First-Time Home Buyer Guide: 3% Down, a Gift From Family, and the Path From Pre-Approval to the Keys

Fannie Mae's rulebook counts you as a first-time home buyer when you have not had an ownership interest in a property in the last three years. A client who sold a condo in 2022 and has rented ever since walks into my office as a first-time home buyer again.

A first-time home buyer can buy a home with 3% down on a conventional loan, 3.5% down on an FHA loan, or no down payment on a VA loan, and pre-approval is where all three start.

I'm Jeff Moran, NMLS #483943, a mortgage broker in Bluffton, South Carolina, in the mortgage business since 1996. Every rule on this page comes from the agency that wrote it: Fannie Mae's Selling Guide and Eligibility Matrix, Freddie Mac's Guide, HUD Handbook 4000.1 for FHA, and VA's Lenders Handbook. Each section links the section it uses, so you can read the source yourself.

Buying your first home goes in a set order. You get pre-approved, you choose the loan that fits your savings and your credit, you line up the down payment and the closing costs, and then you shop with a letter in hand. I walk through each step below the way I would across your kitchen table, with the rule behind it named in the sentence.

Counting as a first-time home buyer

Fannie Mae's purchase rules treat you as a first-time home buyer when you have not had an ownership interest in a property in the last three years. You answer that question in the declarations section of the loan application, and only one person on the loan has to answer it that way. A couple where one of you owned a home within the last three years and the other never has can still use the first-time path, through the one who never owned.

FHA and VA have no first-time home buyer requirement. An FHA loan is open to any client who will live in the home and meets its rules, and a VA loan turns on military service rather than on whether you have owned before. So the first-time test matters on a conventional loan, where it opens Fannie Mae's standard 3% down payment described below.

Getting pre-approved before you shop

Pre-approval means I have reviewed your credit report, your income documents and your bank statements, and run your file through the same automated underwriting system a lender uses once you are under contract. The letter you get is backed by what I have read rather than by what you have told me, and that is the difference between a pre-approval and a pre-qualification. Getting pre-approved covers each document I will ask for and why it matters to the file.

When you are ready, please provide your two most recent pay stubs and your W-2s for the past two years. For your bank and asset statements, please provide all pages, even if the last page is intentionally left blank. If you have your own business, we will need your complete income tax returns, all pages and schedules, for the past two years, for you personally and for any business that you may have an interest in.

Pre-approval tells you the price range your income, your debts and your savings support, and it brings up anything on your credit report that needs attention while there is still time to work on it. Your debt-to-income ratio gets worked out here too. That ratio compares your monthly debts, the new payment included, to your monthly income before taxes, and Debt-to-income explained shows how each debt gets counted.

Your down payment options as a first-time home buyer

Your down payment is the part of the price you bring yourself, and the loan covers the rest. Each program sets the smallest down payment it allows, and the three below cover most first purchases. A loan that fits one client is the wrong loan for the next, so I price them side by side for your own scenario before you decide.

3% down on a conventional loan

Fannie Mae's Eligibility Matrix allows a fixed-rate loan of up to 97% of the value on a one-unit home you will live in, which leaves a 3% down payment. Fannie Mae's purchase rules attach conditions to that 3%, and three of them matter most. At least one person on the loan has to be a first-time home buyer. The loan has to run through Desktop Underwriter, Fannie Mae's automated underwriting system. And the loan cannot be a high-balance loan, meaning a loan above the baseline conforming limit, the cap on loan size that covers most of the country, in an area Fannie Mae's regulator has named high-cost. Fannie Mae also points to its homeownership education rule for these loans, so a homebuyer course can be part of the file.

HomeReady, Fannie Mae's other 3% program, shows the same 97% limit on a one-unit home in the Eligibility Matrix and carries rules of its own. Freddie Mac's version is Home Possible. Freddie Mac's Guide allows a Home Possible loan of up to 97% on a fixed-rate purchase of a one-unit home, and its eligibility rules cap your qualifying income at 80% of the area median income for the home's location. Freddie Mac's own tool shows that limit for the address, so I run the specific home through it before I tell you whether your income fits.

Home Possible also asks one occupying client to finish a homeownership education course before closing when everyone moving in is a first-time home buyer. The Guide lists HUD-approved counseling agencies and mortgage insurance companies among the providers whose courses count.

With less than 20% down on any conventional loan, the lender requires private mortgage insurance, a monthly premium that protects the lender if the loan is not repaid. Unless the lender pays it, it does not stay for the life of the loan, because federal law, the Homeowners Protection Act, gives you cancellation rights, and Conventional loans, explained walks through when it comes off and the 2026 loan limits.

3.5% down on an FHA loan

HUD Handbook 4000.1 sets FHA's Minimum Required Investment at 3.5% of the home's adjusted value, which on a purchase is the lower of the price and the appraised value, with a few adjustments the Handbook spells out. The Handbook's rules on how much of the home's value you can borrow tie that 3.5% to your credit score. HUD calls the score it counts the Minimum Decision Credit Score, and a score of 580 or higher gets you maximum financing. A score between 500 and 579 limits the loan to 90% of the value, so you would need 10% down instead.

Every FHA loan carries mortgage insurance in two pieces. The Handbook's premium appendix sets the upfront premium at 1.75% of the base loan amount, which can be financed into the loan or paid in cash, and an annual premium collected monthly with your payment. FHA loans sets that cost beside conventional mortgage insurance so you can see which one your credit score favors. FHA has no first-time home buyer requirement, so it is open to any client who will live in the home and meets its rules.

No down payment on a VA loan

VA's Lenders Handbook says no down payment is required by VA, because a VA loan can be for the full reasonable value of the home. The everyday exception is a price above the appraised value: that difference comes from your own funds. VA does not have a minimum credit score requirement, by the Handbook's credit chapter, and the lender reviews your whole credit history instead.

There is no monthly mortgage insurance on a VA loan. VA charges a one-time funding fee instead, which VA's published table sets at 2.15% of the loan amount for a first use with less than 5% down. A veteran receiving VA compensation for a service-connected disability is exempt from the fee. VA loans covers eligibility, entitlement and the funding fee in full.

A gift from family toward the down payment

Fannie Mae's gift rules let a gift from a relative pay all or part of the down payment, closing costs or reserves, which are the savings you keep after closing, on a home you will live in. On a one-unit home, the Guide says, "All funds needed to complete the transaction can come from a gift." The giver can be related to you by blood, marriage, adoption or legal guardianship, or be a domestic partner, a fiancé or a former relative. The gift needs a letter signed by the giver that states the amount, says no repayment is expected, and gives the giver's name, address, phone number and relationship to you.

On an FHA loan, HUD's Handbook takes a gift from a family member, from your employer or labor union, from a close friend with a clearly defined and documented interest in you, or from a charitable organization. The giver's money cannot be cash on hand, and the lender documents the transfer from the giver's account to yours or to the closing. Our article on gift funds, Can My Parents Give Me Money for a Down Payment?, walks through the paperwork on your side and on the giver's.

Your credit score as a first-time home buyer

Each program treats your score differently, and the score that counts is the one on the credit report the lender pulls, which may not match the free score in your banking app. The reasons the score a lender pulls matters are in How much your credit score changes your rate, and the table below is what each rulebook says.

Program	Credit score rule	Where it is written
Conventional	No minimum score for a loan approved through Desktop Underwriter, though the score still moves the price. A manually underwritten fixed-rate loan needs at least 620.	Fannie Mae's Selling Guide, B3-5.1-01
FHA	580 or higher for maximum financing at 3.5% down. A score of 500 to 579 means 10% down.	HUD Handbook 4000.1, II.A.2.b
VA	No minimum credit score. The lender reviews the whole credit history.	VA Lenders Handbook, Chapter 4, Topic 7

Your credit is checked again before closing, so once the file is open, please tell me before you open a new account, close an old one, or take on a car payment. 8 ways to strengthen your credit before a mortgage covers what helps in the months before you apply, and most of it costs nothing but attention.

Closing costs on top of the down payment

Closing costs are the charges to make the loan and transfer the home: the appraisal, the title work, the closing attorney, the recording fees and the lender's own charges. Prepaid items ride along with them, such as your first year of homeowners insurance and the opening deposit into your escrow account. Closing costs explained takes a Loan Estimate apart line by line, and Escrow accounts, explained shows how your taxes and insurance get collected with the payment.

The seller can help with those costs, and each program caps how much. On a conventional loan with less than 10% down, Fannie Mae's rules on interested party contributions let the seller pay up to 3% of the price or the appraised value, whichever is lower, toward your closing costs. The cap rises to 6% once you put 10% down, and to 9% once you put 25% or more down.

On an FHA loan, the Handbook lets interested parties, such as the seller, the real estate agents and the builder, contribute up to 6% of the sales price toward your closing costs, prepaid items and discount points. None of it can go toward your 3.5% down payment. On a VA loan the seller can pay your closing costs, and the Handbook's seller concession rule in Chapter 8 caps other concessions, such as paying your funding fee or prepaying your taxes and insurance, at 4% of the home's reasonable value. Seller concessions explains how to ask for them in an offer.

From the accepted offer to the keys

Once a seller accepts your offer, the file moves in a set order, and most of it happens without you in the room. You choose a rate option from the pricing I show you, and you can change that choice later if the market or your plans move. The lender orders the appraisal, and Appraisals explained covers what the appraiser looks at and what happens if the value comes in under the price.

An underwriter then reads the whole file against the rulebook for your loan. Underwriting usually asks for a few more items, called conditions, and a quick turnaround on those keeps the closing date where it is. Your pay stubs, your bank statements and your credit all get a fresh look near the end, which is why the file stays steadiest when nothing about your money changes between contract and closing.

Before closing you receive a Closing Disclosure, the final version of your costs, and we go through it together against the Loan Estimate you got at the start. The cash you bring to closing covers your down payment, the closing costs and the prepaid items, less any deposit you already made and any help from the seller. You sign, the loan funds, and the keys are yours.

Choosing a rate option and your next step

First purchases are priced in the tool on the home page, so you can see your rate options for your own scenario, with the payment and the cash to close for each. You choose a rate option, you can change that choice later, and the application opens from there. You are also welcome to call me at 843-765-0000 first and talk it through, with no application needed before we speak.

Nothing on this page is a loan approval, a denial or a commitment to lend. Guidelines change, every file is reviewed on its own facts, and your rate, payment and eligibility depend on your complete application.

Common questions

How much do you need to put down as a first-time home buyer?

As little as 3 percent on a conventional loan when at least one person on the loan is a first-time home buyer. It is 3.5 percent on an FHA loan with a credit score of 580 or higher, and nothing on a VA loan for an eligible veteran. Those figures come from Fannie Mae's Eligibility Matrix, HUD Handbook 4000.1 and VA's Lenders Handbook, and closing costs come on top of each one.

Do I count as a first-time home buyer if I owned a home before?

Yes, under Fannie Mae's purchase rules, as long as you have not had an ownership interest in a property in the last three years. Only one person on the loan has to meet that test, so a couple where one of you owned before can still use the first-time path through the other.

What credit score do you need to buy your first home?

It depends on the program. Fannie Mae sets no minimum score for a conventional loan approved through Desktop Underwriter and a floor of 620 for a manually underwritten fixed-rate loan. FHA gives maximum financing at a score of 580 or higher and asks for 10 percent down between 500 and 579. VA has no minimum credit score at all.

Can my parents give me the whole down payment on my first home?

On a one-unit home you will live in, yes. Fannie Mae's gift rules say all funds needed to complete the transaction can come from a gift from a relative, with a signed gift letter. FHA takes a gift from a family member too and documents the transfer from the giver's account.

Do first-time home buyers have to take a homebuyer class?

Sometimes. Freddie Mac's Home Possible requires one occupying client to finish a homeownership education course before closing when everyone moving in is a first-time home buyer. Fannie Mae's 3 percent purchase loan points to its own homeownership education rule. I will tell you which course fits once we know which loan you are using.

Should I get pre-approved before I look at homes?

Yes. Pre-approval tells you the price range your income, your debts and your savings support before you fall for a home outside it, and it surfaces anything on your credit report while there is time to work on it. A pre-approval letter also strengthens your offer.