household income generally cannot exceed 115% of the area median income (AMI). For a family of four in many parts of the country, that is $110,000 to $130,000 per year. In higher-cost areas, the limit is higher.

The USDA counts all household members’ income, not just the borrowers on the loan. Make sure to check the USDA income eligibility tool with your full household income, not just the borrowers’.

Credit Score

The USDA does not set an official minimum credit score, but most approved lenders require at least a 640 FICO score for streamlined processing. Borrowers with scores below 640 may still qualify but face more manual underwriting and documentation requirements. See our article on first-time buyer credit score requirements if you need to build your score before applying.

Debt-to-Income Ratio

Lenders typically look for a front-end DTI (housing costs only) below 29% and a back-end DTI (all monthly debt payments) below 41%. Some lenders will approve higher ratios with strong compensating factors like significant savings or a high credit score.

Primary Residence

USDA loans are for primary residences only. You cannot use a USDA loan for a vacation home, investment property, or rental.

USDA Loan Costs

USDA loans do not require a down payment, but they do have two mortgage insurance fees:

• Upfront guarantee fee: 1% of the loan amount, charged at closing. This can be rolled into the loan rather than paid out of pocket.
• Annual fee: 0.35% of the remaining loan balance, divided into monthly payments. This is similar to PMI on a conventional loan but is generally lower than FHA mortgage insurance.

On a $250,000 loan, the upfront fee is $2,500 (which can be financed) and the annual fee starts at about $875 per year, or roughly $73 per month.

Compared to FHA loans, USDA mortgage insurance is usually less expensive over time. Compared to conventional loans with less than 20% down, USDA can also be competitive — especially since you do not need any down payment at all.

USDA vs. Other Zero-Down or Low-Down Loan Options

Lender	Loan Type	Min Down Payment	Mortgage Insurance	Best For
LendingTree	USDA, VA, FHA, conventional	0% (USDA/VA)	Varies by loan type	Comparing all options at once
Rocket Mortgage	USDA Guaranteed, FHA, VA, conventional	0% (USDA/VA)	Varies by loan type	Fast online pre-approval
Better.com	Conventional, FHA (limited USDA availability)	3%	Required below 20% down	No origination fee conventional loans
New American Funding	USDA, FHA, VA, conventional	0% (USDA/VA)	Varies by loan type	First-generation buyers, diverse borrowers

How to Apply for a USDA Loan

1. Check area eligibility: Look up the property address at the USDA eligibility map before spending time on the application.
2. Check income eligibility: Use the USDA income tool with your full household income and county.
3. Find an approved lender: Not all lenders offer USDA loans. Search for USDA-approved lenders in your area. LendingTree can filter by USDA loan availability.
4. Get pre-approved: Gather your income documentation, tax returns, and bank statements. The pre-approval process for USDA is similar to other mortgages. Our guide on getting pre-approved for a mortgage covers exactly what to prepare.
5. Find a qualifying property: The home must meet USDA property standards — generally it must be a modest, single-family home in move-in condition. The appraiser will flag any health or safety issues that need repair before approval.
6. Close the loan: USDA loans typically take 30 to 60 days to close because the file goes through the lender and then the USDA for a final review. Factor this into your timeline.

USDA Loan Pros and Cons

Pros:

• Zero down payment — no cash needed for the purchase itself
• Competitive interest rates because of the government guarantee
• Lower mortgage insurance costs than FHA loans
• Available to repeat buyers, not just first-timers (though income and location limits still apply)

Cons:

• Location restriction — property must be in an eligible rural or suburban area
• Income limits — cannot exceed 115% of AMI
• Primary residence only — no investment or vacation properties
• Longer closing timelines than conventional loans
• Property must meet USDA condition standards

Is a USDA Loan Right for You?

USDA loans are worth a serious look if you are open to living outside a major city and your household income falls within the limits. The zero down payment requirement is a genuine advantage — it lets you preserve your savings for moving expenses, repairs, and an emergency fund rather than tying everything up in a down payment.

Compare a USDA loan against FHA and conventional options with your actual numbers before deciding. Our article on first-time buyer loan comparison breaks down how each program stacks up on rate, insurance costs, and qualification standards.

Ready to see what you qualify for? Check lender options on LendingTree and find USDA-approved lenders in your area. If New American Funding serves your area, they have dedicated loan officers experienced with USDA and rural buyers.

If you have served in the U.S. military, you have access to one of the best mortgage programs available: the VA loan. No down payment. No private mortgage insurance. Competitive rates. And a limit on the fees lenders can charge you. First-time buyers with military service should understand this benefit before looking at any other loan option.

VA loans are available through private lenders, and rates vary. LendingTree lets you compare VA loan offers from multiple lenders to make sure you are getting the best rate your benefit can get you.

What Is a VA Loan?

A VA loan is a mortgage guaranteed by the U.S. Department of Veterans Affairs. The VA does not lend money directly — it guarantees a portion of the loan, which reduces the lender’s risk and allows them to offer better terms to eligible borrowers.

The VA loan program was created in 1944 as part of the GI Bill to help veterans transition back to civilian life. Today it remains one of the strongest mortgage benefits available to active duty service members, veterans, and eligible surviving spouses.

Who Is Eligible for a VA Loan?

Eligibility is based on military service. You generally qualify if you meet one of the following:

• Active duty service members: Currently serving with at least 90 continuous days of service (wartime) or 181 days during peacetime.
• Veterans: Served the minimum required period and were not discharged dishonorably. Generally 90 days during wartime or 181 days during peacetime. Those who served fewer days due to service-connected disability may still qualify.
• National Guard and Reserve members: At least 6 years of service, or 90 days of active duty under Title 10 orders. Rules changed under the National Defense Authorization Act — check current VA eligibility guidance.
• Surviving spouses: Unremarried surviving spouses of veterans who died in service or from a service-connected disability may be eligible. Some remarried surviving spouses also qualify under specific conditions.

To use the benefit, you need a Certificate of Eligibility (COE). You can get this through the VA’s eBenefits portal, through your lender, or by mailing VA Form 26-1880. Most VA-approved lenders can request your COE electronically during the pre-approval process.

VA Loan Requirements

Credit Score

The VA does not set a minimum credit score, but most VA-approved lenders require at least 580 to 620. Lenders set their own overlays on top of VA guidelines. With a higher score, you will typically qualify for a lower rate and face fewer documentation requirements.

If your score needs work, see our guide on first-time buyer credit score requirements for actionable steps to improve your score.

Debt-to-Income Ratio

The VA uses a residual income test rather than a strict DTI cap. Residual income is the amount of money left over after all monthly expenses (mortgage, debts, taxes, utilities) are paid. The VA sets minimum residual income standards by family size and region. Generally, lenders also look for a back-end DTI below 41%, though exceptions are made with strong residual income.

Occupancy

VA loans are for primary residences. You must certify your intent to occupy the home as your primary residence within a reasonable time after closing (typically 60 days). Spouses can fulfill the occupancy requirement for active duty members who are deployed.

Property Requirements

The home must meet VA Minimum Property Requirements (MPRs). These standards ensure the property is safe, structurally sound, and sanitary. A VA-approved appraiser will assess the home as part of the loan process. Unlike FHA, VA does not require a specific down payment or mortgage insurance — the appraisal mainly focuses on condition and value.

VA Loan Costs

VA loans come with a VA funding fee, which is a one-time charge paid to the VA to support the program for future borrowers:

• First use, no down payment: 2.15% of the loan amount
• First use, 5% or more down: 1.5%
• First use, 10% or more down: 1.25%
• Subsequent use, no down payment: 3.3%

Veterans with a service-connected disability rating of 10% or more are exempt from the funding fee. Surviving spouses of veterans who died in service or from service-connected causes are also exempt.

The funding fee can be rolled into the loan balance. On a $300,000 first-use loan with no down payment, the funding fee is $6,450 — which becomes part of the loan if you choose to finance it.

Even with the funding fee, VA loans typically cost less over time than FHA or conventional loans for buyers with less than 20% down, because there is no ongoing PMI payment.

VA Loan vs. Other First-Time Buyer Loan Options

Lender	Loan Type	Min Down Payment	Mortgage Insurance	VA Fee Exempt?
LendingTree	VA, FHA, USDA, conventional	0% (VA/USDA)	None (VA) / Required (FHA/conv <20%)	Varies by disability status
Rocket Mortgage	VA, FHA, conventional	0% (VA)	None (VA)	Ask loan officer
Better.com	Conventional, FHA	3%	Required below 20%	N/A (not a VA lender)
New American Funding	VA, FHA, USDA, conventional	0% (VA)	None (VA)	Ask loan officer

VA Loan Benefits vs. FHA and Conventional

VA loan advantages:

• No down payment required (for most buyers)
• No PMI — saves hundreds of dollars per month on larger loans
• VA limits lender fees — the VA does not allow lenders to charge excessive fees
• Competitive rates, often below market for equivalent credit profiles
• No prepayment penalty
• VA IRRRL (Interest Rate Reduction Refinance Loan) for easy future refinancing

VA loan limitations:

• Only available to eligible military borrowers
• VA funding fee (waived for disabled veterans)
• Property must meet VA MPRs — some sellers are hesitant about VA appraisals in competitive markets
• Loan limits for second-use without full entitlement restored

VA Loan Entitlement

Your VA entitlement is the amount the VA guarantees on your loan. Most first-time VA buyers have full entitlement, which means there is no loan limit — you can borrow as much as a lender will approve at zero down payment (as of 2020, conforming loan limits were eliminated for VA loans for borrowers with full entitlement).

If you have used a VA loan before and not fully restored your entitlement (by paying off or selling the previous home), partial entitlement rules and county loan limits may apply. Your lender can help you calculate your available entitlement from your COE.

How to Apply for a VA Loan

1. Obtain your Certificate of Eligibility (COE): Through eBenefits, your lender, or by mail. Most lenders handle this automatically.
2. Find a VA-approved lender: Not all lenders offer VA loans. Look for lenders with strong VA expertise. LendingTree can connect you with VA-approved lenders.
3. Get pre-approved: Gather your pay stubs, W-2s, and bank statements. See our full guide on how to get pre-approved for a mortgage.
4. Find a qualifying property: Single-family homes, townhomes, condos (on the VA-approved condo list), and multi-family properties (up to 4 units if you occupy one) all qualify.
5. VA appraisal and underwriting: The VA appraisal happens after your offer is accepted. Allow extra time — VA appraisals can take longer in busy markets.
6. Close the loan: Typical closing timelines are 30 to 45 days, similar to conventional loans.

Making the Most of Your VA Benefit

The VA loan is the best mortgage program available for eligible buyers — period. The combination of zero down payment and no PMI alone can save you tens of thousands of dollars over the life of a loan compared to FHA. If you are eligible, explore this option before any other.

Start by comparing rates. Check current VA loan rates on LendingTree to see where you stand. For lenders with strong VA programs and experience with military buyers, New American Funding and Rocket Mortgage are both worth comparing.

For more on the overall homebuying process, see our complete first-time home buyer guide for 2026 and our breakdown of all loan types for first-time buyers.

Student loan debt is one of the most common concerns among first-time buyers. Millions of would-be homeowners put off buying because they assume their student loans disqualify them. In many cases, that assumption is wrong. You can buy a home with student loan debt — what matters is your income, your debt-to-income ratio, and the loan program you choose.

Before you rule yourself out, check what you actually qualify for. LendingTree can show you real lender offers based on your credit and income in minutes, with no commitment required.

How Lenders Count Student Loan Debt

Your student loan debt affects your debt-to-income ratio (DTI), which is the main number lenders use to decide how much house you can afford. Your back-end DTI is all your monthly debt payments divided by your gross monthly income. Most lenders want this below 43%, though some programs allow higher.

The tricky part is that how lenders count your student loan payment depends on the loan program and whether your loans are in repayment, deferment, or on an income-driven repayment (IDR) plan.

Conventional Loans (Fannie Mae and Freddie Mac)

Both Fannie Mae and Freddie Mac use the actual monthly payment shown on your credit report for loans in repayment. If your loans are in deferment or forbearance with a $0 payment reported, Fannie Mae uses 1% of the outstanding balance as the monthly payment unless you have documentation of the actual payment. Freddie Mac uses $0 for deferred loans if documentation supports it, or 0.5% of the balance if the payment is unknown.

This matters a lot. If you have $50,000 in student loans on an IDR plan paying $150/month, but your lender uses a 1% calculation ($500/month), that $350 difference significantly changes your qualifying DTI.

FHA Loans

FHA rules changed in 2021 to be more favorable to borrowers on IDR plans. If you have an income-driven repayment plan and your documented monthly payment is more than $0, FHA will use that actual payment. If the payment is $0, FHA uses 0.5% of the loan balance. This is better than the old 1% rule and makes FHA more accessible for heavy student loan borrowers on IDR plans.

See our article on FHA loan requirements for first-time buyers for more on how FHA qualifications work.

VA Loans

VA guidelines generally use the actual monthly payment from your credit report or student loan servicer. If loans are in deferment for more than 12 months from closing, the VA may allow you to exclude them from the DTI calculation entirely. This makes VA loans particularly favorable for veterans with student debt who also have deferred loan payment periods.

USDA Loans

USDA uses the greater of the actual payment or 1% of the loan balance for each student loan. This is stricter than FHA and can be a hurdle for borrowers with high balances on IDR plans showing low monthly payments.

Student Loans and Your Credit Score

Student loans affect your credit score in multiple ways:

• Payment history: On-time payments help your score. Late or missed payments hurt it significantly.
• Credit mix: Student loans are installment accounts. Having a mix of installment and revolving credit (like credit cards) is positive for your score.
• Credit age: Older accounts are better for your score. If you have been repaying loans for years, that history works in your favor.
• Utilization: Student loans do not affect credit utilization (which applies to revolving credit). Your card balances matter more here.

If your student loans are in good standing, they are likely helping your credit score — not hurting it. See our guide on first-time buyer credit score requirements for a full breakdown.

Strategies to Qualify Despite High Student Loan Debt

Switch to an Income-Driven Repayment Plan

If your current student loan payment is high relative to your income, switching to an IDR plan (SAVE, PAYE, IBR, or ICR) can significantly lower your required monthly payment. A lower payment lowers your DTI, which improves your ability to qualify for a mortgage — especially under FHA guidelines, which use your actual IDR payment.

Contact your servicer or visit studentaid.gov to explore IDR options before applying for a mortgage.

Increase Your Income Documentation

If you have any additional income — overtime, side income, rental income, or income from a second job with a two-year history — document it fully. Every dollar of documented income improves your DTI ratio.

Pay Down Other Debt First

Car loans, personal loans, and credit card minimums all count against your DTI. Paying down smaller debts before applying can lower your monthly obligations and improve your qualifying ratio. Focus on debts with high monthly payments relative to their balance.

Choose the Right Loan Program

Because of how different programs count student loan payments, the right loan type can make a significant difference:

• FHA with an IDR plan often produces the best DTI calculation for heavy student loan borrowers
• VA loans can exclude deferred loans and use actual IDR payments
• Fannie Mae’s conventional guidelines are competitive if your IDR payment is documented

Save for a Larger Down Payment

A larger down payment does not change your DTI, but it reduces the loan amount, which lowers your monthly payment and may eliminate PMI. It also signals financial discipline to lenders.

Lender Comparison for Student Loan Borrowers

Lender	How They Count Student Loans	Good For	Min Credit Score
LendingTree	Varies by lender — compare multiple at once	Shopping all loan types simultaneously	580+
Rocket Mortgage	Follows Fannie Mae / FHA guidelines based on loan type	Fast pre-approval, multiple loan types	580 (FHA) / 620 (conventional)
Better.com	Conventional guidelines (Fannie/Freddie)	Buyers who want no origination fees	620
New American Funding	FHA / conventional / VA / USDA per program	Buyers with complex financial situations	580

What the Numbers Look Like: An Example

Say you earn $6,000 per month gross. You have a $350/month car payment and $200/month in minimum credit card payments. You are looking at a home with a $1,600/month mortgage payment (principal, interest, taxes, insurance).

Your total monthly debt obligations: $350 + $200 + $1,600 = $2,150

Your back-end DTI: $2,150 / $6,000 = 35.8%

That clears the 43% threshold for most programs. Now add $500/month in student loans (if your lender uses 1% of a $50,000 balance):

$2,150 + $500 = $2,650 / $6,000 = 44.2% — just over most conventional limits

But if you switch to an IDR plan with a $150/month payment:

$2,150 + $150 = $2,300 / $6,000 = 38.3% — well within range

The loan program and how your student loans are counted can be the difference between qualifying and not.

Getting Pre-Approved with Student Loan Debt

The best way to know where you stand is to get pre-approved. Lenders look at your full financial picture — income, credit, debts, and assets — and tell you exactly what you can qualify for. If student loans are creating a DTI issue, a good loan officer will suggest strategies before you are under contract on a home.

Read our full guide on how to get pre-approved for a mortgage in 2026 to understand exactly what documents you need and what lenders evaluate.

Student loan debt is a challenge, not a dealbreaker. Millions of first-time buyers carry significant student loan balances and still qualify for mortgages. The key is choosing the right loan program, documenting your income thoroughly, and working with a lender who understands how to optimize your application.

Check your options on LendingTree — you can see real rates from real lenders without affecting your credit score. For buyers with more complex situations, New American Funding has loan officers experienced with student loan borrowers. And for the full picture on homebuying, start with our complete first-time home buyer guide for 2026.

Choosing the wrong loan type is one of the most expensive mistakes a first-time buyer can make. The difference between an FHA loan and a conventional loan can mean thousands of dollars in extra fees over the life of your mortgage. This guide breaks down the four main government-backed and conventional options so you can pick the right fit for your situation.

Not sure which loan you qualify for? Compare offers from multiple lenders on LendingTree to see which loan types you are eligible for and what rates you can get.

Quick Comparison Table

Feature	Conventional	FHA	VA	USDA
Government backing	None (Fannie/Freddie)	FHA (HUD)	Department of Veterans Affairs	Dept. of Agriculture
Min. credit score	620	580 (3.5% down) / 500 (10% down)	No VA minimum (lenders set 580–620)	640 (most lenders)
Min. down payment	3%	3.5%	0%	0%
Mortgage insurance	PMI (removable at 20% equity)	MIP (life of loan if <10% down)	None	Annual fee (0.35% of loan balance)
Property location	Any	Any	Any	Rural/suburban eligible areas only
Who qualifies	Most buyers	Most buyers	Veterans/active military/surviving spouses	Low-to-moderate income in eligible areas

Conventional Loans

How They Work

Conventional loans are not backed by the federal government. They are originated by private lenders and sold to Fannie Mae or Freddie Mac, which sets the guidelines. Because there is no government guarantee, lenders require higher credit standards than FHA loans.

Requirements

• Credit score: 620 minimum, though better rates come with 740+
• Down payment: As low as 3% through Freddie Mac’s Home Possible or Fannie Mae’s HomeReady programs
• DTI: 43% max, 36% preferred
• Loan limits (2025): $766,550 for most areas; higher in high-cost markets

Mortgage Insurance

If you put down less than 20%, you pay private mortgage insurance (PMI). Unlike FHA mortgage insurance premiums, PMI automatically cancels when your loan balance reaches 80% of the original appraised value, or you can request removal at 80% LTV. This makes conventional loans cheaper long-term for buyers who can afford a modest down payment.

Best For

Buyers with credit scores of 700 or higher, those who can put down 10–20%, and buyers purchasing more expensive properties near or above FHA loan limits.

FHA Loans

How They Work

FHA loans are insured by the Federal Housing Administration. The government guarantee reduces lender risk, which is why FHA loans accept lower credit scores and down payments. The tradeoff is mandatory mortgage insurance premiums (MIP) that cost more over time.

Requirements

• Credit score: 580 for 3.5% down; 500–579 for 10% down
• Down payment: 3.5% with a 580+ score
• DTI: Up to 57% in some cases with compensating factors
• Loan limits (2025): $498,257 in most areas; higher in high-cost areas
• Property condition: FHA has stricter appraisal standards — the home must meet HUD minimum property requirements

Mortgage Insurance Premiums (MIP)

FHA loans require two types of MIP:

• Upfront MIP: 1.75% of the loan amount, financed into the loan
• Annual MIP: 0.55% per year for most loans (paid monthly), for the life of the loan if you put down less than 10%

If you put down 10% or more, MIP falls off after 11 years. Otherwise, the only way to remove FHA MIP is to refinance into a conventional loan once you reach 20% equity. See our detailed breakdown: FHA Loan Requirements for First-Time Buyers.

Best For

Buyers with credit scores below 680, those with limited down payment savings, and buyers who have had past credit challenges but have stabilized their finances.

VA Loans

How They Work

VA loans are guaranteed by the U.S. Department of Veterans Affairs and available to eligible veterans, active-duty service members, National Guard and Reserve members, and surviving spouses. They are widely considered the best loan product on the market for those who qualify.

Requirements

• Eligibility: You must have a valid Certificate of Eligibility (COE). Active-duty members qualify after 90 days of service. Veterans qualify after 181 days of peacetime or 90 days of wartime service. National Guard and Reservists qualify after 6 years of service.
• Credit score: The VA does not set a minimum, but most lenders require 580–620
• Down payment: 0% in most cases
• DTI: 41% preferred, though lenders may approve higher with strong residual income

VA Funding Fee

VA loans do not require PMI, but most borrowers pay a one-time funding fee that is financed into the loan. For first-time VA borrowers with no down payment, the funding fee is 2.15% of the loan amount (as of 2025 rates — confirm current rates at VA.gov). Surviving spouses and veterans with service-connected disabilities are often exempt.

Best For

Any eligible veteran or active-duty service member buying a primary residence. The combination of no down payment and no PMI is hard to beat. See our full guide: VA Loans for First-Time Military Buyers.

USDA Loans

How They Work

USDA loans are backed by the U.S. Department of Agriculture and designed to encourage homeownership in eligible rural and suburban areas. They offer 0% down payment for qualifying buyers, but income and location restrictions apply.

Requirements

• Location: Property must be in a USDA-eligible area. You can check eligibility at the USDA eligibility map tool. Many suburban areas outside major metros qualify.
• Income: Household income must not exceed 115% of the area median income (AMI). Limits vary by location and family size.
• Credit score: 640 for automated approval; lower scores may qualify with manual underwriting
• DTI: 29% (housing) / 41% (total) preferred

USDA Fees

• Upfront guarantee fee: 1% of the loan amount (financed into the loan)
• Annual fee: 0.35% of the outstanding loan balance per year

Best For

Low-to-moderate income buyers purchasing homes in eligible rural or suburban areas. The zero down payment combined with low annual fees makes this an excellent option for qualifying buyers. Full details: USDA Loans for First-Time Buyers.

FHA vs. Conventional: A Head-to-Head

The FHA-vs-conventional choice is the most common decision first-time buyers face.

Scenario	Better Choice	Why
Credit score 580–619	FHA	Conventional is not available below 620
Credit score 620–679	FHA (often)	FHA MIP may be cheaper than conventional PMI at lower scores
Credit score 680+	Conventional	PMI rates improve; MIP removal advantage kicks in
Down payment 3–5%	Compare both	Run numbers on MIP vs PMI over your expected holding period
Down payment 10%+	Conventional	PMI cost drops significantly; MIP on FHA stays flat

For a deeper analysis of this comparison, see: FHA vs. Conventional Loan for First-Time Buyers.

Which Lenders Offer All Four Loan Types?

Lender	Est. Rate Range	Min Credit Score	Min Down Payment	Best For
LendingTree	Varies by lender	580 (FHA) / 620 (conv.)	3.5% (FHA) / 3% (conv.)	Comparing multiple offers at once
Rocket Mortgage	Competitive market rates	580 (FHA) / 620 (conv.)	3.5% (FHA) / 1% (ONE+ program)	Fast digital approval process
Better.com	Competitive market rates	620	3%	Low-fee online experience
New American Funding	Competitive market rates	500 (FHA) / 620 (conv.)	3.5% (FHA) / 3% (conv.)	Buyers with lower credit scores

The fastest way to compare your loan options is to run a single application through a marketplace. LendingTree connects you with multiple lenders and shows you which loan types you qualify for across FHA, conventional, VA, and USDA programs — with actual rate quotes, not estimates.

Bottom Line

Pick your loan type based on your credit score, savings, military status, and location — not based on which loan your lender defaults to suggesting. VA and USDA loans are significantly better deals for qualifying buyers than most people realize. FHA loans are the right move for buyers with lower credit scores. Conventional loans win on long-term cost for buyers with strong credit and at least a 10% down payment.

Compare loan options across multiple lenders on LendingTree and see what you actually qualify for today.