A first-time home buyer loan is a mortgage with rules relaxed enough that someone without a large down payment or a long credit history can still get approved, and in practice you're choosing between four of them: FHA, conventional, VA, and USDA. FHA allows a 580 score with 3.5% down, conventional starts at 620 with 3% down, and VA and USDA allow zero down for buyers who meet their eligibility rules. The biggest long-term difference isn't the down payment, it's the mortgage insurance, because FHA insurance generally lasts the life of the loan while conventional PMI can be removed once you build enough equity. Here's the side-by-side comparison and how to decide, plus how Roots Growth helps renters reach the score that opens the cheaper doors.
Table of Contents
What a First-Time Home Buyer Loan Actually Is
There's no single product called a first-time home buyer loan. The phrase is shorthand for any mortgage whose rules are loose enough that a buyer without a big down payment or a long credit history can qualify.
Three of the four are government-backed. FHA insures the loan, VA guarantees a portion of it, and USDA backs it. That insurance doesn't go to you, it goes to the lender, and it's the reason the lender will accept a 3.5% down payment or a 580 credit score at all. Conventional loans are the exception, backed by Fannie Mae and Freddie Mac rather than a federal agency.
The Four Loan Types Compared
Here's the whole decision in one table.
Feature | FHA | Conventional | VA | USDA |
Minimum credit score | 580, or 500 to 579 with a larger down payment | 620 | No program minimum, lenders often want 620 | No program minimum, lenders often want 640 |
Minimum down payment | 3.5%, or 10% at 500 to 579 | 3% via Conventional 97, HomeReady, or Home Possible | 0% | 0% |
Who is eligible | Anyone who meets credit and debt rules | Anyone who meets credit and debt rules | Eligible service members and veterans | Buyers in eligible rural areas |
Mortgage insurance | MIP, generally for the life of the loan at low down payments | PMI, removable once you reach sufficient equity | No monthly mortgage insurance | Annual guarantee fee |
Best for | Thin or bruised credit | 620 or above and planning to stay a while | Anyone who qualifies through service | Buyers outside metro areas |
Read that mortgage insurance row twice. It's the line that costs or saves the most money over a full loan term, and it's the one most first-time buyers never think about until they're already committed.
FHA Loans in Detail
FHA is the default answer for buyers whose credit isn't there yet. The program allows a 580 score with 3.5% down, and it goes as low as 500 to 579 if you can put 10% down.
Those are floors, not expectations. The average approved FHA purchase borrower has a credit score near 686, because lenders routinely require more than the program minimum.
The tradeoff is mortgage insurance, which we cover below. If your score is close to 620, it's worth checking whether waiting a few months to cross that line makes conventional the cheaper path. See what credit score do you need to buy a house for where you stand.
Conventional Loans in Detail
Conventional loans start at a 620 credit score, and the low down payment versions are what make them competitive for first-time buyers. Conventional 97, HomeReady, and Home Possible all allow 3% down at a 620 score.
That's a smaller down payment than FHA requires, which surprises people who assume conventional is the harder, richer-buyer option. The higher hurdle is the credit score, not the cash.
HomeReady and Home Possible are aimed specifically at buyers with moderate incomes and generally carry income limits tied to the area you're buying in. Conventional 97 has no such limit but is otherwise similar in structure. All three pair well with state and local down payment assistance.
VA and USDA Zero-Down Loans
Both of these allow you to buy with no down payment at all, and both are gated by eligibility rather than by money.
VA loans are for eligible service members and veterans. There's no program credit score minimum, though lenders often want to see 620. There's no monthly mortgage insurance, which makes a VA loan the strongest option on this list for anyone who qualifies. If you have military service in your background, check your eligibility before you look at anything else.
USDA loans are for homes in eligible rural areas, and eligibility is defined by the property address rather than by your profession. There's no program credit score minimum, though lenders often want 640. The eligible map is broader than most buyers assume and includes plenty of small towns and outer suburbs, so it's worth checking the address of any home you're considering.
If neither applies to you, don't treat zero down as the goal anyway. Assistance programs can cover an FHA or conventional down payment and get you to a similar cash position. See down payment assistance and how to buy a home with little money down.
Mortgage Insurance Is the Hidden Difference
Every low down payment loan carries some form of insurance that protects the lender if you stop paying. You pay for it, the lender benefits from it, and the rules for getting rid of it differ sharply by loan type.
On FHA, the mortgage insurance premium generally lasts the life of the loan when your down payment is small. Paying the balance down doesn't end it. The usual escape is refinancing into a conventional loan later, which means qualifying again and accepting whatever interest rate exists at that time.
On conventional, PMI is removable once you reach sufficient equity in the home. That's a finite cost with a defined end, which is a materially different proposition over a 30-year term.
VA loans carry no monthly mortgage insurance at all. USDA loans carry an annual guarantee fee that functions similarly to mortgage insurance. When you compare monthly payments across loan types, make sure the quote includes the insurance line, because a payment that looks lower without it can be the more expensive loan. According to the Consumer Financial Protection Bureau, lining up official Loan Estimates side by side is the reliable way to see what a mortgage actually costs.
How to Choose the Right Loan
Work down this list in order and the answer usually resolves itself.
Check VA first. If you or your spouse have qualifying service, zero down with no monthly mortgage insurance beats everything else here.
Check the property address for USDA. If the home is in an eligible area and your score is around 640 or better, zero down is on the table.
If your score is 620 or above, price conventional against FHA. Conventional 97, HomeReady, and Home Possible allow 3% down and the PMI eventually goes away.
If your score is 580 to 619, FHA is likely your path. Then decide whether it's worth a few months of credit work to reach 620 before you apply.
If your score is below 580, don't force it. Fix the file first. See how to improve your credit score in 30 days.
Whatever you choose, figure out the payment you can actually carry before you fall in love with a listing. Start with how much house can I afford as a first-time buyer, and see first-time home buyer programs, a complete guide for renters for the assistance that layers on top.
Your Credit Score Decides Which Door Opens
Your score doesn't just decide whether you're approved. It decides which of these four loans you can use and what you pay every month for 30 years.
FICO Score | Average 30-Year Rate on a $300,000 Loan |
760 and above | 6.63% |
740 to 759 | 6.71% |
720 to 739 | 6.81% |
700 to 719 | 6.89% |
680 to 699 | 6.98% |
660 to 679 | 7.07% |
640 to 659 | 7.17% |
620 to 639 | 7.33% |
Rate data from Experian's average mortgage rates by credit score, Curinos, July 2026.
According to myFICO, payment history is the single heaviest factor in a FICO score at 35%, and credit utilization is next at 30%. If you're renting, you're already making the biggest payment in your budget every month and getting no credit for it, because landlords don't report to the bureaus the way lenders do. Changing that is the fastest structural improvement most renters can make. See does paying rent build credit.
That's the idea behind Roots Growth. For $10 a month, members complete short financial education challenges, earn Investable Rewards™, and deploy those rewards into the Roots real estate fund, credit repair, home-purchase services, and other Growth Market partners. Rent reporting, credit monitoring, and Rooty, your AI Wealth Coach, are all part of the toolkit.
Get your score loan-ready with Roots Growth →
Frequently Asked Questions About First-Time Home Buyer Loans
What is a first-time home buyer loan?
It isn't a single product. The phrase describes any mortgage with rules relaxed enough for a buyer without a large down payment or long credit history to qualify. In practice that means FHA, conventional low down payment options like Conventional 97 and HomeReady, VA, and USDA. See first-time home buyer programs, a complete guide for renters for what layers on top.
What credit score do you need for an FHA loan?
FHA allows a 580 score with 3.5 percent down, and 500 to 579 with 10 percent down. Those are program floors and individual lenders often require more. The average approved FHA purchase borrower has a score near 686. If you're short of 580, Roots Growth reports your on-time rent so payment history starts building while you wait.
Is an FHA loan better than a conventional loan for first-time buyers?
It depends on your credit score. Below 620, FHA is usually the only realistic option, and crossing 620 first is often worth the wait, which is what Roots Growth is built to help renters do. At 620 or above, conventional often wins because Conventional 97, HomeReady, and Home Possible allow 3 percent down and the mortgage insurance can eventually be removed, while FHA insurance generally lasts the life of the loan.
Can you buy a house with no money down?
Yes, through VA or USDA. VA loans require eligible military service and USDA loans require the home to be in an eligible rural area. Both allow zero down. If neither applies, down payment assistance can cover an FHA or conventional down payment instead. See down payment assistance and how to buy a home with little money down.
Does FHA mortgage insurance ever go away?
Generally not at low down payments. FHA mortgage insurance premiums typically last the life of the loan, and paying the balance down doesn't end them. The common way out is refinancing into a conventional loan once you have enough equity and can qualify, which means accepting whatever rate exists at that time.
What credit score do you need for a VA loan?
The VA program itself sets no minimum credit score. Lenders set their own, and many want to see 620. VA loans also require zero down payment and carry no monthly mortgage insurance, which makes them the strongest option for anyone who qualifies through service.
Which loan is best for a first-time buyer with a 620 credit score?
At exactly 620 you have access to both FHA and the conventional low down payment programs, so price both. Conventional 97, HomeReady, and Home Possible allow 3 percent down with removable PMI, which is usually cheaper over a full loan term. Check VA and USDA eligibility first, since either would beat both.
About Roots Growth
Roots Growth is a micro-learning platform that helps renters turn financial education into actual wealth. When users complete short challenges they earn reward points that can be directly invested into real estate or used toward home-buying services. Roots Growth also has powerful credit-building tools, like rent reporting and real time credit monitoring. Ready to grow? Join the 29,500+ investors already building wealth today at investwithroots.com.
Disclosure: This content is for informational purposes only and does not constitute financial or legal advice.
Last Updated: June 2026
What's Next?
