First-time home buyer loans: FHA, conventional, VA and USDA compared
You do not need 20% down to buy your first home. Several loan types allow much smaller down payments, each with its own trade-offs.
The main loan types
FHA loans. Insured by the Federal Housing Administration, part of HUD. Down payments can be as low as 3.5%, and credit requirements are more flexible than most conventional loans. You pay an upfront and an annual mortgage insurance premium, and for most low-down-payment FHA loans the annual premium lasts for the life of the loan unless you refinance.
Conventional loans. Programs from Fannie Mae and Freddie Mac allow as little as 3% down for eligible buyers. With less than 20% down you pay private mortgage insurance (PMI), but it can be cancelled once you reach enough equity. Borrowers with good credit often pay less overall than with FHA.
VA loans. For eligible veterans, servicemembers and some surviving spouses. Usually no down payment and no monthly mortgage insurance, though there is a funding fee.
USDA loans. For eligible rural and suburban areas and income limits. No down payment required.
Down payment and closing cost help
State housing finance agencies and many cities offer grants, deferred loans or forgivable loans for first-time buyers, often paired with a homebuyer education course. California’s official site, for example, lists state programs. Search your state housing finance agency and your city or county housing department.
What to compare between lenders
- interest rate and APR
- points and lender fees
- mortgage insurance cost and how it can be removed
- the Loan Estimate: every lender must give you one within three business days of applying, in the same format, which makes side-by-side comparison easy
Budget for the full cost
With average 30-year rates above 7% in late 2026, a small difference in rate has a large effect on the payment. Include property taxes, homeowners insurance, mortgage insurance and maintenance when deciding what you can afford, not just principal and interest.