Your Guide to First-Time Home Loans
Navigating the world of home loans can be complex. This interactive guide is designed to simplify the key concepts and help you make an informed decision on your journey to homeownership.
Explore Common Loan Types
Different loans suit different financial situations. Click on a loan type below to learn about its main features, advantages, and disadvantages to see which might be the best fit for you.
Conventional Loan
These are mortgages not insured by a government agency. They are the most common type of loan and often have stricter credit score and down payment requirements, but can offer better interest rates for qualified buyers.
Pros
- Can be used for primary, secondary, or investment properties.
- Private Mortgage Insurance (PMI) can be canceled once you reach 20% equity.
- Flexible terms (e.g., 15-year, 30-year).
Cons
- Typically requires a higher credit score (620+).
- Often requires a larger down payment (3-20%).
- Stricter debt-to-income ratio requirements.
FHA Loan
Insured by the Federal Housing Administration, FHA loans are popular with first-time buyers due to their lower down payment and more flexible credit requirements.
Pros
- Low down payment, as little as 3.5%.
- Accommodates lower credit scores (down to 580, sometimes lower).
- Government-insured, making lenders more willing to approve.
Cons
- Requires Mortgage Insurance Premium (MIP) for the life of the loan in most cases.
- Loan limits vary by county.
- Property must meet certain FHA standards.
VA Loan
Backed by the U.S. Department of Veterans Affairs, these loans are a benefit for eligible veterans, active-duty service members, and surviving spouses. They offer significant advantages.
Pros
- Often requires no down payment.
- No Private Mortgage Insurance (PMI) is required.
- Limited closing costs and competitive interest rates.
Cons
- Only available to eligible military members and veterans.
- Requires a VA funding fee (can be financed into the loan).
- Can only be used for a primary residence.
USDA Loan
Backed by the U.S. Department of Agriculture, these loans are designed to help moderate-to-low-income borrowers purchase homes in eligible rural and suburban areas.
Pros
- Typically requires no down payment.
- Offers competitive interest rates.
- Closing costs can be financed into the loan.
Cons
- Home must be in a USDA-eligible area.
- Borrower must meet income eligibility limits.
- Requires an upfront and annual guarantee fee.
See How Interest Rates Affect Your Loan
A small change in the interest rate can have a big impact on your monthly payment and the total amount you pay over the life of the loan. Use the calculator below to see for yourself.
Estimated Monthly Payment
$1,896
Total Interest Paid: $382,633
Government Assistance Programs
Several government-backed programs are specifically designed to make homeownership more accessible for first-time buyers. These programs typically offer lower down payments and more flexible credit requirements.
FHA Loans
Ideal for buyers with lower credit scores or smaller savings for a down payment. Requires as little as 3.5% down.
VA Loans
An exclusive benefit for veterans and service members, often requiring no down payment and no mortgage insurance.
USDA Loans
For low-to-moderate income buyers in designated rural/suburban areas, typically requiring no down payment.
Fixed-Rate vs. Adjustable-Rate (ARM)
One of the biggest choices you'll make is between a stable fixed-rate loan and a potentially lower-starting adjustable-rate mortgage (ARM). The chart below illustrates how their monthly payments can behave over time.
Understanding the Difference
Fixed-Rate Mortgage
Your interest rate and monthly principal & interest payment remain the same for the entire loan term. This offers predictability and stability, making it a popular choice for buyers who plan to stay in their home for many years.
Adjustable-Rate Mortgage (ARM)
An ARM typically starts with a lower "introductory" interest rate for a set period (e.g., 5 or 7 years). After this period, the rate adjusts periodically based on market indexes. This can be a good option if you plan to sell or refinance before the adjustment period begins.
How to Compare Loan Offers
Don't just look at the interest rate. Compare Loan Estimates from multiple lenders to find the best deal. Pay close attention to the APR, fees, and estimated closing costs using this tool.
Loan Offer 1
Summary
Total Upfront Costs: $0
Loan Offer 2
Summary
Total Upfront Costs: $0