Best Mortgage Lenders for First-Time Home Buyers of April 2024

When it comes to buying your first home, the thought of getting a mortgage can seem even more intimidating than shopping and negotiating. But we've got you covered. Here's a look at some of the best mortgage lenders for first-time home buyers, and a primer on what you should know before you get started in the application process.

What types of loans are available for first-time home buyers?

Many first-time home buyers don't have excellent credit histories, and many others don't have large down payments available. Some have served in the Armed Forces and can access VA loans, while others might be able to explore USDA financing if their homes are in certain rural areas.

With that in mind, here's a quick overview of the four major mortgage types first-time home buyers can use.

Conventional mortgages

The majority of purchase mortgage loans in the United States are known as conventional loans. This is a broad term that refers to loans that aren't guaranteed by a government agency. The lack of a guarantee means that conventional mortgages generally have stricter qualification requirements than the other loan types listed here. But they could still be excellent options for first-time buyers with strong credit scores. There are several conventional mortgage programs for first-time buyers that allow for down payments as low as 3% of the purchase price.

FIND OUT MORE: Guide to Buying Your First Home

FHA loans

FHA mortgage loans are guaranteed, or insured, by the Federal Housing Administration (FHA). Because of this guarantee, credit requirements are generally looser than other types of mortgages, and down payments can be as low as 3.5%, even with a relatively low credit score. What's more, most closing costs can be rolled into the loan, further reducing your out-of-pocket cash requirement. While there are a few drawbacks to FHA loans, especially when it comes to costs, they can be a great way for buyers who don't have stellar qualifications to become homeowners.

Compare lenders: Best FHA Lenders

Compare rates: Today's FHA Mortgage Rates

VA loans

A VA loan is a mortgage that is backed by the U.S. Department of Veterans Affairs, and these are available to certain military members, both past and present. VA loans have no down payment requirement, low interest rates, and flexible credit qualifications, and are generally designed to help qualified veterans purchase a property, so they are definitely worth looking into if you qualify.

Compare lenders: Best VA Loan Lenders

Compare rates: Today's VA Loan Rates

USDA loans

A USDA loan is a mortgage that is guaranteed by the U.S. Department of Agriculture. To qualify, a home must be in an eligible rural area, and the borrower's income must be below certain limits. If both borrower and property qualify, USDA loans don't require any down payment whatsoever.

It's also important to mention that in addition to these types of loans, many lenders have their own proprietary mortgage products, and some are specifically designed for first-time home buyers. For example, some lenders offer low-down-payment conventional loans with no mortgage insurance requirement. So it could also be a great idea to research the options offered by some of the best mortgage lenders as well as your local and regional financial institutions.

Compare lenders: Best USDA Mortgage Lenders

How do I qualify as a first-time home buyer?

There aren't any specific requirements that only apply to first-time buyers (unless a particular loan product has a separate credit or down payment requirement for first-timers). For the most part, first-time buyers are subject to the same general requirements that all mortgage applicants face.

Having said that, first-time buyers are less likely to know what to expect than seasoned homeowners. So here are the general categories of information your mortgage lender will consider when you apply for a mortgage for your first home.

Credit

Before verifying any of your other qualifications, lenders will typically run a credit check. Virtually all mortgage lenders use the FICO credit scoring model, and most will pull your scores from all three major credit bureaus and use the middle number for qualification purposes. Federal Housing Administration (or FHA) loans require a minimum 580 FICO® Score for a 3.5% down payment, while conventional loans have a minimum of 620.

Down payment

Unless you're using a VA or USDA loan to finance your home, you'll need a down payment. FHA and conventional loans have low down payment options, and funds can usually come from a gift. But you'll need to document what funds you have for your down payment and where they came from, as well as how you plan to pay for any closing costs.

Debt-to-income ratio

Simply put, lenders want to make sure you'll be able to afford your mortgage payments, so they'll look at your debt obligations as a percentage of your income, a metric known as your debt-to-income ratio, or DTI ratio. Methods of calculating DTI and lending standards can vary, but a good rule of thumb is that your total monthly debt obligations (including your new mortgage payment) should be no more than 45% of your pre-tax income. However, there are exceptions, and borrowers have different costs of living to deal with, so if you feel you can comfortably afford to have a higher DTI ratio, don't be discouraged. In fact, FHA lenders will allow you to have a DTI as high as 57% in some cases!

Employment

Lenders want to know that not only can you afford your mortgage payments for now, but that you'll also be able to keep paying your mortgage year after year. Most mortgage lenders want to see at least two years of steady employment in the same field (but not necessarily with the same employer). There are exceptions, however -- such as if you graduated from college less than two years ago.

Assets/reserves

Depending on the mortgage loan you select, as well as your other qualifications, your lender is likely to require a certain amount of money in reserves. This can be as little as two months' worth of mortgage payments. The point is that you typically can't end up with a zero balance in your bank account after closing on your home and paying any closing costs.

Before you apply for a mortgage, it makes sense to ensure each of these are as good as possible. For example, taking some time to raise your credit score and save a higher down payment could help you snag a better interest rate, which will save you money in the long run.

Choosing the best lender for first-time home buyers

The first step in choosing the best mortgage lender for your first home purchase is to get a good understanding of how home loans work. Then you'll need to narrow down a short list of a few (say, three or four) lenders with products and resources that meet your needs and that have strong customer service. Our best first-time mortgage lender list on this page is a good place to start, but it could also be a smart idea to check out your local and regional banks or credit unions so that you can compare mortgage rates. If you're looking for a digital application process, be sure to check out our list of the best online mortgage lenders.

Once you have a short list, apply for a mortgage with all of them to compare the specific loan terms and fees that you get offered. It won't hurt your credit score to do this, as all mortgage-based credit inquiries that take place within a typical shopping period are counted as just a single inquiry. You'll see a range of interest rates, fees, and APRs from different lenders, and you'd be surprised at how much this can save or cost you over the life of a 30-year mortgage loan.

First-time home buyer resources

• 9 First-Time Home Buyer Tips
• First-Time Home Buyer Benefits: Qualification and Requirements
• 9 First-Time Home Buyer Mistakes to Avoid
• A First-Time Home Buyer’s Guide to FHA Loans
• First-Time Home-Buyer Class: What to Know and Do You Need to Take One?
• How to Create a First-Time Homeowners’ Budget
• Down Payment Assistance: Available Programs & How to Apply
• How to Shop for a Mortgage
• Home Buyer Checklist: Everything to Do to Buy a Home