First-time home buyers can buy with as little as 3% down on a conventional loan, 3.5% on an FHA loan with a 580 credit score, or 0% on a VA or USDA loan. The 20% rule is a myth that keeps renters renting. Budget another 2% – 5% of the price for closing costs, and expect most conventional lenders to want a 620 credit score or better.

You may still count as a first-time buyer even if you have owned before. Fannie Mae and most assistance programs define a first-time buyer as someone with no ownership interest in a residential property during the three years before the purchase.

Learn more about buying your first home, including the cash you need, what lenders check, which grants stack, how the timeline runs from preapproval to keys, and what Michigan’s MSHDA programs add.

Key takeaways:

• Down payment minimums: Conventional programs start at 3% down, FHA at 3.5% with a 580 score, and VA and USDA at 0% for buyers who qualify plus 2% – 5% of the price in closing costs.
• First-time status is a three-year test: Most programs treat you as a first-time buyer if you have held no ownership interest in a residential property during the three years before you buy.
• Where to start: Get preapproved before you tour a single home, then compare more than one lender. Align Lending is an independent broker and shops your file across more than 75 wholesale lenders, so one application produces competing offers.

What counts as a first-time home buyer?

A first-time home buyer is generally anyone who has held no ownership interest in a residential property for the three years before the purchase. Not only someone who has never owned. Fannie Mae applies that three-year test, and its standard 97% loan-to-value financing requires at least one first-time buyer on the loan. Michigan’s MSHDA uses the same definition statewide, with repeat buyers eligible only in targeted areas. This is the first-time buyer chapter of our broader home buying guide.

The label matters because it unlocks money, not just marketing:

• Lower down payments: The 3%-down conventional option exists specifically for first-time buyers on standard 97% LTV transactions, the cheapest entry point for buyers with solid credit.
• Assistance eligibility: Grants and second-lien down payment assistance almost always require first-time status plus a household income limit, which is why two similar files produce very different cash-to-close numbers.
• An education requirement: When every occupying borrower is a first-time buyer, low-down-payment conventional programs generally require one of them to complete homeownership education.
• The part nobody schedules: Our walkthrough of purchasing your first house covers what the process feels like from the inside.

If you are still deciding whether to buy at all, the honest renting vs. buying comparison turns on how long you plan to stay. Waiting a year to build savings and credit is a legitimate answer.

How much cash do first-time buyers actually need?

Plan for three buckets: a down payment of 0% – 3.5% on most first-time programs, closing costs of 2% – 5% of the price, and a reserve for moving and early repairs. On a $250,000 Michigan home, that’s $7,500 down at 3%, $8,750 at FHA’s 3.5%, and roughly $5,000 – $12,500 in closing costs before any credit or assistance reduces it.¹

Program	Minimum down payment	Typical minimum credit score	Mortgage insurance
Conventional 97%	3%	620	PMI cancelable on request at 80% of original value; automatic at 78%
FHA	3.5% (10% at a 500 – 579 score)	580	Upfront premium of 1.75% of the loan amount plus an annual premium3
VA	0%	No agency minimum; lenders set their own	No monthly mortgage insurance; one-time funding fee2
USDA	0%	640 at most lenders	Upfront plus annual guarantee fee

One detail changes the math more than buyers expect: FHA’s annual premium stays for the life of the loan at the minimum 3.5% down, while conventional private mortgage insurance is temporary by law, cancelable on request at 80% of original value and terminated automatically at 78%.

• Build the down payment on a schedule: Automating a monthly transfer is most of the trick to saving for a down payment, and gift funds are allowed on nearly every program with a signed gift letter.
• Budget closing costs separately: They are not part of your down payment. Our guide to closing costs for buyers covers lender fees, title work, the appraisal, and prepaid taxes and insurance.
• Compare the low-down-payment options: The cheapest program is rarely the one with the smallest down payment, because mortgage insurance differs. Weigh the trade-offs in buying a home with a low down payment.

What lenders check before approving a first-time buyer

Underwriters look at four things in order: credit, income, assets, and the property. Most conventional loans start at a 620 middle score and FHA reaches down to 580 at the minimum down payment, so the score question is usually about pricing and program fit, not a yes or no. Everything in the preparing to buy stage exists to make underwriting boring.

• Credit score: Pricing improves in tiers, so a few months of paying revolving balances below 30% of their limits can be worth real money. See what’s a good credit score to buy a house.
• Debt-to-income ratio: Divide total monthly debt payments by gross monthly income. The classic guideline keeps housing at or under 28% of income and total debt under 36%, though many approvals land higher with strong credit or reserves.
• Documented income and assets: Underwriters want two years of verifiable history and a source for every deposit. Self-employment and commission income qualify with more paperwork.
• Preapproval before you shop: The importance of mortgage preapproval is hard to overstate. It converts a guess into a lender-verified budget, and most listing agents won’t present an offer without a letter attached.

One rule governs the stretch between preapproval and closing: change nothing financially. No new credit cards, no financed furniture, no job changes. The CFPB’s home buying tools cover the same sequence from the regulator’s side.

First-time buyer programs, grants, and tax credits

Assistance money is real and routinely left on the table: state and local programs commonly cover part or all of a down payment through grants or deferred second liens, and they stack on top of a conventional or FHA first mortgage rather than replacing it. Most carry three gates, income limits, purchase price limits, and a homebuyer education requirement.

• Grants and down payment help: Start with first-time home buyer grants and programs: forgivable grants, deferred second mortgages, and lender credits all behave differently at closing and on resale.
• Current program menus: Availability and funding change during the year. Comparing the current first-time home buyer programs side by side is how you find the one you qualify for.
• Tax treatment: There is no universal federal first-time buyer tax credit today, though Mortgage Credit Certificates and state-level benefits still exist in some markets. Read first-time home buyer tax credits, and talk with a tax professional before you count on anything.
• Free counseling: HUD-approved agencies provide homebuyer education and one-on-one counseling at low or no cost, and many programs require their certificate. Find a HUD-approved housing counseling agency before you write an offer.

Here is where being a broker matters: assistance programs are placed through approved lenders, and no bank offers all of them. Because Align Lending is independent, we pair a grant or state program with whichever wholesale lender prices your first mortgage best.

The first-time buyer timeline, from preapproval to keys

Most first purchases take two to four months from preapproval to closing day, and 30 – 45 days of that is the under-contract stretch after a seller accepts your offer. Preparation runs one to six months; house hunting runs two weeks to six months depending on your market. The full sequence is mapped out in our home buying process hub.

• Get preapproved and set the budget: Start with the monthly payment you can live with, principal, interest, taxes, insurance, mortgage insurance, and HOA dues, then work backward to a price.
• Tour, then write the offer: Your offer names a price, an earnest money deposit commonly 1% – 3% of the price in Michigan, a closing date, and the contingencies that let you walk away. The step-by-step version lives in buying a house in 12 steps.
• Compete without overpaying: Price is one lever of four; timeline, contingencies, and a verified preapproval are the others. Our home buying strategies hub covers what actually moves a seller.
• Clear inspection, appraisal, and underwriting: These run in parallel, and closing happens when the slowest one finishes. A general inspection typically costs $300 – $600; the appraisal runs $400 – $700.
• Avoid the classic first-purchase mistakes: Maxing out the approval amount, skipping the inspection, and shopping one lender cost the most. These first-time home buyer tips cover the rest.

What Michigan first-time buyers should know

Michigan runs one of the stronger state assistance programs in the Midwest through the Michigan State Housing Development Authority. Align Lending is based in Waterford, and these are the items that come up on nearly every first-time file we place.

• MI Home Loan eligibility: MSHDA’s MI Home Loan is open to first-time buyers statewide and to repeat buyers in targeted areas. It requires a minimum credit score of 640, applies household income limits that vary by family size and property location, and carries a statewide sales price limit of $566,355 after June 1, 2026.
• MI 10K DPA Loan: Paired with an MI Home Loan, it provides up to $10,000 toward down payment, closing costs, and prepaid expenses as an interest-free loan with no monthly payment. Repayment is deferred until you pay off or refinance the first mortgage, sell, or move out.
• Homebuyer education is mandatory: A housing education class and certificate of completion are required for MSHDA financing, so schedule it early. Confirm current terms through MSHDA’s homeownership programs.
• Program menus change: MSHDA’s First-Generation Down Payment Assistance pilot, which offered up to $25,000, is closed, its $8 million allocation was exhausted, while the MI 10K DPA Loan continues statewide. Verify what is actually funded the month you apply.

FAQ: First-time home buyers

Here are answers to common questions about buying your first home.

How much money do I need to buy my first house?

Plan for three buckets: a down payment of 3% – 20% of the price (0% on VA and USDA), closing costs of roughly 2% – 5%, and a cushion for moving and early repairs. On a $250,000 home, that can be as little as $7,500 down plus $5,000 – $12,500 in closing costs, before assistance, seller credits, or lender credits reduce it. Working through budgeting for your first home keeps you from being short three days before signing.

What credit score does a first-time home buyer need?

Most conventional loans require at least 620, FHA allows 580 with 3.5% down and 500 – 579 with 10% down, and VA sets no agency minimum while individual lenders do. Higher scores mean better pricing and cheaper mortgage insurance, so a few months of cleanup near a threshold can be worth thousands. If you are below the line, the options for buying a home with bad credit are wider than most buyers assume.

What is the first step to buying a house?

Get mortgage-ready before you shop: pull your free credit reports, fix errors, calculate your debt-to-income ratio, and set a monthly payment budget. Then get preapproved: it fixes your real price range, and most sellers won’t consider an offer without a letter. The difference between being prequalified and preapproved matters most in competitive markets, where only one carries weight.

What do first-time buyers forget to budget for?

Closing costs of 2% – 5% surprise many buyers, along with prepaid property taxes and insurance collected at closing. After you move in, plan on maintenance, a common rule of thumb is 1% of the home’s value per year, plus higher utilities and any HOA dues. Our guide to home maintenance for first-time homeowners sequences the first year.

The bottom line on buying your first home

First-time buyers do not need 20% down. Conventional programs start at 3%, FHA at 3.5% with a 580 score, and VA and USDA at 0% for buyers who qualify, with closing costs of 2% – 5% on top. You likely still count as a first-time buyer if you have held no ownership interest in a residential property for three years, which reopens grants, deferred assistance, and MSHDA’s MI 10K DPA Loan of up to $10,000 in Michigan. Get preapproved before you tour, and compare more than one lender before you commit.

If you’re ready to buy your first home, talk to Align Lending, we’ll shop your scenario across our lender network, check which assistance programs you qualify for, and show you the numbers side by side. Call 248-506-5727 or start online today.

This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Consult a qualified professional about your situation. Program terms and figures shown are illustrative, are not a rate quote or an offer of credit, and are subject to change. Align Lending works with FHA- and VA-approved lenders and is not acting on behalf of, endorsed by, or sponsored by FHA, HUD, the Department of Veterans Affairs, USDA, or MSHDA.

Footnotes

1. Example figures are hypothetical and for educational purposes only; they do not constitute an advertisement of credit terms or a rate quote under federal or state lending laws. Your rate and terms will depend on your application and market conditions. Back to text
2. Align Lending works with VA-approved lenders and is not endorsed or sponsored by the Department of Veterans Affairs or any government agency. Back to text
3. Align Lending is not acting on behalf of or at the direction of FHA or HUD. Back to text