Best Mortgage Options for First-Time Homebuyers

Deciding to purchase your first home is exciting, yet it’s also a significant financial milestone. It’s easy to get caught up in the moment and give way to your emotions as you search for that perfect house. A crucial step before you fall in love with a home is to ensure you have all your financial ducks in a row – starting with financing.

A major barrier to homeownership is the upfront expenses, such as closing costs and your down payment. Luckily, various loans and programs are available to help eliminate these barriers among first-time buyers. Understanding how these loans function could help you squeeze more money out of your budget and secure that perfect starter home.

Conventional Fixed-Rate Mortgage Loan

Fixed-rate mortgages were the most popular home loans over the past several years. When mortgage rates fell to record lows during the pandemic, locking in a low, fixed-rate mortgage was a wise financial move.

A major perk of this mortgage type is that the interest rate will remain the same throughout the life of the loan. It provides financial stability because your loan’s principal and interest portion will always be the same – the only fluctuations coming from possible changes in property taxes or homeowner’s insurance.

Most lenders will require you to add PMI (private mortgage insurance) to your loan if you cannot make a down payment of 20% or more. PMI protects the lender in case you cannot repay your loan. This coverage is typically removed once you have 20% equity in your property.

A fixed-rate mortgage may be a good fit for you if:

  • You crave a consistent monthly payment.
  • You have a stable income & secure employment.
  • You have sufficient funds to cover a larger down payment (or can afford PMI).

Conventional Adjustable-Rate Mortgage (ARM) Loan

With an adjustable-rate mortgage (ARM), commonly called a variable-rate mortgage, the rate and monthly payment can fluctuate. These loans are becoming more common as interest rates rise due to inflation.

Typically, you’ll find ARMs formatted in a manner like 7/1. This means that the interest rate will remain fixed (unchanged) for the first seven years. Afterward, the rate can fluctuate annually depending on the economy. In this example, the introductory period is seven years and usually comes with a lower interest rate than traditional fixed-rate mortgages.

An ARM can be tricky to handle after the introductory period. If mortgage rates increase, your payment will likely rise. However, these loans help break barriers during periods of inflation. For example, if you lock in a lower introductory rate today, the loan will not adjust for several years. In that time, mortgage rates could drop and secure you a lower rate.

Many people use these loans if they know they will only live in the home for a short time. An example includes first-time homebuyers who are looking for a starter home. During the introductory period, they will enjoy lower interest rates. Then, they can sell the house after several years and move into a larger property – before any rate adjustments ever occur.

An adjustable-rate mortgage might be an ideal choice if:

  • You want to lock in a lower interest rate initially.
  • You plan to refinance or sell your home before the introductory period expires.
  • The economy is experiencing higher-than-normal inflation levels.

FHA Loan

FHA loans are mortgages insured by the Federal Housing Administration and issued by an approved lender. These home loans are geared toward potential homebuyers with lower income levels. They are highly sought after by first-time buyers due to their lower down payment requirements.

With an FHA, homebuyers can put down as little as 3.5% if their credit score exceeds 580. Buyers with lower scores could still qualify but must make a larger down payment.

An FHA loan may be right for you if:

  • You’re looking for a lower down payment option.
  • You have a lower credit score and are working to repair your credit.
  • You have a higher debt-to-income ratio (common among young adults just starting out).

VA Loan

A VA Loan is a special loan offered by the Department of Veterans Affairs (VA) to help service members, veterans, and surviving spouses purchase a home. VA loans require no down payment or PMI (private mortgage insurance). Because of these financial benefits, more barriers are removed, and potential homebuyers can qualify for a higher mortgage amount than through other loan programs.

A VA loan might be ideal for you if:

  • You serve or served in the military, or you qualify as a surviving spouse.
  • You have limited funds available for a down payment.
  • You want to avoid private mortgage insurance (PMI).


The U.S. Department of Agriculture offers a homebuyer’s assistance program, and contrary to what you may initially think, you don’t have to live on a farm to be eligible. Their program primarily targets rural and some suburban areas and offers 100% financing. The USDA does have some income limitations on this program, which vary by region. To learn more about the USDA’s income and property eligibility requirements, visit the USDA’s eligibility website.  

A USDA loan may be a good fit for you if:

  • You’re buying a home in a USDA-designated rural area.
  • You earn a low to moderate income.
  • You have limited funds available for a down payment.

State-Provided First-Time Homebuyer Loan

Most states offer their own first-time homebuyer programs. While each state’s offers will vary, they are all designed to remove barriers to homeownership and help residents purchase property affordably.

Find your State Housing Finance Agency and review which programs are available in your area.

Your state’s first-time homebuyer program might be a good fit for you if:

  • You meet the eligibility requirements set by your state.

How to Choose the Right Loan for You

There are many options for financing a home. However, it’s crucial to remember that buying a house is a significant investment. While reviewing home loans might not be as fun as attending open houses, it’s just as important of a step.

Your financial goals and needs will differ from those of your friends and neighbors, so the mortgage that worked for them might not be suitable for you. Review your options thoroughly and call to speak with a mortgage specialist. They’ll be able to provide options and help you decide the best course of action.

We’re Here to Help!

If you’re beginning your journey to become a homeowner, we’re prepared to help. Schedule a time to meet with a mortgage specialist and work one-on-one to find the solution that best fits your needs. To get started, please stop by any of our convenient branch locations or call 801-451-5064 to schedule an appointment today.


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