First Time Home Buyer Mortgage Rates Guide

As a first-time homebuyer, navigating the world of mortgage rates can be overwhelming. The average 30-year fixed mortgage rate is around 3.9%, which is relatively low compared to historical rates.

For many first-time buyers, a 30-year fixed mortgage is a popular choice. This type of loan offers a stable monthly payment, with the interest rate locked in for the entire term.

However, with rates this low, it's essential to consider the trade-offs. A lower interest rate often means a higher purchase price, which can impact your monthly mortgage payment.

In general, a 30-year fixed mortgage is a good option for those who plan to stay in their home for a long time.

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The average APR on a 30-year fixed-rate mortgage has fallen 1 basis point to 6.934% as of January 3, 2025.

A basis point is one one-hundredth of one percent, so a 1 basis point decrease is a relatively small change.

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As of January 3, 2025, the average APR on a 15-year fixed-rate mortgage fell 4 basis points to 6.113%.

Here's a breakdown of current mortgage rates:

Remember, mortgage rates can change daily, so it's essential to shop around and compare rates from multiple lenders to find the best deal for your situation.

Comparing mortgage rates is a crucial step in finding the best mortgage for your new home. Mortgage rates can vary widely, with a difference of fractions of a percentage making a big difference in the total amount of interest you'll pay over the life of the loan.

To get a sense of where mortgage rates stand today, you can look at sample rates from multiple lenders, such as those provided by Zillow to NerdWallet. These rates are averages and might not reflect the rate you'll be offered.

A basis point is one one-hundredth of one percent, and rates are expressed as annual percentage rate, or APR. For example, on January 3, 2025, the average APR on a 30-year fixed-rate mortgage fell 1 basis point to 6.934%.

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To compare rates, you'll usually see two numbers - the interest rate and the APR. The APR, or annual percentage rate, is usually the higher of the two because it takes into account both the interest rate and the other costs associated with the loan.

Here's a comparison of some common mortgage rates:

To see more personalized rates, you'll need to provide some information about you and about the home you want to buy. You can enter your ZIP code to start comparing rates, and adjust your approximate credit score, the amount you're looking to spend, your down payment amount, and the loan term to see rate quotes that better reflect your individual situation.

Shopping around and comparing rates from at least three lenders is a good idea. With a preapproval, the lenders verify some of the details of your finances, so both the rates offered and the amount you're able to borrow will be real numbers. Each lender will provide you with a Loan Estimate, which makes it easy to compare interest rates as well as lender fees.

Additional reading: How Is Home Loan Amount Determined

Government-backed loans are a great option for first-time homebuyers. They offer more flexible qualifications than conventional loans, making it easier to get approved.

You can qualify for an FHA loan with a credit score as low as 580 and as little as 3.5 percent down. However, if you put down less than 20 percent, you'll pay FHA mortgage insurance premiums (MIP).

VA loans don't require a down payment, but you'll need to pay a one-time funding fee. This program is especially generous, often requiring no mortgage insurance.

USDA loans also offer 100% financing, or zero down payment, but you'll need to purchase in a designated rural area and meet income limits.

Here's a quick comparison of the government-backed loan options:

Keep in mind that these programs have their own set of requirements, so be sure to research and understand the specifics before applying.

The USDA loan is a great option for those looking to buy a home in a rural area. You can get 100% financing, meaning no down payment is required. USDA loans have income limitations, which vary by region and the type of loan you apply for.

To qualify for a USDA loan, you'll need to purchase a home in a designated rural area. These areas are specified by the USDA, so be sure to check if your desired home is eligible.

Here's a breakdown of some key USDA loan facts:

Keep in mind that while you can get a USDA loan with no down payment, you'll still need to pay a mortgage insurance premium. This premium is similar to the one you'd pay for a conventional loan with a low down payment.

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Fannie Mae and Freddie Mac are the engines behind the home loan machine, working with mortgage lenders to offer a range of conventional loan products, some requiring low down payments.

Fannie Mae's HomeReady loan is designed for low-income borrowers with credit scores of 620 or higher and requires only 3% down.

One advantage of HomeReady is that borrowers can qualify to end their mortgage insurance once they've built up 20% equity in their home.

Freddie Mac's Home Possible loan is another product geared toward low-income borrowers with a minimum down payment of just 3%.

Borrowers can apply sweat equity or funds from gifts, grants, or loans toward the down payment.

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Getting a mortgage as a self-employed individual can be a bit more complicated than for those with a traditional 9-to-5 job. You'll need to prove your self-employed income to qualify for a mortgage.

To prove your self-employed income, you'll need to have a good understanding of how to prepare for a mortgage application. This includes having all necessary documents ready, such as tax returns and financial statements.

One of the biggest challenges self-employed individuals face is finding a lender that understands and supports their unique financial situation. Fortunately, there are lenders that specialize in working with self-employed borrowers.

These lenders often have more flexible requirements for proof of income, such as accepting alternative financial statements or tax returns. This can make it easier to qualify for a mortgage as a self-employed individual.

Recommended read: Self Employed Mortgage Rates

Down payment assistance can be a game-changer for first-time homebuyers. Many first-time homebuyer programs offer a lower-cost first mortgage to help you buy the home, then a second mortgage to help you cover your down payment and closing costs.

A second mortgage can be structured as a low-interest loan, which you'll repay over the course of a few years. Deferred-payment loans are another option, where you won't have to make payments until you sell the home, refinance, or pay off your first mortgage.

Forgivable loans are also available, where you won't have to pay back the second mortgage if you stay in the home for a certain amount of time and make your mortgage payments on time.

Down payment grants are essentially free money to help you cover your down payment or closing costs. They're usually awarded to low- or moderate-income borrowers, and might have other requirements like a minimum credit score and maximum home purchase price.

Some down payment grants are available with no requirements other than meeting income limits. These grants can be a huge help in getting into a home.

Down payment savings match programs provide matched funds up to a certain amount, which can only be used for your down payment and closing costs. One type of matched savings program is an Individual Development Account (IDA), where you'll work with a counselor to deposit funds into an IDA over a set period of time.

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Here are some down payment assistance options that can help you get into a home:

These options can help you cover your down payment and closing costs, and might even offer lower interest rates or more flexible terms.

Homebuyer programs can help make the dream of homeownership a reality. Many states offer assistance to first-time homebuyers, such as grants, loans, and other forms of aid.

You can browse NerdWallet's list of state first-time home buyer programs to learn more about what's available in your area. Some programs require taking a first-time home buyer class, which can be completed online at your own pace.

These classes teach you how to navigate the homebuying process, making it a valuable resource even if it's not mandatory. In some states, you might be able to find programs specifically designed for first-generation homebuyers or students.

For example, Rhode Island offers a $25,000 forgivable assistance loan to eligible borrowers, while Minnesota provides loans of up to $35,000. Ohio's Grants for Grads program offers up to 5 percent down payment assistance for recent graduates.

To apply for a first-time homebuyer program, you can start by checking with your mortgage lender or your state's housing finance agency (HFA) website. You'll typically need to fill out forms, but the payoff can make the investment well worth the time.

Here are some key things to keep in mind as you explore homebuyer programs:

Note: The specific details of each program may vary, so be sure to check the program's website or contact the HFA directly for more information.

As a first-time homebuyer, you're likely to have many mortgage options to consider. You can choose between a fixed-rate mortgage and an adjustable-rate mortgage.

Fixed-rate mortgages have interest rates that remain the same for the entire loan term, typically 15 or 30 years. This can provide stability and predictability in your monthly payments.

Adjustable-rate mortgages, on the other hand, have interest rates that can change over time, often based on market conditions. This can lead to lower initial payments, but also means you'll need to be prepared for potential increases in the future.

It's worth noting that some mortgage options, such as government-backed loans, may have more lenient credit score requirements and lower down payment options.

Discover more: Are Adjustable Rate Mortgages Bad

If you're struggling to qualify for a traditional mortgage, consider exploring alternative homebuying options.

Lease-to-own agreements allow you to rent a home with the option to buy in the future, often with a portion of your rent going towards the down payment.

This type of agreement can be beneficial for buyers who need time to improve their credit score or save for a down payment.

Rent-to-own agreements, on the other hand, require a lump sum payment at the end of the rental period, which can be a significant upfront cost.

Shared equity mortgages allow you to purchase a home with a lower down payment, as the lender provides a portion of the down payment in exchange for a share of the home's equity.

This type of mortgage can be especially helpful for first-time homebuyers who may not have enough savings for a traditional down payment.

Conforming to traditional mortgage standards can be a challenge for some borrowers.

For those who don't qualify for a conventional mortgage, a conforming mortgage might be a better option. In the United States, conforming mortgages are defined as loans that meet the guidelines set by Fannie Mae and Freddie Mac, and typically have a maximum loan limit of $510,400 for a single-family home.

Home renovation loans can be a game-changer for homeowners looking to tackle projects. You can finance energy-efficient homes or upgrades with an energy-efficient mortgage, or EEM.

This type of mortgage helps you enjoy lower energy bills and a more comfortable home sooner. You can also consider an FHA 203(k) loan, which allows you to borrow funds to complete a project as part of your main mortgage.

FHA 203(k) loans are designed for buyers who want to tackle a fixer-upper, considering the property's value after improvements. The CHOICERenovation loan is another conventional loan program through Freddie Mac that lets you finance the purchase of a home and improvements with low down payments.

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The HomeStyle loan from Fannie Mae is a conventional loan option for purchase-and-remodel projects, with a 3% down payment available to first-time home buyers who qualify for the HomeReady program. VA renovation loans are available to qualified military borrowers, but lenders offering them can be harder to find.

Here are some home renovation loan options to consider:

To get a clear picture of the costs involved, you can use our repayment calculator to see our latest interest rates. This will give you an idea of what your monthly mortgage payments might be.

Using the calculator is a straightforward process that can help you estimate your costs with precision. You can find the calculator on our website, where you can input your details and receive a personalized quote.

Our calculator takes into account various factors, including interest rates, to provide an accurate estimate of your monthly payments. This way, you can plan your finances accordingly and make an informed decision about your mortgage options.

You can use the calculator to explore different scenarios and see how changes in interest rates or loan amounts affect your payments. This can help you make a more informed decision about your mortgage.

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Getting an Agreement in Principle (AiP) is a crucial step in your mortgage application journey. It's a quick and easy process that can be done online.

You can get an Agreement in Principle in about 10 minutes, and it won't affect your credit score. This is a big plus, as you can get a sense of whether you're eligible for a mortgage without any long-term impact on your credit history.

To get an Agreement in Principle, you'll need to provide some basic information about your income, regular spending, and any debts you might have. This will help the lender understand how much you can afford to borrow.

You can use our calculators to get a quick view of how much you could afford to borrow, and then you can apply for an Agreement in Principle online. It's a straightforward process that can be done in just a few minutes.

Here are some key things to keep in mind when applying for an Agreement in Principle:

By getting an Agreement in Principle, you'll be one step closer to securing your mortgage and buying your dream home.