What's the Best Loan for First-Time Homebuyers in 2025?

By Michael Durr

Mike Durr, a devoted family man, seasoned athlete, and passionate sports fan, brings over 30 years of real estate expertise to his role at KMG Lending, where his analytical approach and industry-leading closing times have helped his team close over $60 million in property sales.

Buying your first home is an exciting milestone, but figuring out which mortgage is right for you can feel overwhelming. With so many loan options available, how do you choose?

The truth is the best loan depends on your financial situation, credit score, and how much money you have for a down payment. Today, I’ll break down the top three home loans for first-time buyers: Conventional, FHA, and VA loans. Today, I’ll go over the top three home loan types so you’ll know exactly which option is the best fit for you:

1. Conventional loan. A Conventional loan is a great option if you have:

• A credit score of 620 or higher
• Stable income and employment history
• A down payment of at least 3%.

This loan, backed by Fannie Mae and Freddie Mac, allows first-time buyers to avoid private mortgage insurance (PMI) once they reach 20% equity. Additionally, sellers can contribute up to 3% of the home price toward closing costs, helping you save even more. If you have strong credit and a decent down payment, a Conventional Loan typically offers lower interest rates and fewer long-term fees compared to FHA loans.

2. FHA loan. An FHA loan could be your ideal option if you have a lower credit score or need a more flexible approval process. It only requires a 3.5% down payment and allows credit scores as low as 580. It also offers more lenient debt-to-income (DTI) ratios, making it easier for those with less-than-perfect financial backgrounds to qualify.

However, FHA loans do require both upfront and monthly mortgage insurance, which can add to your overall costs. The good news is that sellers can contribute up to 6% toward your closing costs, helping you manage these upfront expenses. 

3. VA loan. For veterans, active-duty service members, and qualifying spouses, the VA Loan is undoubtedly the best option. This loan requires no down payment and does not require private mortgage insurance (PMI), making it a cost-effective choice. Additionally, it offers competitive interest rates with lower fees.

Backed by the Department of Veterans Affairs, the VA loan program makes homeownership highly affordable. It also features more relaxed credit and debt-to-income (DTI) requirements compared to Conventional and FHA loans. Even if you’ve used your VA Loan benefit before, you may still be eligible for another VA loan, so it’s always worth checking it out.

Choosing the right loan really comes down to your individual situation. If you have good credit and at least 3% saved for a down payment, a Conventional Loan might be your best bet. If you have a lower credit score and need a smaller down payment, then an FHA Loan could work better for you. And if you’re a military service member or veteran, the VA Loan is probably your best option for zero-down financing and lower monthly payments.

If you’re still unsure or want personalized advice on which loan makes the most sense for you, don’t hesitate to reach out. I’d love to help you figure out the best option and get you into your dream home. I look forward to talking with you!