Choosing the Right First-Time Homebuyer Loan
First-time buyers have several low-down-payment options. FHA loans (3.5% down, 580+ credit score) are backed by the federal government and are popular with buyers who have less-than-perfect credit. Conventional 97 and HomeReady programs allow just 3% down for buyers with good credit (typically 620+).
The key tradeoff: FHA loans require mortgage insurance premiums (MIP) for the life of the loan (unless you put 10% down), while conventional loans with 20%+ down avoid private mortgage insurance (PMI) entirely. With 3–5% down on a conventional loan, PMI typically cancels once you reach 20% equity.
Many states and cities also offer down payment assistance (DPA) grants or second mortgages. A HUD-approved housing counselor (find one at hud.gov) can walk you through programs in your area for free and help you understand total loan costs before committing.
Frequently Asked Questions
Front-end DTI (or housing ratio) is your monthly housing costs (mortgage, taxes, insurance, HOA) divided by gross monthly income. Back-end DTI includes all monthly debt payments. Most lenders want front-end DTI below 28% and back-end below 43%. FHA allows up to 31%/43%.
Yes, for most loan types. FHA and conventional loans allow gift funds from family members for the down payment. You'll need a signed gift letter stating the funds are not a loan. Some programs (like VA) allow 100% gift funding; others require at least some funds from your own savings.