Best Mortgage Lenders for First-Time Buyers

Comparison: best mortgage lenders for first-time homebuyers

Compare our picks for the best mortgage lenders for first-time homebuyers:

Our top picks for mortgage lenders for first-time buyers

To select our picks for the best mortgage lenders for first-time homebuyers, we considered factors like loan types, availability, minimum credit scores and consumer reviews. Most of our picks offer both conventional loans and government-backed loans, such as Federal Housing Administration (FHA), U.S. Department of Agriculture (USDA) and U.S. Department of Veterans Affairs (VA) loans.

Our picks may be Authorized Partners that compensate us. This doesn’t affect our recommendations or evaluations, but it may impact the order in which companies appear.

Our top picks for the best mortgage lenders for first-time buyers are:

• Rocket Mortgage
• nbkc bank
• Better Mortgage
• Zillow Home Loans
• Veterans United
• New American Funding
• AmeriSave

What loan type is best for first-time homebuyers?

There are many types of mortgages available, but the best type for you will generally depend on your credit history and income, among other factors.

Conventional loans

Conventional loans, which are funded by private lenders, are the most common type of home loan. Conventional loans typically require a down payment of at least 3%. But keep in mind that if you put down less than 20% on a home, you’ll need to pay for private mortgage insurance until 20% of the principal balance is paid off.

To qualify for a conventional loan, you’ll typically need a credit score of at least 620. It also helps to have a low debt-to-income (DTI) ratio and a stable income.

Government-backed loans

Government-backed loans are also funded by private lenders, but they're backed by the federal government. The three most popular types of government-backed loans are FHA, USDA and VA loans.

• FHA loans: With FHA loans, you can put down 3.5% if you have a credit score of 580 or higher and 10% if you have a score between 500 and 579.
• USDA loans: USDA loans are available to people in eligible rural areas. They don’t require a down payment or a minimum credit score.
• VA loans: VA loans are suitable for military members, veterans and their eligible family members. They don’t have any down payment or minimum credit score requirements.

How much does a first-time homebuyer need for a down payment?

It’s typically recommended to put 20% down, but this is mainly recommended to avoid paying PMI.

“Contrary to popular belief, it is a myth that you’re required to put 20% down to purchase a home,” said Ashley Moore, a community lending manager at JPMorganChase. “Some home loans may require far less of a down payment (between 3% to 5%), and the industry average is typically within 6% and 8%.”

Moore said that putting down less than 20% can be a good idea in some situations, such as if putting down 20% would deplete your savings.

Down payment assistance programs

Various down payment assistance programs are available for first-time buyers through state and local governments, nonprofit organizations and employers. These programs might include grants, low-interest loans or forgivable loans that make it easier to afford a down payment.

Tiana Uribe, a real estate broker based in California, said some assistance doesn’t have to be repaid, while others have deferred payments or require an equity share in the property.

“The loans can take longer than a traditional loan to review, process and fund,” Uribe said. “In addition, the interest rate may be higher to reflect the risk a lender is carrying by financing more of the liability.”

You can find down payment assistance programs by checking state and local housing agencies or asking your lender for information. Program requirements vary, but programs typically require that borrowers make under a certain income or have a certain credit score.

Using gifted funds for a down payment

People sometimes receive gifts of money from friends or family members for the purchase of a home. When using gifted funds for a down payment, it’s important to have a gift letter indicating that the money is a gift, not a loan. It should also include key information about the person providing the gift, such as their name, address and relationship to you.

You should be able to provide proof of receipt, including bank statements from you and the donor, to show the transfer of funds. Also, be aware of any gift limits, which may affect how much of your down payment can be a gift.

» MORE: First-time homebuyer loans and programs

How to choose the right mortgage lender for you

Choosing a mortgage lender as a first-time buyer is a big decision. Here are some factors to consider when shopping around for the best lender for your first home.

1. Check your credit score

You can check your credit score for free through your online bank account. Generally, you’ll be offered the best rates and terms if you have very good to excellent credit, or a FICO score of 740 to 850.

2. Determine your budget

Decide how much you can afford to spend on a house. Factor in closing costs, a down payment and ongoing expenses. Also, look into down payment assistance programs. Depending on where you live, you might have access to funding through your state, county or city.

3. Compare lenders and quotes

Research lenders and compare them based on their fees, terms and rates. Get quotes from at least three to four lenders, which could include banks, credit unions and online lenders. Choose the lender that offers you the best rates and terms.

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