Many first-time homebuyers struggle to come up with the cash for a down payment and closing costs. But the best mortgage lenders for first-time buyers can help you become a homeowner, even if you don’t have perfect credit or a traditional 20% down payment. Here’s what you need to know to help you find the best first-time homebuyer loan.
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Homefinity launched in 2018 as the online lending division of Fairway Independent Mortgage. It offers a variety of mortgage products, including conventional mortgages, Federal Housing Administration and Veterans Affairs mortgages, and mortgage refinancing.
Caliber Home Loans of Coppell, Texas, offers mortgage products nationwide. Options include conventional, adjustable-rate, jumbo, refinancing, Federal Housing Administration, U.S. Department of Agriculture and Department of Veterans Affairs loans. Caliber has been in business since 2008, and is solely focused on home lending products.
Carrington Mortgage Services, founded in 2007, offers an array of mortgage and refinancing options to borrowers seeking conventional or government-backed loans. Its California-based parent company, Carrington Holding Co., was established in 2003 and provides a range of real estate services. Carrington Mortgage Services is based in California and also has offices in Arizona, Connecticut, Florida, Indiana and Maryland.
Pentagon Federal Credit Union, widely known as PenFed, offers borrowers access to many types of mortgages: conventional, adjustable rate, jumbo and Department of Veterans Affairs, plus refinancing loans and home equity lines of credit. The financial institution, which serves 2.5 million members, was established in 1935 and is based in McLean, Virginia.
North American Savings Bank, or NASB, is a Missouri-based bank and lender founded in 1927 that offers home mortgages nationally. NASB provides a variety of mortgage options, including conventional, Federal Housing Administration and Department of Veterans Affairs loans, and products for borrowers who might otherwise have trouble getting a mortgage.
Headquartered in Charlotte, North Carolina, Truist Bank was formed in 2019 after SunTrust and BB&T banks merged. Truist Bank offers a variety of mortgage products, including refinancing and home equity lines of credit.
Chase, one of the world’s largest banks, was founded in 1799 in New York and offers mortgage and refinance loans.
AmeriSave Mortgage Corp. is an online lender that has been in business since 2002. It was one of the first to offer an offsite digital mortgage experience for customers. The company says it has financed more than 664,000 borrowers since it began operating. With headquarters in Atlanta, AmeriSave services loans in 49 states and Washington, D.C.
Simmons Bank was founded in Arkansas in 1903 and can now be found across six states. It offers mortgage products such as conventional and jumbo loans, federal-government-backed loans and state-approved down payment assistance programs.
The average 30-year fixed mortgage rate dropped to 6.65% this week, down significantly from 6.84% last week. Mortgage rates have fallen for the past four consecutive weeks since peaking at 7.33% in mid-November.
Still, interest rates are twice as high as they were at the beginning of the year, and higher borrowing costs are having a tangible impact on mortgage affordability and consumer housing sentiment. Here are the current mortgage interest rates, without discount points unless otherwise noted, as of Dec. 8:
- 30-year fixed: 6.65% (down from 6.84% a week ago).
- 20-year fixed: 6.53% (down from 6.7% a week ago).
- 15-year fixed: 5.98% (down from 6.13% a week ago).
- 10-year fixed: 6.03% (down from 6.18% a week ago).
- 5/1 ARM: 5.43% (down from 5.46% a week ago).
- 7/1 ARM: 5.57% (down from 5.61% a week ago).
- 10/1 ARM: 6.01% (up from 5.99% a week ago).
- 30-year jumbo loans: 6.66% (down from 6.85% a week ago).
- 30-year FHA loans: 5.96% with 0.07 point (down from 6.04% a week ago).
- VA purchase loans: 6.06% with 0.05 point (down from 6.11% a week ago).
You might think of a first-time homebuyer as someone who has never owned a home, but that’s not always true.
The term first-time homebuyer can have different meanings, says Tammy Andrews, producing branch manager for Maryland and Delaware at Academy Mortgage Corp.
“From a lender’s perspective, it can be not ever owning a home, period,” Andrews says. “But for different grant programs, it might mean not having owned a home in the last three years.”
A 3.5% down payment is required for a Federal Housing Administration loan. This loan is good for borrowers with lower credit scores and usually has looser debt-to-income ratio requirements than a conventional loan. It carries an upfront mortgage insurance premium and monthly mortgage insurance payments.
You don’t need a down payment for a home loan from the Department of Veterans Affairs. Veterans or active-duty service members may be eligible for a loan with no private mortgage insurance but upfront costs, such as the VA funding fee.
With this loan, no down payment is necessary to purchase, build, improve or relocate to a home in certain rural areas. Borrowers must meet income and other eligibility criteria, plus pay an upfront guarantee fee at closing and an annual fee split into monthly installments.
Down payments can be as low as 3%, but private mortgage insurance is required until you reach 20% equity. These loans have strict credit requirements but potentially lower interest rates than some government-backed loans, such as FHA loans.
- Qualify with less-than-perfect credit. Many loans geared toward first-time buyers allow for lower credit scores and flexible debt-to-income ratios.
- Make a low down payment. Closing costs and other fees may also be reduced, which could help you buy a home faster.
- Get assistance with homebuying costs if you need it. You can find government-backed and charitable loan programs for help with your down payment and closing costs. You may be eligible for a grant, a low- or no-interest loan, or a forgivable or deferred-payment loan for first-time buyers.
- Your property may need to meet certain requirements. The appraisal, for instance, checks that the home meets minimum property requirements before the VA backs the loan.
- Eligibility may be restricted by household income. Certain programs may limit participation by how much money you make, where you live and how many people are in your household.
- Loan amounts. Limits may apply based on the home’s location.
You can begin your research in a couple of ways. Start with your state’s housing finance agency, which can connect you with affordable mortgage programs, says Anna DeSimone, author of “Housing Finance 2020.”
HFAs are subsidized by their states, “and they work with FHA, VA, and Freddie and Fannie loans,” DeSimone says.
You could also work with a local lender or mortgage broker who knows about grant programs, Andrews says.
Consider these questions when choosing your mortgage lender:
- What type of products does the lender offer? If you’re thinking about an FHA or USDA loan, confirm that your lender has those options.
- What interest rates and closing costs should you expect? Even a fraction of a percentage point can dramatically change the cost of the loan.
- Does the lender have experience with similar first-time borrowers? Perhaps you have a lower credit score but also a low debt-to-income, or DTI, ratio. Establish that the lender can work with you.
- Does the lender offer special programs for first-time homebuyers? Some lenders provide grants to help with closing costs.
- How is the lender’s customer service? Check reviews and ratings from the Better Business Bureau, Trustpilot or the Consumer Financial Protection Bureau’s Consumer Complaint Database.
Whether you’re a first-time or repeat homebuyer, how much you get approved for will depend on your ability to repay. If you have steady income, excellent credit and no debt, then these are big pluses.
Lenders can also look at compensating factors – strengths in your financial profile that offset weaknesses – to extend your borrowing power, DeSimone says. Those may include large cash reserves, recurring income streams or a long history of on-time rent payments.
Another key consideration for lenders is your DTI ratio, or the percentage of your gross monthly income that goes toward paying off your monthly debts. Aim for less than 43%, but don’t worry if you’re above that threshold as a first-time homebuyer.
“Some programs are allowed to loosen ratios up to 50% for people who have compensating factors,” DeSimone says.
Generally, interest rates are higher for people with lower credit scores, regardless of whether they are first-time or seasoned homebuyers.
Look at the entire loan package to choose the best option. Many first-time homebuyers falsely believe that the loan with the lowest interest rate is the only way to go, but consider other factors.
“If you’re getting a mortgage and have plenty of money to pay closing costs, and the house is in perfect condition, you can afford to shop around to try to get the best rate,” DeSimone says.
But if money is tight or the house needs a little work, you might want to pay a higher rate if it means you can keep more cash on hand.
“If it makes a difference between being a homeowner now or waiting, it might make more sense to spend a little bit more now,” DeSimone says.
- Assess your finances. A good credit score and a low DTI ratio can help you qualify for a mortgage, but you will also need to determine the size of your down payment and make sure you have cash for closing. You don’t necessarily have to put down 20%: Some loans, including conventional mortgages, may require just 3%. Closing costs are between 3% to 5% of your loan amount.
- Determine the type of mortgage you want. Look at the variety of mortgages available and their requirements. Make sure you meet criteria for credit score, down payment, income, DTI ratio and other important factors.
- Compare rates from at least three mortgage lenders. You can usually get a quote on a lender’s website. A mortgage broker can also offer free help finding the lowest rate for the type of loan you want.
- Get preapproved for a mortgage. The preapproval process determines how much you can borrow and is necessary before you start home shopping. You will work with lenders to verify your financial information and to obtain loan estimates and preapproval letters.
- Compare estimates from at least three lenders. The estimate will show you the loan terms, including the monthly payment, plus fees and closing costs. Make sure you compare loans by APR, which is the annual cost of the loan with fees, and not just by interest rate.
Buyers who make a down payment of less than 20% will likely need mortgage insurance.
- For FHA loans, the upfront cost is 1.75% of the loan, which will be added to the total borrowed. If you put at least 10% down, you will pay a monthly premium for 11 years. Anything less than that results in monthly premiums for the life of the loan. USDA loans have upfront and annual fees, but they are more affordable than FHA loans.
- VA loans don’t require insurance, but first-time borrowers pay an upfront fee of 1.4% to 2.3% based on the size of their down payment.
- With a conventional loan, you may have to pay for private mortgage insurance as well. Rates typically range from 0.58% to 1.86% of your mortgage, according to a 2021 Urban Institute report. The PMI is removed once your mortgage balance hits 78% of the home’s original purchase price. You also can request that your lender remove the PMI once you reach the 20% equity mark.
- Employer-sponsored first-time homebuyer programs. Some employers help qualified employees cover down payments and closing costs. These programs often include grants or loans that may be forgiven after a period of time, as long as you stay with the employer.
- State and regional programs. You may qualify for affordable homeownership programs in your area. The Department of Housing and Urban Development keeps a list of resources by state.
- Rent-to-own agreements. You commit to renting a property for a period of time, with the option to buy it before the lease ends. However, you need to be able to qualify to buy the home at the end of the lease.
- Seller financing. Instead of a lender being involved in a sale, the buyer and the seller proceed on their own. This method can be quicker and cheaper than traditional financing, but you could face higher costs.
- Habitat for Humanity. Eligible buyers need better housing, are willing to help build their home and can make an affordable monthly mortgage payment.
- Neighborhood Assistance Corporation of America program. NACA’s Best in America mortgage helps low- to moderate-income buyers in low- to moderate-income communities qualify for affordable loans. The program provides borrowers counseling and promotes a below-market, fixed-rate mortgage with no down payment and no closing costs and fees.
U.S. News selects the Best Loan Companies by evaluating affordability, borrower eligibility criteria and customer service. Those with the highest overall scores are considered the best lenders.
To calculate each score, we use data about the lender and its loan offerings, giving greater weight to factors that matter most to borrowers. For mortgage lenders, we take into account each company’s customer service ratings, interest rates, loan product availability, minimum down payment, minimum FICO score and online features.
The weight each scoring factor receives is based on a nationwide survey on what borrowers look for in a lender.
To receive a rating, lenders must offer qualifying loans nationwide and have a good reputation within the industry. Read more about our methodology.
Veterans United Home Loans offers mortgages in all 50 states and Washington, D.C., and specializes in Department of Veterans Affairs loans. Since 2016, Veterans United Home Loans has generated the largest number of VA purchase loans per year in the nation. The lender was founded in 2002 and is based in Columbia, Missouri.
PNC Bank is one of the largest banks in the United States, serving more than 9 million customers in all 50 states. A full-service mortgage lender, PNC offers most mortgage loan product types.
PrimeLending is a Dallas-based mortgage lender in operation since 1986. The company offers several mortgage loan options, including conventional loans, jumbo loans, government-backed loans and refinance loans. The lender is a subsidiary of PlainsCapital Bank.
Real Genius is a division of FirstBank, a publicly traded bank based in Nashville, Tennessee. Real Genius, formerly known as ConsumerDirect Mortgage, offers both home purchase and refinance loans.
New American Funding is a mortgage lender offering a variety of home loan options to homebuyers and homeowners nationwide except for Hawaii. The company, founded in 2003 and based in Tustin, California, has originated $61.9 billion in mortgages to date.
Guild Mortgage is a San Diego-based lender established in 1960 and focused on residential home loans. Guild Mortgage offers buyers in 43 states a full suite of mortgage products, including conventional loans, government-backed mortgages and jumbo loans.
CMG Financial is a privately held mortgage banking firm operating nationwide with localized support, founded in 1993 and based in San Ramon, California. The lender offers a range of products, including conventional, government and specialty mortgages, like jumbo loans.
Founded in 1990 and headquartered in Mount Laurel, New Jersey, Freedom Mortgage is a full-service mortgage company. It’s the fifth-largest mortgage provider in the country and is licensed to operate in all 50 states. Freedom Mortgage offers a variety of mortgage options, including conventional loans, refinancing and first-time homebuyer friendly programs such as FHA loans.
LoanDepot is a mortgage lender that operates nationally with more than 200 branches and delivers both a digital experience and face-to-face service. The lender offers fixed- and adjustable-rate conventional mortgages, Federal Housing Administration and Department of Veterans Affairs loans, as well as refinance and renovation loans. The company was founded in 2010 and is based in Foothill Ranch, California.
Alliant Credit Union is a not-for-profit financial cooperative that serves customers in all 50 states. Alliant offers products such as conventional, jumbo, refinancing and home equity line of credit loans, but specific mortgage products may not be available in certain states.
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