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

By Kandie Frederick

Growing up on the central coast, Kandie is a third generation family in the North County and a second generation family in real estate. Joining Country Real Estate in 2000, and graduating from Cal Poly in San Luis Obispo, she brings a background of Agricultural Business to combine with her knowledge of the local real estate market. Working with her family and their decades of local real estate development, she is deeply connected to the roots of our community and its growth.

Are you a first-time homebuyer wondering which loan option is best for you? With so many choices, it’s essential to find a mortgage that aligns with your finances And your goals. Buying your first home is a Significant milestone! With mortgage rates hovering between 6.5% and 7.3%, getting the right financing Really affects your buying power. Today, I’m breaking down the top three home loan options for first-time buyers. By the end of this video, you’ll know which one could work best for you.

#1: Conventional loans. A Conventional Loan is a great option if you have a credit score of 620 or higher; a stable income and employment history; and a down payment of at Least three percent. This loan, backed by Fannie Mae and Freddie Mac, allows first-time buyers to eliminate mortgage insurance (MI) once they reach 20% equity.

Additionally, if sellers are offering a credit, up to 3% can be applied 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.

#2: FHA loans. 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 3.5% down and allows credit scores as low as 580. It also offers more lenient debt-to-income ratios, making it a little easier to qualify for while rates are high.

However, FHA loans do require both upfront and monthly mortgage insurance, which can add to your overall costs. If a seller-credit is available, up to 6% can be applied to help pay for these upfront expenses.

#3: VA loans. 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 mortgage insurance, 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 more affordable. It also features more relaxed credit requirements and debt-to-income ratios 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, depending on the amount, so it’s always worth checking.

#4 USDA (Bonus): If you stuck with me this long, there is one more loan to know about; USDA. Backed by the U.S. Department of Agriculture, this loan has no down payment requirement. Interest rates are competitive, it is flexible on credit, and has lower mortgage insurance. We are lucky to have this loan available in San Luis Obispo County, but there are some maximum income limits on qualifying. Your lender will compare each of these scenarios for you.

Buying your first home doesn’t have to be stressful. I work with a lot of GREAT local lenders that can give you personalized advice on which loan is best for You. I would be happy to introduce you, and help you take that next step.