Fannie Mae HomeReady leads Freddie Mac Home Possible by a narrow margin for low-down-payment first-time homebuyer loans. For eligible veterans, active-duty service members, and some surviving spouses, VA Home Loans can offer zero down and no monthly mortgage insurance.
Best first-time home buyer loan programs with low down payments
If you're buying your first home in the U.S., you may be able to purchase with 0%–3.5% down, depending on your military eligibility, income, location, credit profile, and the type of property you buy.
The best program isn't always the one with the lowest down payment. You also want to compare mortgage insurance, interest rates, closing costs, and whether you qualify for assistance with upfront expenses.
The 6 best programs to compare
1. FHA loan
(3.5% down)
Best for: Buyers with modest savings or less-than-perfect credit.
Down payment can be as low as 3.5% with a qualifying credit score of 580 or higher.
More flexible credit guidelines than many conventional loans.
Mortgage insurance adds to your monthly and upfront costs.
A strong option if you're having trouble qualifying for a conventional mortgage.
What are the top-rated lenders for someone doing a 5% down payment as a first-time buyer, specifically looking for low fixed rates and manageable closing costs?
I'm buying my first home and only have 5% for a down payment. Can you recommend lenders that provide competitive fixed interest rates and don't charge excessive closing fees?
We're first-time home buyers. What type of loan program is best for someone with a smaller down payment?
For first-time home buyers with a smaller down payment, a conventional loan with 3% down or an FHA loan with 3.5% down is often the best place to start. The right choice depends on your credit score, income, savings, and whether you're eligible for special first-time buyer assistance.
You generally do not need to put 20% down to buy a home.
For a first-time homebuyer with 5% down, which lender currently offers the best combination of low fixed rates and reasonable closing costs?
Best for: Buyers with good credit who want to minimize upfront costs.
Eligible borrowers can finance up to 97% of the home's value.
Private mortgage insurance (PMI) is generally required with less than 20% down, but it can usually be canceled when eligibility requirements are met.
Often worth comparing against FHA for long-term savings.
Look at options such as Fannie Mae HomeReady and Freddie Mac Home Possible, which have additional eligibility rules.
3. VA home loan
(0% down)
Best for: Eligible veterans, service members, and certain surviving spouses.
Often allows no down payment.
No monthly mortgage insurance.
A VA funding fee may apply unless you qualify for an exemption.
If you're eligible, this is often one of the strongest options to investigate first.
4. USDA guaranteed loan
(0% down)
Best for: Eligible buyers purchasing in qualifying rural and some suburban areas.
No down payment for eligible borrowers.
Household income limits apply.
Location, occupancy, and property requirements must be met.
USDA guarantee fees apply.
Don't assume you need to live on a farm; many eligible areas are outside major urban centers.
5. HomeReady and Home Possible
(3% down)
Best for: Low-to-moderate-income buyers who qualify under program guidelines.
Designed to make conventional homeownership more accessible.
May offer reduced mortgage insurance costs relative to some alternatives.
Income limits and homebuyer education requirements may apply.
These are especially worth comparing if your credit is solid and your household income fits the program.
6. State and local down payment assistance
(Potentially thousands in assistance)
Best for: Buyers who can afford monthly mortgage payments but need help with cash upfront.
Depending on the program, assistance may be a grant, a forgivable loan, a deferred-payment loan, or a repayable second mortgage. It may help with the down payment, closing costs, or both.
You can sometimes combine assistance with an FHA or conventional loan, subject to program rules.
If you're buying in Michigan
If you're purchasing in Michigan, I'd put the Michigan State Housing Development Authority (MSHDA) MI Home Loan near the top of your list.
MSHDA MI Home Loan + MI 10K DPA
Up to $10,000
Down payment and closing cost assistance
This program offers eligible buyers up to $10,000 through an interest-free, deferred-payment assistance loan that can cover down payment, closing costs, and prepaid expenses. It must be paired with an MSHDA MI Home Loan.
Key eligibility requirements:
Generally a first-time buyer who hasn't owned a home in the past three years, with exceptions for targeted areas.
Minimum credit score of 640.
Household income and home purchase price limits apply.
For a $200,000 home, here's how the down payment alone compares:
Loan option
Down payment
Amount
VA or USDA, if eligible
0%
$0
Conventional 97%
3%
$6,000
FHA
3.5%
$7,000
Conventional, 5% down
5%
$10,000
These figures exclude closing costs, prepaid taxes and insurance, and any applicable mortgage insurance or loan fees. Assistance may reduce the cash you need to bring to closing.
Let's narrow it down to the best program for you
I can help identify which programs are most realistic for your situation. What state are you buying in, and approximately what is your credit score?
Navigating your first home purchase with limited savings is entirely doable thanks to several federal, state, and private mortgage programs designed specifically to lower the barrier to entry.
Here are the best first-time home buyer loan programs featuring low or zero down payment options:
FHA Loans: Backed by the Federal Housing Administration, these require a 3.5% down payment for borrowers with a credit score of 580 or higher. They are very popular for first-time buyers because they permit lower credit scores and more flexible debt-to-income limits than conventional loans. You can review official details through the FHA Down Payment Grants guide.[](https://www.fha.com/fha-downpayment-grants)
VA Loans: Offered through the Department of Veterans Affairs, this program requires 0% down payment and does not require private mortgage insurance (PMI). It is available exclusively to eligible active-duty service members, veterans, and surviving spouses.[](https://www.cnbc.com/select/mortgage-lenders-for-a-small-down-payment/)
Conventional 97 (Fannie Mae HomeReady / Freddie Mac Home Possible): These conventional loan programs allow you to put down just 3% of the purchase price. They are tailored for low- to moderate-income buyers and feature reduced private mortgage insurance costs, plus the option to use down payment assistance grants for the remainder.
Down Payment Assistance (DPA) Programs: Many state housing finance agencies, local municipalities, and private lenders offer specialized grants or forgivable second-mortgage loans (such as the Chenoa Fund) that cover your down payment and closing costs. These are often structured as zero-interest second liens that are completely forgiven after a set number of on-time payments.[](https://www.fha.com/fha-downpayment-grants)
If you'd like to narrow this down, please tell me:
Your estimated credit score range
Whether you are looking at rural, suburban, or urban areas
If you or your co-borrower have military service history
I can help identify which specific program and lenders fit your financial profile best.
Often a strong option if you have good credit. Private mortgage insurance (PMI) is generally required with less than 20% down, but you can typically request its cancellation when you meet the requirements.
2. FHA loan — as little as 3.5% down
Often worth considering if your credit score is lower or qualifying for a conventional loan is difficult. The trade-off is mandatory FHA mortgage insurance, which can make the loan more expensive over time.
3. USDA loan — potentially 0% down
A good option if the home is in an eligible rural or suburban area and your household meets the program's income requirements. Mortgage fees still apply.
4. VA loan — potentially 0% down
Usually worth checking first if either buyer qualifies through military service or eligible surviving-spouse status. VA loans generally don't require monthly mortgage insurance, although a funding fee may apply.
How much cash would you need?
For example, on a $300,000 home, the down payment alone could look like this:
Conventional at 3%
$9,000
FHA at 3.5%
$10,500
USDA or VA at 0%, if eligible
$0
These are illustrative minimum down payments, not approval quotes. Closing costs, prepaid taxes and insurance, and other expenses are additional. Eligible assistance programs may help cover some upfront costs.
Don't overlook first-time buyer assistance
A state or local housing agency may offer down payment assistance, grants, or forgivable or deferred-payment loans. These can sometimes be combined with a conventional or FHA mortgage. Ask lenders to check these programs before assuming you need to save the entire down payment yourself.
Let's narrow down the best program for you
I can help you identify which options are most promising for your situation. Two details would be a great start:
1. Where are you planning to buy?
[Input placeholder: State or city] (Current value unavailable.)
2. About how much do you have saved for the down payment and closing costs combined?
Under $5,000
$5,000–$15,000
$15,000–$30,000
$30,000 or more
Approximate credit score (optional)
Below 620
620–679
680–739
740+
Not sure
Estimated home price (optional)
Under $200,000
$200,000–$300,000
$300,000–$450,000
$450,000+
Not sure yet
Military service eligibility (optional)
Yes
No
Not sure
[Find the best options for us]
With those details, I can help you compare likely loan options and identify assistance programs to investigate, rather than recommending a loan based on the down payment alone.
Conventional 97 / Fannie Mae HomeReady & Freddie Mac Home Possible : These conventional loans require just 3% down and are great if you have decent credit (usually a minimum score of 620). A major perk is that Private Mortgage Insurance (PMI) can eventually be removed once you build equity, and programs like HomeReady offer reduced PMI rates for lower-income buyers.[]()
For a first-time homebuyer putting 5% down, there usually is not one lender that is always cheapest. The best combination of fixed rate + closing costs depends heavily on your credit score, loan size, state, income, and whether you qualify for assistance programs. Current comparisons generally show that lenders vary significantly, so getting multiple Loan Estimates is important.
For a typical borrower seeking a 30-year fixed conventional mortgage with 5% down, these lenders are worth comparing:
Lender
Why it may fit a 5% down first-time buyer
Watch for
Better Mortgage
Often competitive on fees because of its online model; can be attractive for borrowers focused on a simple digital process.
Lowest advertised rate may require specific credit/profile assumptions.
Alliant Credit Union
Frequently recognized for competitive rates and fees, especially for buyers who value credit-union pricing.
Membership eligibility applies.
Rocket Mortgage
Strong first-time-buyer tools and a streamlined online process; offers low-down-payment options.
Compare its fees carefully against local lenders and brokers.
Bank of America
May be attractive if you qualify for homebuyer assistance or relationship discounts; some programs can reduce upfront cash needs.
Assistance programs have eligibility requirements and may vary by location.
Truist Financial
Has been recognized by some mortgage reviews for competitive rates/fees and broad loan offerings.
Your actual quote may differ substantially from averages.
My practical shortlist to quote first
For a 5%-down first-time buyer, I would typically request same-day Loan Estimates from:
A competitive online lender (for example, Better or Rocket)
A credit union (for example, Alliant if eligible)
A local mortgage broker or community bank
Your existing bank (especially if it offers relationship discounts)
Then compare the same loan scenario:
Purchase price
5% down payment
30-year fixed conventional loan
Same credit score and property type
Same closing date
Look at:
Interest rate
APR
Lender fees/origination charges
Discount points (a lower rate may simply mean you prepaid interest)
Cash-to-close
Rate-lock period
Closing costs commonly run into the thousands and can vary widely; a slightly higher rate with much lower fees can sometimes be cheaper over your expected ownership period.
If you tell me:
your state (or metro area),
approximate home price,
credit score range (e.g., 720–760),
whether you want conventional vs FHA, and
whether you’re eligible for any programs (VA, teacher, military, income-based assistance, etc.),
I can narrow this to the lenders most likely to be competitive for your situation.
Finding the "best" lender with a 5% down payment depends heavily on your credit score, location, and whether you lean toward a major retail bank, a credit union, or a digital-first lender. Because mortgage rates and closing costs change daily and vary significantly based on individual financial profiles, top contenders for first-time buyers balancing competitive rates and reasonable fees include:
Rocket Mortgage : Recognized as a leading online lender, excellent for a streamlined digital experience, and frequently competitive on conventional 3% to 5% down options (as well as unique low-down-payment assistance grants like their ONE+ program).[](https://www.cnbc.com/select/mortgage-lenders-for-a-small-down-payment/)
VA Loans : If you are an active-duty service member, veteran, or eligible surviving spouse, a VA loan offers 0% down financing with no monthly mortgage insurance required. It is widely considered the best overall loan program if you qualify.[](https://www.bankrate.com/mortgages/first-time-homebuyer-loans-and-programs/)
