Category: First-Time Home Buyer

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

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

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

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

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

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

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.

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

Which Lenders Offer All Four Loan Types?

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.

FHA loans are one of the most popular options for first-time home buyers because they accept lower credit scores and smaller down payments than most conventional loans. But FHA loans come with requirements and costs that are important to understand before you apply.

Ready to see what FHA rates you qualify for? Compare FHA lenders on LendingTree — one form, multiple offers.

What Is an FHA Loan?

An FHA loan is a mortgage insured by the Federal Housing Administration, which is part of HUD (the U.S. Department of Housing and Urban Development). The FHA does not lend money directly — it insures lenders against losses if a borrower defaults. This guarantee is what allows FHA lenders to accept borrowers with lower credit scores and down payments.

FHA Credit Score Requirements

The FHA sets two credit score tiers:

• 580 or higher: Eligible for the minimum 3.5% down payment
• 500–579: Eligible for FHA with a 10% minimum down payment
• Below 500: Not eligible for FHA financing

Important caveat: lenders are allowed to impose stricter requirements than the FHA minimum. Many FHA lenders require a 620 score even though the FHA allows 580. If you have a score between 580 and 619, you may need to shop specifically for lenders that work with lower-credit borrowers.

New American Funding is known for working with buyers in the lower credit score range. See our lender comparison: Best Mortgage Lenders for First-Time Buyers 2026.

FHA Down Payment Requirements

With a 580+ credit score, the minimum down payment is 3.5% of the purchase price. On a $250,000 home, that is $8,750.

With a 500–579 credit score, the minimum down payment is 10%. On a $250,000 home, that is $25,000.

Down payment funds can come from personal savings, gift funds from family members, or down payment assistance programs. The FHA allows 100% of your down payment to come from a family gift — you do not need any of your own money in the deal as long as you can document the gift properly.

For help finding down payment assistance programs in your state, see: Down Payment Assistance Programs by State.

FHA Debt-to-Income Ratio Requirements

Lenders use two DTI ratios to evaluate FHA applicants:

• Front-end DTI (housing ratio): Your proposed mortgage payment (principal, interest, taxes, insurance) should not exceed 31% of your gross monthly income
• Back-end DTI (total debt ratio): All monthly debt payments combined should not exceed 43% of gross monthly income

FHA automated underwriting systems sometimes approve borrowers with back-end DTIs up to 57% when other factors are strong — like a large down payment, significant cash reserves, or a high credit score.

FHA Loan Limits for 2025

The FHA sets maximum loan amounts by county, adjusted annually. For 2025:

• Low-cost areas (floor): $498,257 for a single-family home
• High-cost areas (ceiling): $1,149,825 for a single-family home in the most expensive markets

Special limits apply in Alaska, Hawaii, Guam, and the U.S. Virgin Islands. You can look up limits for any county at the HUD website or ask your lender.

FHA Mortgage Insurance Premiums (MIP)

FHA mortgage insurance is mandatory for all FHA loans. There are two components:

Upfront MIP (UFMIP)

1.75% of the base loan amount, charged at closing. This is almost always financed into the loan rather than paid in cash. On a $250,000 loan, UFMIP adds $4,375 to your loan balance.

Annual MIP

For most 30-year FHA loans with less than 10% down, the annual MIP is 0.55% of the outstanding loan balance per year (as of 2025 — the FHA adjusts these rates periodically). It is divided into 12 monthly payments added to your mortgage payment.

On a $250,000 loan: 0.55% ÷ 12 = about $114 per month added to your payment.

How Long Does FHA MIP Last?

• Down payment less than 10%: MIP for the life of the loan — it does not automatically cancel
• Down payment 10% or more: MIP cancels after 11 years

The only way to remove FHA MIP on a loan with less than 10% down is to refinance into a conventional loan once you have 20% equity. For buyers planning to stay in the home long-term, the lifetime MIP can add up to a significant cost. Run the numbers against PMI on a conventional loan if your credit score is 680 or higher.

FHA Employment and Income Requirements

• Employment history: Two years of continuous employment history preferred. Job gaps are not automatically disqualifying but require explanation.
• Self-employed: Two years of tax returns showing stable or increasing income
• Income verification: W-2s, pay stubs, and bank statements

FHA Property Requirements

FHA loans can only be used for primary residences — not investment properties or vacation homes. The property must also meet FHA minimum property standards, which an FHA-approved appraiser verifies.

Common issues that can cause FHA appraisal problems:

• Peeling paint (lead paint concern in pre-1978 homes)
• Missing handrails, broken windows, or holes in walls
• Roof with less than two years of remaining life
• Inoperable utilities at time of appraisal
• Safety hazards like exposed wiring

The seller must either fix the issues or negotiate a price reduction to cover repairs. In as-is sales, FHA financing can be challenging if the property has deferred maintenance.

Lenders That Work with FHA Borrowers

Compare FHA lenders on LendingTree to find options that match your credit profile.

FHA vs. Conventional: Is FHA Right for You?

FHA makes sense when your credit score is below 680 or when you have limited down payment savings. For buyers with stronger credit (680+) who can put down at least 5–10%, a conventional loan often produces lower lifetime costs because PMI can be removed once you reach 20% equity.

Read the full comparison: FHA vs. Conventional Loan for First-Time Buyers.

Bottom Line

FHA loans open homeownership to buyers who would not qualify for conventional financing. The minimum credit score requirement (580 for 3.5% down) and flexible DTI limits make FHA the right starting point for many first-time buyers. The tradeoff is mortgage insurance that lasts the life of the loan, which adds to your monthly payment and total borrowing cost.

If you are exploring FHA options, compare FHA lenders on LendingTree to find the lender with the best rate and lowest fees for your situation.

Your credit score is the single biggest factor that determines what loan programs you can access and what interest rate you will pay. Understanding where you stand before you apply can save you thousands of dollars in interest and help you avoid rejection.

Start by seeing what rate you qualify for today: Get personalized mortgage quotes on LendingTree — no impact to your credit score to check.

Minimum Credit Score by Loan Type

How Your Credit Score Affects Your Rate

Your credit score does not just determine whether you qualify — it directly affects your interest rate. A higher score means a lower rate, which compounds significantly over a 30-year loan.

Example based on a $300,000 30-year fixed mortgage (approximate ranges — actual rates vary by market conditions and lender):

Check current rate estimates by score tier at LendingTree’s mortgage rate tool for today’s actual numbers.

Which Credit Score Do Mortgage Lenders Use?

Mortgage lenders pull reports from all three bureaus — Equifax, Experian, and TransUnion — and use the FICO Score for each. When there are three different scores, lenders use the middle score. When two borrowers apply together, lenders use the lower of the two middle scores.

The specific FICO model used for mortgages is FICO Score 2, 4, and 5 (one per bureau), which may differ from the FICO 8 or VantageScore you see in free monitoring apps. Check free credit monitoring apps for a ballpark, but pull your actual mortgage credit report before applying.

What Is a Good Credit Score for a Mortgage?

• 760+: Excellent — access to the best rates, all loan programs
• 720–759: Very good — near-best rates on conventional loans
• 680–719: Good — conventional loan access with competitive rates
• 640–679: Fair — FHA and conventional access; rates higher than ideal
• 580–639: Below average — FHA and some VA programs; limited conventional options
• Below 580: Poor — very limited options; 10% down FHA minimum (500–579), or no financing

How to Check Your Credit Before Applying

1. Pull your free credit reports at AnnualCreditReport.com — all three bureaus, free annually
2. Check your FICO score through your bank, credit card issuer, or myFICO.com
3. Look for errors: accounts that are not yours, incorrect payment history, duplicate entries
4. Dispute errors with the credit bureau that reported them — disputes are free and must be resolved within 30 days

How to Improve Your Credit Score Before Applying

Pay Down Credit Card Balances

Credit utilization — your balance relative to your credit limit — accounts for 30% of your FICO score. Keeping utilization below 30% on each card improves your score. Getting it below 10% can significantly boost it. Paying down a maxed-out card from 90% utilization to 30% can add 20–40 points or more in some cases.

Do Not Close Old Accounts

Length of credit history makes up 15% of your FICO score. Closing an old credit card shortens your average account age and reduces your available credit, which can raise your utilization ratio. Leave old accounts open, even if you are not using them.

Pay All Bills on Time

Payment history is 35% of your FICO score. A single 30-day late payment can drop a 700+ score by 60–80 points. Set up autopay on minimum payments to avoid accidental misses while you are in the home-buying process.

Avoid Applying for New Credit

Each hard inquiry from a new credit application can lower your score by 5–10 points. While you are preparing to apply for a mortgage, do not open new credit cards, take out a car loan, or apply for store financing.

Dispute Errors Immediately

Errors on your report — paid accounts showing as open, incorrect balances, accounts belonging to someone with a similar name — are more common than you might expect. Disputing and removing them can improve your score quickly.

How Long Does It Take to Improve a Credit Score?

• 1–3 months: Paying down balances, resolving errors
• 6–12 months: Building a positive payment history after past issues
• 12–24 months: Recovering from major negative events like collections or bankruptcy

Bad Credit? You Still Have Options

If your credit score is between 500 and 579, FHA loans are your primary path with a 10% down payment. If it is below 500, you will need to work on your credit before applying.

Some lenders specialize in working with lower-credit borrowers. New American Funding, for example, is known for manual underwriting that looks at your full financial picture rather than just your score. See our guide: Bad Credit First-Time Home Buyer Options.

Lender Requirements: What Each Looks For

Use LendingTree to see which lenders will work with your current credit profile. The comparison tool shows you real offers, so you can see which loan programs you qualify for before committing to an application.

Bottom Line

Your credit score determines which loan types you can access and how much those loans will cost you. If your score is below 580, work on it before applying. If it is between 580 and 619, target FHA-friendly lenders. If it is 620 or higher, you have full access to conventional loans — and scores above 740 unlock the best rates on the market.

Compare mortgage rates for your credit score on LendingTree to see your real options today.

A mortgage pre-approval is one of the first real steps in the home-buying process. It tells you how much house you can afford, shows sellers you are a serious buyer, and gives you a rate to work from. This guide walks you through exactly what lenders need, how to apply, and how to use your pre-approval effectively.

Get pre-approved with multiple lenders in one place: Apply on LendingTree and compare offers from several lenders at once.

Pre-Qualification vs. Pre-Approval: What Is the Difference?

These two terms are often used interchangeably, but they are not the same thing.

In competitive markets, many sellers will not accept offers from buyers who only have pre-qualification. Get pre-approved before you start touring homes.

What Documents Do You Need for Pre-Approval?

Gathering these before you apply will speed up the process significantly.

Income Verification

• Last two years of W-2s or 1099s
• Last two years of federal tax returns (all pages, all schedules)
• Most recent 30 days of pay stubs
• If self-employed: profit and loss statement and business bank statements

Asset Documentation

• Most recent 2–3 months of bank statements (all accounts, all pages)
• Retirement and investment account statements
• Documentation for any large deposits that appear in the last 60 days

Debt Information

• Mortgage statements if you currently own property
• Student loan statements showing current monthly payment
• Car loan and lease statements

Identification

• Government-issued photo ID (driver’s license, passport)
• Social Security number

Additional Items (May Be Requested)

• Divorce decree or child support orders if applicable
• Gift letter if down payment includes gifted funds
• Explanation letters for credit inquiries, employment gaps, or irregular income
• Proof of down payment assistance award if using a DPA program

How Pre-Approval Affects Your Credit Score

A pre-approval triggers a hard credit inquiry, which typically reduces your score by 2–5 points temporarily. The good news: FICO’s rate-shopping exception means that multiple mortgage inquiries within a 45-day window count as a single inquiry. This allows you to apply with several lenders to compare offers without multiplying the credit impact.

The temporary drop is minimal and should not deter you from shopping multiple lenders. The savings from finding a better rate far outweigh a brief dip in your score.

How to Shop Multiple Lenders Without Hurting Your Score

1. Do all your mortgage shopping within a 45-day window to trigger the FICO rate-shopping grouping
2. Or use a marketplace like LendingTree, which submits your information to multiple lenders with a single application and single hard pull
3. Compare the Loan Estimate forms that each lender sends within 3 business days of your application — these itemize interest rate, APR, monthly payment, and closing costs on a standardized form, making comparison straightforward

For a full guide on rate shopping, see: How to Shop Mortgage Rates Without Hurting Your Credit.

What the Lender Evaluates

Underwriters assess four main factors, sometimes called the “four Cs of credit”:

1. Capacity

Can you afford the monthly payment? Lenders calculate your debt-to-income ratio (DTI). Most conventional loans cap at 43% back-end DTI; FHA may allow up to 57% with compensating factors. Your housing payment alone (PITI — principal, interest, taxes, insurance) generally should not exceed 28–31% of gross income.

2. Credit

Your credit score and history. Lenders pull all three bureaus and use the middle FICO score. Payment history, utilization, and recent inquiries are all reviewed.

3. Capital

Your down payment and cash reserves. Lenders want to see that you have enough for the down payment, closing costs, and ideally 2–6 months of mortgage payments in reserve after closing. Large cash reserves can help offset other weaker factors.

4. Collateral

The property itself. The appraisal confirms the home is worth at least the purchase price and meets lender standards. For FHA loans, the property must also meet HUD minimum property requirements.

How Long Is a Pre-Approval Valid?

Most pre-approvals are valid for 60–90 days, after which the lender will need updated documents and a new credit pull. If your home search takes longer, plan to renew before writing an offer — an expired pre-approval may not be accepted by sellers.

What to Do After Getting Pre-Approved

• Do not apply for new credit of any kind
• Do not change jobs or move to a different type of employment (hourly to self-employed, for example)
• Do not make large deposits that you cannot document with a paper trail
• Do not make major purchases on credit (furniture, car, appliances)
• Keep paying all existing bills on time

Any of these actions can trigger a re-verification of your income, assets, or credit before closing — and can cause a loan denial even after pre-approval.

Pre-Approval Amount vs. What You Should Borrow

Lenders approve you for the maximum you can qualify for based on your income and debts. That does not mean you should borrow the maximum. Consider:

• Your monthly payment including taxes, insurance, and HOA fees
• Emergency fund maintenance after down payment and closing costs
• Future expenses: home repairs, furniture, appliances
• Life changes: potential income reduction, growing family

Many financial advisors suggest keeping total housing costs below 28% of gross monthly income, even if a lender approves you at 43%.

Compare Pre-Approval Offers from These Lenders

The simplest starting point is LendingTree’s pre-approval tool, which shows you offers from multiple lenders side by side so you can compare rates, fees, and loan types before committing to any one lender.

Bottom Line

Pre-approval is a straightforward process once you have your documents organized. Gather your income, asset, and identity documents before you apply. Apply with at least two lenders within the same 45-day window to protect your credit score while still comparison shopping. And remember that your pre-approval amount is a ceiling, not a target — borrow what fits your budget, not just what you qualify for.

Start the pre-approval process today: get pre-approval offers on LendingTree.