What counts as a first-time buyer for mortgage programmes?

HUD and Fannie Mae define first-time buyer as a borrower who has not held ownership interest in a principal residence in the three years preceding the loan application. Some down payment assistance programmes use a stricter never-owned definition. Always read the specific programme rule, not the marketing copy.

Is FHA always the first-time buyer choice?

No. At 700+ FICO with 5 percent or more down and standard income, conventional is typically cheaper across a 7-year-plus hold. Below 660 FICO or under 3.5 percent down, FHA is usually the only realistic path. The breakpoint depends on FICO, down payment, and area median income for HomeReady/Home Possible eligibility.

Can I combine FHA with state down payment assistance?

Yes in most states. State Housing Finance Agencies pair FHA with second-mortgage or grant down payment assistance. The combined loan-to-value can exceed 100 percent because FHA permits DPA from a recognised source per HUD 4000.1 Section II.A.4. Conventional 97 LTV also accepts approved DPA but the combined LTV cap may be stricter.

FHA vs Conventional for First-Time Buyers in 2026

There is no universal first-time buyer answer. The decision depends on FICO, down payment, area median income for HomeReady/Home Possible, and your hold horizon. Five questions get you to the right programme.

The 5-question decision flow

1. What is your FICO score (mortgage tri-merge, not free credit score)?

Under 620: FHA only path (see 600 FICO)
620 to 659: FHA typically cheaper (Fannie LLPAs heavy)
660 to 699: Toss-up (see 660 FICO)
700 to 739: Conventional usually wins (see 700 FICO)
740+: Conventional almost always (see 740 FICO)

2. Is your household income at or below 80% of area median income?

If yes, HomeReady (Fannie) or Home Possible (Freddie) bypass standard LLPAs and may save 0.50 to 1.0 percent vs standard conventional. Lookup at Fannie AMI tool.

3. What down payment can you fund?

3% available: HomeReady, Home Possible, or Conventional 97 (FICO 620+)
3.5% only: FHA
5%+: Standard conventional becomes competitive
10%+: FHA MIP cancellable after 11 years; conventional PMI cancels earlier; conventional usually wins

4. How long do you plan to keep the home?

Under 4 years: programme choice matters less; pick lowest monthly cost. 5 to 10 years: conventional PMI cancellation typically pays off. 10+ years: conventional decisively wins (FHA MIP-for-life compounds).

5. Does the property pass FHA Minimum Property Requirements?

Pre-1978 home with peeling paint, missing handrails, or roof life under 2 years may fail FHA appraisal. Conventional URAR appraisal is more forgiving. If you suspect issues, ask the listing agent or order a pre-inspection.

First-time-buyer programme matrix

Programme	Min FICO	Min down	Income cap	Key benefit
FHA 203(b)	580	3.5%	None	Lowest credit floor
Conventional 97 (Fannie HFA Preferred or Fannie Standard)	620	3%	None on standard	PMI cancels at 78% LTV
HomeReady (Fannie)	620	3%	80% AMI	Reduced PMI, LLPA caps
Home Possible (Freddie)	660 (Adv) / 700 (AUS)	3%	80% AMI	Reduced PMI, LLPA caps
VA	No federal min (lender 580+)	0%	None	Eligible veterans, no MI
USDA Rural	640 typical	0%	Area income cap	Eligible rural areas

State and local DPA pairing

Most State Housing Finance Agencies offer down payment assistance that pairs with FHA, HomeReady, Home Possible, or VA. Assistance ranges from $5,000 to $40,000+ depending on programme and metro. Find your state HFA at ncsha.org.

Rate disclaimer

Programme rules change; AMI limits update annually. Consult a licensed loan officer or HUD-approved housing counsellor for your specific case.

Sources

HUD Handbook 4000.1: HUD 4000.1
HomeReady: fanniemae.com/homeready
Home Possible: freddiemac.com/home-possible
VA Loans: va.gov/home-loans
USDA Rural Development: rd.usda.gov
CFPB First-Time Buyer Guide: consumerfinance.gov/owning-a-home