How to get a mortgage as a first-time homebuyer
A plain-English walkthrough of credit, down payment, pre-approval, and closing costs - the four things lenders weigh hardest. Updated for 2025 program limits.
If you are buying your first home in 2025, the process can feel like a wall of jargon: PMI, DTI, LTV, LE, CD, MIP. The good news is that lenders evaluate first-time buyers mainly on four things: your credit, your down payment, your income, and your debts. Get those four in shape and the rest of the process is mostly paperwork. This guide walks through what each piece means, what numbers most lenders look for, and the order to tackle them in.
A quick definition first. The U.S. Department of Housing and Urban Development considers you a first-time homebuyer if you have not owned a primary residence in the past three years. That definition matters because many state and federal programs - lower down payment thresholds, grants, and tax credits - are limited to first-time buyers using that three-year rule. You do not actually have to be buying your first-ever home.
1. Credit score
Your credit score is the single biggest lever on your interest rate. Lenders use the middle of your three FICO scores from Equifax, Experian, and TransUnion. The lowest-cost conventional loans typically go to borrowers with a 740+ middle score. FHA loans go down to 580 with a 3.5% down payment, and some lenders go to 500 with 10% down. Anything above 760 is usually priced the same, so chasing a perfect score past that point has diminishing returns.
Three high-impact moves before you apply: pay every revolving balance down below 30% of the credit limit (10% is better), do not open or close any credit cards in the 90 days before applying, and pull your free reports at annualcreditreport.com to dispute anything inaccurate. A single late-payment correction or paid-off collection can move your score 20 to 60 points.
See today's rates by loan type
2. Down payment
The 20% down payment is a myth as a hard requirement. It is the threshold that avoids private mortgage insurance (PMI) on a conventional loan, but plenty of programs allow much less down. Conventional loans for first-time buyers can go to 3% down (Fannie Mae HomeReady and Freddie Mac Home Possible). FHA loans go to 3.5% down. VA loans for eligible veterans and active-duty service members allow 0% down. USDA loans for eligible rural areas allow 0% down.
The trade-off with low down payments is mortgage insurance. Conventional loans charge PMI - typically 0.3% to 1.5% of the loan amount per year - until you reach 20% equity. FHA loans charge an upfront mortgage insurance premium (MIP) of 1.75% rolled into the loan plus an annual MIP that stays for the life of the loan if you put less than 10% down. Run the numbers both ways in our calculator before deciding.
Down payment assistance (DPA) programs exist in every state, usually run by the state's housing finance agency (HFA). They take the form of grants, forgivable second mortgages, or deferred-payment loans. Many can be stacked with FHA or conventional first mortgages. Ask any lender you talk to whether they participate in your state's HFA programs - not all do.
3. Pre-approval
Pre-approval is a written conditional offer from a lender stating how much they will lend you, based on a credit pull and document review. It is not the same as pre-qualification, which is just a quick estimate. Pre-approval is what real estate agents and listing agents take seriously - especially in competitive markets.
To get pre-approved you will provide two months of pay stubs, two years of W-2s, two months of bank statements, two years of tax returns (if self-employed), photo ID, and authorization for a credit pull. Most lenders can issue a pre-approval letter within one to three business days once they have the full document set.
The smart move is to get pre-approved with two or three lenders within about a 14-day window. FICO bundles mortgage credit inquiries inside that window as a single inquiry, so you get the benefit of side-by-side comparison without taking multiple credit hits. Compare not just the rate but the loan estimate (LE) - a standardized three-page form lenders are required to provide within three business days of a complete application. Look at section A (origination charges), section B (services you cannot shop for), and section C (services you can shop for, like title and survey).
4. Closing costs
Closing costs are the fees and prepaid items required to fund the loan and transfer the property. Plan for 2% to 5% of the loan amount, paid at closing. On a $400,000 home with $360,000 financed, that is roughly $7,200 to $18,000 - on top of the down payment. The biggest line items are origination fees, title insurance, appraisal ($500 to $750), credit report, escrow setup for taxes and insurance, recording fees, and any state or local transfer taxes.
Two effective ways to reduce out-of-pocket closing costs without inflating the rate: ask the seller to pay closing costs as part of the purchase agreement (very common in slower markets, limited by program rules), and shop the services in section C of the loan estimate, especially title insurance, which can vary by hundreds of dollars between providers in the same state.
You can also accept a lender credit - the lender pays some of your closing costs in exchange for a slightly higher rate. This makes sense if you plan to refinance or move within a few years and would not recoup the rate-buydown costs anyway. Use the break-even math we cover in the refinance vs. purchase article to decide.
Buying your first home is a months-long process and the rates page on any site - including ours - is only a snapshot. The real number is what shows up on your loan estimate. Compare those documents line-by-line, ask each lender to beat the best offer you have, and walk into closing knowing you got the best terms available to you.