Buying your first home is one of the largest financial decisions you will make. The good news: dozens of loan programs exist specifically for first-time homebuyers — some with down payments as low as 0%, others with below-market interest rates, and many with grants or second mortgages to cover closing costs. Knowing which programs you qualify for can mean the difference between renting for another year and closing on a home.
Who Qualifies as a First-Time Homebuyer?
Most programs define a first-time homebuyer as someone who has not owned a primary residence in the past three years. This is broader than it sounds — if you owned a home five years ago but have been renting since, you may still qualify as a “first-time” buyer for program purposes. Some programs also apply to buyers who have not owned a home in the last three years even if they have owned before.
FHA Loans: The Most Popular First-Time Buyer Option
FHA loans are backed by the Federal Housing Administration and require only a 3.5% down payment with a credit score of 580 or higher. With a score between 500 and 579, a 10% down payment is required. FHA loans are available through approved lenders nationwide.
Key features of FHA loans:
- Down payment: 3.5% (score 580+) or 10% (score 500–579)
- Mortgage insurance premium (MIP): required for the life of the loan if you put less than 10% down
- Loan limit (2026): $524,225 in most areas; higher in high-cost markets
- Seller concessions allowed up to 6% of the purchase price
- Gift funds from family members are allowed for the down payment
FHA loans are lenient on credit and debt-to-income ratios, making them accessible to buyers who cannot qualify for conventional financing. The tradeoff is lifetime MIP on low-down-payment loans — once you have enough equity, refinancing into a conventional loan eliminates MIP.
Conventional 97: 3% Down with No Lifetime Mortgage Insurance
Fannie Mae and Freddie Mac both offer conventional loan programs that allow 3% down payments for first-time homebuyers:
- Fannie Mae HomeReady: 3% down, designed for low-to-moderate income buyers. Allows non-borrower income to be considered (boarder income, rental income from an ADU). Reduced PMI rates for qualifying borrowers.
- Freddie Mac Home Possible: Similar to HomeReady. 3% down, income limits apply, reduced PMI.
- Conventional 97: 3% down, available to first-time buyers (at least one borrower must be a first-time buyer). Credit score of at least 620 required.
Unlike FHA MIP, PMI on conventional loans can be cancelled once you reach 20% equity. For buyers with strong credit, the conventional 97 is often cheaper than an FHA loan over time.
VA Loans: 0% Down for Veterans and Military
VA loans are guaranteed by the Department of Veterans Affairs and available to eligible veterans, active-duty service members, and surviving spouses. They are among the best mortgage products available to any homebuyer:
- No down payment required
- No private mortgage insurance
- Competitive interest rates (typically below conventional rates)
- No loan limit for eligible buyers with full VA entitlement
- VA funding fee applies (1.25%–3.3% depending on down payment and prior VA loan use; waived for disabled veterans)
If you or your spouse has served in the military, a VA loan should be the first option you evaluate.
USDA Loans: 0% Down for Rural and Suburban Buyers
USDA loans are backed by the U.S. Department of Agriculture and require no down payment. They are available in eligible rural and suburban areas — which covers a larger portion of the country than most buyers expect. Use the USDA eligibility map at eligibility.sc.egov.usda.gov to check a specific address.
- No down payment required
- Income limits apply (typically 115% of area median income)
- Property must be in an eligible rural/suburban area
- Annual guarantee fee (0.35% of loan balance) replaces PMI
- Upfront guarantee fee: 1% of the loan amount (can be rolled into the loan)
State and Local Down Payment Assistance Programs
Every state has at least one Housing Finance Agency (HFA) that offers below-market mortgage rates, down payment assistance grants, and second mortgage programs for first-time buyers. These programs vary widely by state and often by county or city. Common structures include:
- Forgivable grants: Funds that do not need to be repaid if you stay in the home for a set period (typically 3–5 years).
- Deferred payment second mortgages: A zero-interest or low-interest second mortgage for the down payment that becomes due only when you sell, refinance, or pay off the first mortgage.
- Matched savings programs: Some states match your savings 2:1 or 3:1 for a down payment if you complete a homebuyer education course.
To find programs in your area, search “[your state] housing finance agency” or “[your city] first-time homebuyer assistance.”
Good Neighbor Next Door Program (HUD)
Teachers, law enforcement officers, firefighters, and emergency medical technicians can receive a 50% discount off the list price of HUD-owned homes in designated revitalization areas. The discount is a silent second mortgage that is forgiven after three years of owner-occupancy. Inventory is limited — homes are listed for a 7-day exclusivity period each week at hudhomestore.com.
Mortgage Credit Certificates (MCCs)
Many state HFAs offer Mortgage Credit Certificates, which convert a portion of your mortgage interest into a direct federal tax credit (not just a deduction). The credit is typically 20%–25% of annual mortgage interest, up to $2,000 per year. MCCs are issued at origination and can be used for the life of the loan as long as the home remains your primary residence and income limits are met.
Steps Before You Apply
- Check your credit score and pull your full credit report from annualcreditreport.com. Dispute any errors.
- Calculate your debt-to-income ratio (DTI). Most programs require a DTI of 43%–50% or below.
- Complete a HUD-approved homebuyer education course — required for most down payment assistance programs and some first-time buyer loan products. Many are free online.
- Get pre-approved by a lender who participates in the assistance programs you are targeting, not just any lender.
Bottom Line
First-time homebuyers have more options than ever in 2026. Between FHA, VA, USDA, and conventional 97 loans — plus state and local down payment assistance — many buyers can purchase a home with little to no money out of pocket. The key is knowing which programs are available in your area and which ones you qualify for. A HUD-approved housing counselor can review your full picture at no cost.