Every First-Time Buyer Program, Explained Without the Jargon
You do not need 20% down. You do not need perfect credit. And you definitely do not need to figure this out alone. This guide breaks down FHA, Conventional 97, VA, USDA, and state-level down payment assistance programs so you can see exactly what fits your situation.
The 20% Down Payment Myth
The belief that you need 20% down to buy a home is the single biggest misconception keeping renters on the sidelines. The truth? The average first-time buyer puts down about 6-7%, and many programs let you start with as little as 0-3.5%.
On a $250,000 home, 20% down is $50,000. With FHA at 3.5%, it is $8,750. With Conventional 97 at 3%, it is $7,500. With VA or USDA, it could be $0. And when you add down payment assistance into the mix, even that $7,500-$8,750 may be partially or fully covered.
The question is not whether you can afford to buy. The question is which program fits your profile — and that is exactly what this guide is for.
Side-by-Side Program Comparison
Here is a quick snapshot of how the major first-time buyer programs stack up. Scroll down for detailed breakdowns of each one.
| Program | Down Payment | Min. Credit Score | Mortgage Insurance | Key Requirement |
|---|---|---|---|---|
| FHA | 3.5% | 580 | MIP for life of loan | Primary residence |
| Conventional 97 | 3% | 620 | PMI until 20% equity | 1+ first-time buyer |
| VA | 0% | Varies by lender | None | Military service / COE |
| USDA | 0% | 640 | Guarantee fee (lower than FHA) | Eligible area + income limits |
Program-by-Program Breakdown
FHA Loan
- Backed by the Federal Housing Administration
- 3.5% down with 580+ credit score
- 500-579 credit score allowed with 10% down
- Lower credit score requirements than conventional
- Requires mortgage insurance (MIP) for the life of the loan
- Seller can contribute up to 6% toward closing costs
- Available for primary residences only
Best for: Buyers with lower credit scores or limited savings who want a well-established government-backed option.
Worth knowing: MIP stays for the life of the loan unless you refinance. Factor this into your long-term cost comparison.
Conventional 97
- Only 3% down payment required
- Backed by Fannie Mae or Freddie Mac
- At least one borrower must be a first-time buyer
- Private mortgage insurance (PMI) drops off at 20% equity
- Homebuyer education course typically required
- Competitive rates for borrowers with 700+ credit
- Available for primary residences only
Best for: Buyers with solid credit (680+) who want lower long-term costs since PMI can be removed.
Worth knowing: If your credit score is below 680, the pricing adjustments may make FHA more cost-effective.
VA Loan
- Zero down payment for eligible veterans and service members
- No private mortgage insurance required
- Backed by the Department of Veterans Affairs
- Competitive interest rates — often lowest available
- Funding fee can be rolled into the loan (waived for disabled veterans)
- Flexible credit guidelines set by individual lenders
- Available for primary residences only
Best for: Active-duty military, veterans, and eligible surviving spouses. One of the most powerful loan programs available.
Worth knowing: You need a Certificate of Eligibility (COE). Your loan officer can pull this for you in minutes.
USDA Loan
- Zero down payment for eligible rural and suburban areas
- Backed by the U.S. Department of Agriculture
- Income limits apply (generally 115% of area median income)
- Lower mortgage insurance costs than FHA
- Property must be in a USDA-eligible area
- Flexible credit guidelines
- Available for primary residences only
Best for: Buyers in suburban and rural areas who meet income guidelines. More areas qualify than most people expect.
Worth knowing: The USDA eligibility map includes many suburban neighborhoods. Do not assume you are too close to a city — check the map.
How to Choose the Right Program
There is no single "best" program. The right choice depends on your credit score, savings, income, location, and long-term plans. Here is a quick decision framework.
Credit score below 620 with limited savings
FHA is likely your strongest path. It has the lowest credit floor and accepts gifted down payments. Pair it with a state DPA program to reduce out-of-pocket costs.
Credit score 680+ with at least 3% saved
Conventional 97 is worth comparing against FHA. The mortgage insurance drops off at 20% equity, which saves money long-term. Run both scenarios with a loan officer.
Active military or veteran
VA should be your first call. Zero down, no mortgage insurance, and often the lowest interest rates. Even if you have used your VA benefit before, you may still have remaining entitlement.
Buying in a suburban or rural area
Check USDA eligibility first. Zero down and lower mortgage insurance than FHA. Many suburban neighborhoods qualify — the eligibility map covers more area than most buyers expect.
Income below your area's median
Look at state-level DPA programs. Many are specifically designed for moderate-income buyers and can cover most or all of your down payment and closing costs.
Down Payment Assistance by State
AMLO's network of loan officers serves buyers in Pennsylvania, Ohio, Indiana, Michigan, North Carolina, and South Carolina. Each state has its own down payment assistance programs with unique eligibility rules, funding amounts, and structures.
Below is a snapshot of what is available. For the most current details, explore our DPA Finder tool or connect with a loan officer who works in your state.
Pennsylvania (PA)
Pennsylvania guidePHFA Keystone Advantage Assistance
Up to $6,000 as a zero-interest second mortgage for down payment and closing cost help. Must be repaid over 10 years.
PHFA HFA Preferred / HFA Advantage
Reduced mortgage insurance rates when combined with PHFA first mortgage products. Designed to lower monthly costs.
Ohio (OH)
Ohio guideOHFA Grants for Grads
Down payment assistance for recent college graduates (within 48 months). Combines with competitive first mortgage rates.
OHFA DPA Options
2.5% or 5% of the purchase price as DPA. Available as a forgivable or repayable second lien depending on the product.
Indiana (IN)
Indiana guideIHCDA First Place / Next Home Programs
Down payment assistance up to 6% of the purchase price. Available as a forgivable second mortgage with specific residency requirements.
Mortgage Credit Certificate (MCC)
Federal tax credit of up to 25% of your annual mortgage interest. Reduces your tax liability year after year.
Michigan (MI)
Michigan guideMSHDA DPA
Up to $10,000 in down payment assistance (up to $15,000 in certain zip codes). Zero-interest, non-amortizing loan.
MSHDA Step Forward
Zero-interest loan for down payment and closing costs. Forgivable after a set period of owner-occupancy.
North Carolina (NC)
North Carolina guideNC Home Advantage Mortgage
Competitive first mortgage rate plus up to 5% of the loan amount in down payment help. Forgivable after 15 years.
NC 1st Home Advantage
$15,000 in down payment assistance for first-time buyers and veterans. Forgivable after 15 years of continuous occupancy.
South Carolina (SC)
South Carolina guideSC Housing Homebuyer Program
Fixed-rate first mortgage with down payment assistance options. Competitive rates for buyers meeting income and purchase price limits.
Palmetto Home Advantage
Forgivable down payment assistance for eligible first-time and repeat buyers. Combined with SC Housing first mortgage products.
Programs change. DPA funding can run out, income limits can shift, and new programs launch regularly. The details above are a starting point — always verify current availability with a loan officer or through our DPA Finder tool.
What You Will Need to Get Started
Regardless of which program you pursue, a loan officer will typically want to see these items early in the process. Getting them together ahead of time speeds everything up.
Income Documentation
- Last 2 years of W-2s
- Most recent 30 days of pay stubs
- Last 2 years of tax returns (if self-employed)
- Proof of any additional income (bonuses, alimony, etc.)
Asset Documentation
- Last 2 months of bank statements (all pages)
- Retirement account statements
- Gift letter (if using gifted funds for down payment)
- Proof of earnest money deposit source
Identity and Residency
- Government-issued photo ID
- Social Security number
- Current address and 2-year address history
- Landlord contact info (for rental verification)
Employment History
- 2-year employment history
- Employer contact information
- Letter of explanation for any gaps
- Offer letter (if starting a new job)
Mistakes First-Time Buyers Make (and How to Avoid Them)
Mistake: Only comparing interest rates
Better approach: The interest rate is just one piece of the puzzle. A loan with a lower rate but higher mortgage insurance might cost more per month. Ask for the total monthly payment including principal, interest, taxes, insurance, and mortgage insurance — then compare.
Mistake: Not getting pre-approved before house hunting
Better approach: A pre-approval letter tells sellers you are a serious buyer and tells you exactly what price range to target. Without one, you are guessing — and sellers in competitive markets will skip your offer.
Mistake: Making large deposits or purchases during the process
Better approach: Large unexplained deposits trigger underwriting questions. Financing a car, furniture, or appliances changes your debt-to-income ratio and can derail your approval. Wait until after closing.
Mistake: Assuming they will not qualify
Better approach: More people qualify than they think. Between FHA, VA, USDA, state DPA programs, and flexible conventional options, there are paths for buyers across a wide range of credit scores and income levels. Talk to a loan officer before counting yourself out.
Mistake: Draining savings for the down payment
Better approach: Lenders want to see reserves — money left over after your down payment and closing costs. Most programs require 1-2 months of reserves. Do not empty your accounts to hit a down payment target.
Mistake: Ignoring closing costs
Better approach: Closing costs typically run 2-5% of the purchase price. On a $250,000 home, that could be $5,000-$12,500 on top of your down payment. Ask your loan officer about seller concessions, lender credits, and DPA programs that cover closing costs.
How AMLO Connects You With the Right Loan Officer
AMLO is an independent education platform — not a lender. AMLO does not originate loans, set rates, or approve applications. What AMLO does is connect you with licensed loan officers who specialize in first-time buyer programs in your state.
Here is how it works:
Take the readiness assessment
A quick, no-credit-pull quiz that helps you understand where you stand and which programs may fit your profile.
Get matched with a loan officer
Based on your state, credit range, and goals, AMLO connects you with a licensed loan officer who knows the programs available in your area.
Explore your options with an expert
Your loan officer walks you through specific programs, runs the numbers on multiple scenarios, and helps you choose the path that makes the most financial sense.
Frequently Asked Questions
Do I have to be a literal first-time buyer to qualify?
Not always. For most programs, a 'first-time buyer' is someone who has not owned a home in the last three years. If you owned a home five years ago but have been renting since, you likely qualify. Some state DPA programs define it differently, so always verify with a loan officer.
Can I use more than one program at a time?
Yes. Many buyers layer programs together. For example, you might use an FHA loan for the mortgage itself and a state down payment assistance program to cover the 3.5% down payment. A loan officer can help you identify which combinations work in your state.
What credit score do I need for first-time buyer programs?
It varies by program. FHA accepts 580 with 3.5% down (or 500 with 10% down). Conventional 97 typically requires 620+. VA and USDA have flexible guidelines, often around 580-620 depending on the lender. State DPA programs each have their own credit requirements.
Do I have to take a homebuyer education course?
For some programs, yes. Many state DPA programs and Conventional 97 loans require completion of a HUD-approved homebuyer education course. These courses are often free or low-cost and actually help you make smarter decisions during the process.
Are down payment assistance programs real? What is the catch?
They are real. The 'catch' is usually income limits, purchase price caps, and geographic requirements. Some DPA programs are grants (free money), some are forgivable loans (forgiven after a few years of living in the home), and some are deferred second mortgages (repaid when you sell or refinance).
Does AMLO originate these loans?
No. AMLO is an educational platform that connects you with licensed loan officers who specialize in these programs. AMLO does not originate, fund, or service mortgage loans.
Ready to See What You Qualify For?
Take the free readiness assessment — no credit pull, no commitment. Find out which programs fit your profile and connect with a loan officer who specializes in first-time buyers.
AMLO is an educational platform and does not originate, fund, or service mortgage loans. AMLO is not a lender, broker, or bank. Program details, rates, and eligibility requirements are subject to change without notice. Down payment assistance program availability and funding vary by state and may have income, purchase price, and geographic restrictions. Information provided is for educational purposes only and does not constitute financial advice. Always verify current program details with a licensed loan officer. Equal Housing Opportunity.