Buying your first home can be stressful, especially when traditional mortgages require substantial down payments and perfect credit scores. FHA loans for first-time home buyers offer a more accessible path to purchasing a home, with lower down payments needed and more flexible credit standards backed by government insurance.

FHA loans for first-time home buyers make it more affordable for aspiring homeowners to purchase a home. The Federal Housing Administration (FHA) was established in 1934 as part of an effort to make homeownership more affordable for buyers that meet specific criteria. An FHA home loan for first-time home buyers is insured by the federal government, and potential buyers can secure a home loan for a much lower down payment than a traditional mortgage. 

An FHA mortgage loan is in many ways similar to a VA loan, in that it is insured by the government. Since the loan is secured by the government, the lender can be more permissive with lending terms and offer borrowers more competitive rates. 

Read on to learn how FHA first-time home buyer loans work or navigate the article using the links below. 

KEY TAKEAWAYS

  • FHA first-time home buyer loans allow you to purchase a home with as little as 3.5% down if your credit score is 580 or higher, making homeownership more accessible than conventional loans.
  • First-time buyer FHA loans accept credit scores as low as 500 (with 10% down).
  • FHA loan qualification for first-time home buyers is made possible through federal insurance, which allows lenders to offer competitive rates and flexible terms.
  • FHA first-time buyer loans must be used for your primary home, not investment properties or vacation homes, and the property must pass an FHA inspection.

What Is a First-Time Home Buyer Loan?

FHA loans for first-time home buyers make it easier for those meeting specific criteria to secure a mortgage to purchase a home. However, FHA loans aren’t the only options for first-time home buyers. There are several loan options and programs that allow first-time home buyers to secure financing with beneficial terms.  

You can secure a low down payment traditional mortgage loan through the Freddie Mac and Fannie Mae borrowing guidelines, which allow you to secure a 3% to 5% down payment option if you have a credit score of 620 or higher. The Department of Agriculture and The Veteran’s Administration also offer federally-secured loans for first-time home buyers, such as USDA loans and VA loans. There are also a number of local programs for first-time home buyers that are specific to particular states and regions. 

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What Is an FHA Loan?

An FHA loan is a mortgage loan that provides you with more flexibility than a traditional mortgage loan. In the 1930s, the federal government realized that working people were not able to afford a typical home mortgage. In order for lenders to accept lower down payments or buyers who don’t have a high credit score, the FHA program was created as insurance to protect lenders in the event the borrower defaults on the loan. 

FHA loans allow lenders to be less reliant on credit scores and provide financing to a diverse array of borrowers, even if they don’t have perfect credit scores.

There are a few types of FHA loans available for first-time home buyers, as well as those looking to refinance or renovate a property. The FHA loan types include:

  • FHA 203(b) Loan: This is a traditional FHA loan for first time home buyers with lower income or lower credit scores.
  • FHA 203(k) Loan: With this loan, you can either buy a new home or refurbish an existing one.
  • FHA Streamline Refinance: An FHA Streamline Refinance is a simplified mortgage refinancing option for FHA loan holders that requires less documentation and no home appraisal.
  • FHA Cash-Out Refinance: An FHA cash-out refinance allows homeowners with FHA loans to replace their mortgage with a larger one and take out the difference in cash, based on home equity.
  • Home Equity Conversion Mortgage (HECM): This is a reverse mortgage that offers you the ability to tap into the equity you have in your home without having to pay it back until the home sells.
  • Section 245(a) Mortgage: This is an option for buyers who expect a gradual increase in income. The payments start off low and gradually get bigger over the course of the loan.
  • CalHFA Loans: These first-time home buyer loans are specific FHA loans in California.

When you work with Griffin Funding, you can find an FHA loan that is right for you if you meet the qualifications. If you are ready to start looking at property to buy, get the pre-approval you need from Griffin Funding.

How Does an FHA Loan Work?

For borrowers looking to use the FHA loan program, you must have at least a 10% down payment if your credit score is less than 580. If you want to qualify for the 3.5% down payment option, you must get your credit score to 580. Thus, a higher credit score can help you qualify for a lower interest rate. As far as increasing your interest rates goes, you can try to pay off credit card debt to decrease your credit utilization rate and make sure that you continue to make payments on time.

In addition to meeting the down payment and credit score requirements, you have to be able to show two years of employment history, along with pay stubs and tax returns. The home you are buying has to be used as your primary home and can’t be a rental or secondary property. The home you want to purchase will go through an FHA inspection, and must pass the inspection for the loan to be approved.

As the borrower, the monthly mortgage payments can’t be more than 31% of your monthly income and your total debts (back-end DTI) can’t be more than 43%. Your debt-to-income ratio will be scrutinized as part of the process to approve your mortgage loan. 

DU/LP automated underwriting systems may allow for higher back-end DTI ratios (up to 57%) if the borrower’s risk profile is otherwise strong (e.g., higher credit score, larger reserves, verified income stability). The front-end ratio theoretically can be as high as 45%+, though most commonly you’ll see 36–38% front-end DTI with 56–57% back-end DTI.

Benefits of FHA First-Time Home Buyer Loans

There are a number of key benefits that come with securing an FHA loan as a first-time home buyer. Benefits of FHA loans include: 

  • You can buy a home with a lower credit score.
  • You can purchase a home with as little as 3.5% down.
  • FHA loans tend to offer more flexibility than conventional loans. 
  • FHA loans for first-time buyers often come with low interest rates. 

Finding the right FHA home loans for first-time buyers is as easy as contacting Griffin Funding to see what qualifications must be met. When you work with a mortgage specialist, you will get a good idea of how much you can borrow after your initial exploratory meeting. When you secure an FHA loan for a new home, you will be guided along the home buying process while being provided with plenty of professional support. 

FHA Loan Qualifications for First-Time Home Buyers

FHA loan qualification for first-time home buyers is easier to meet than traditional mortgage requirements, making FHA first-time buyer loans accessible to those who don’t meet stricter conventional loan criteria.

  • Credit score of at least 500-580: Your credit score determines your down payment requirements for an FHA first-time home buyer loan. With a score of 500, you’ll need 10% down, but reaching 580 qualifies you for the popular 3.5% down payment option.
  • Two years of employment history: Lenders require documented proof of steady employment to approve your FHA loan qualification for first-time home buyers. You’ll need to provide recent pay stubs, tax returns, and W-2 or 1099 forms to verify your income stability.
  • Primary residence requirement: The home you purchase with a first-time buyer FHA loan must serve as your main residence, not an investment or vacation property. The property must also pass an FHA-approved inspection that ensures it meets health and safety standards.
  • Bankruptcy waiting period: If you’ve filed for bankruptcy, at least two years must pass since your Chapter 7 discharge before qualifying for an FHA loan. You’ll also need to reestablish credit with no late payments or collections since the bankruptcy.

Learn More About FHA Home Loans for First-Time Buyers

The benefits to securing an FHA loan help to make homeownership more affordable. With the federal government insuring your mortgage in the event of a default, lenders can be more flexible when it comes to approving you for a mortgage. At the same time, you can minimize the debt you incur when purchasing a home.

Learn more about the FHA loans available at Griffin Funding, and get a quote from a mortgage specialist today. Take the first step in qualifying for a mortgage with our company, and get started on buying your new home now.

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Frequently Asked Questions

Do I need to be a first-time home buyer to qualify for an FHA loan?

No, you don't need to be a first-time buyer to qualify for an FHA loan. While FHA first-time home buyer loans are popular among new homeowners, repeat buyers can also use FHA financing as long as they meet the qualification requirements and use the home as their primary residence.

Is an FHA loan a good option for first-time buyers?

Yes, FHA first-time buyer loans are excellent for new homeowners because they offer lower down payments (as little as 3.5%), accept lower credit scores (starting at 580), and provide more flexible qualification standards than conventional mortgages. Other first-time homebuyer loans are available as well.

What types of properties can I purchase with an FHA loan?

You can purchase single-family homes, condominiums, townhouses, and multi-family properties (up to four units) with an FHA loan for first-time home buyers. The property must be your primary residence and pass an FHA inspection.

How do FHA loan rates compare to conventional loans?

FHA loan rates are typically competitive with or slightly lower than conventional loan rates because of government backing. However, FHA loans require mortgage insurance premiums that can make the total monthly cost higher than conventional loans, especially if you have excellent credit that would qualify you for the best conventional rates.

Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 23 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 11 years in business.