Best First-Time Homebuyer Loans 2026: Which of the Two is Right?

Ah, Patriot Nation, welcome back. And any newcomers to the channel today, I've got a great topic today for first-time home buyers particularly is what's the best loan I should be using. I hear all kinds of language about different types of loans, different scenarios. Uh, so break it all down for me. There's really, spoiler alert, there's really only four options you can have. And most of the time, you're only eligible for two of them. So, I'm going to break down this video, those mainly those two. We're going to talk about the pros and cons of each, when you would want to use one versus the other. But stick around to the end. I'm telling you right now, stick around to the end because I got to give you a special complimentary offer. You're going to want to get it. So again, watch all the way through, share with your friends, and let's kick off this rodeo right now. Hi folks, I'm Kevin Fagen. from the mortgage patriot on your side, nestled here in the Hill Country above San Antonio, Texas, serving all you proud Texans and all you great folks all around the country. So, yet again, another great video cuz I'm going be talking about a question that most first-time home buyers have, and that is, what's the best loan I should be uh trying to get for my purchase of my home. And I've heard lots of stuff around the the water cooler. I I hear about VA loans. I hear about USDA loans. I hear, of course, about FHA loans and conventional loans. It's confusing. So, I'm going to break it all down today. And before I do that, if you please hit the like and subscribe, that really helps me with my YouTube algorithms, brings up my content. As you can see here, I've done quite a bit of tutorials, if you will, and advice given across mortgage topics, across real estate agency topics, different types of loans, different type of strategies on how to try to purchase your first home. So, check it all out. It's a treasure trove of information. And then, let's let's get into that content right now. As I said earlier, there are only four, just four true first-time home buyer loans available to you. And they are in order the conventional loan, the FHA loan, the VA loan, and the USDA loan. And the latter two I'm not really going to talk about much because they have certain eligibility requirements that restrict most people. So, for example, on the VA loan, you can only get these loans if you're active or former military personnel and or your spouse. That's a very restrictive loan. If you want more information on the VAS, you can look at my video right here called 2026 VA loans explained. I do a good job cover just the VA side. So, if you are a military person, check out that. Skip this video and go straight to that one. The last one is the USDA loan. We really like to talk about that because that's resigned mainly to houses in the rural areas or deep rural areas outside of metropolitan areas and they have restrictive covenants or, you know, guidelines such that you can't buy much house. So really, as good as the USA loan can be, 99.9% of the people just don't want to use it or can't use it. So we're going to talk about conventional and FHA loans right now. So as I just mentioned, if you're not an active or former uh military personnel andor spouse related, then 99.9% of the time, you're going to use either an FHA or a conventional loan as a first-time home buyer. We're going to compare these apples and apples. We're going to talk about their credit scores, both required by both. We're going to talk about the debt to income required by both. We're going to talk about the down payment required by either one of these. And then we'll talk about any other nuances that you're going to need to know about to make your decision as to which loan would be best for you. I'll have a running example all the way through this video. This is the example of a household making $80,000 per year and targeting a home for $300,000. Okay? Household income of $80,000 a year, $300,000 house. That'll be my running example all the way through as we talk about numbers. So, let's start off with the credit score guideline for both the FHA and the conventional loans. Easy enough. FHA requires a 580 or better. Conventional loan requires 620 or better. That should be that wipe our hands. But no, there's some nuances here because the reality is 580, let's say you have a 585 and you say, "Great, I can uh I can get approved for an FHA loan." Well, maybe you can, maybe you can't. The reason being that anything below a 620 in reality makes it harder for the FHA loan to get approved. The bottom line is we want to get your credit score to 620 or better for either loan because there's no reason not to because this makes it easier to pass and get eligible for either loan and credit scores aren't hard to move. I can you know that's where I shine in terms of giving you advice or giving you action steps to improve your credit scores. So 580 but the reality is 620 for both. Let's talk about the down payment requirement for both of these types of loans. For the FHA, this is where people really like the FHA quite a bit because it's a standard 3.5% down. So, let's go to our example of a $300,000 house. Your down payment requirement, this is not the total closing cost, but just your down payment part of the of the total closing is 3 and a half% of 300,000. That's $10,500. Compare that to the conventional loan, which is typically 5%. 5% of 300,000 of course would be 15,000. So $10,500 in the FHA versus $15,000. It's a fairly decent, you know, and measurable difference for first-time home buyers uh in their pocketbook anyway. Now, there are exceptions on the conventional side. If you make less than 80% of what they call the area median income of your county, let's say you're living in Houston, Texas, and the area median income may be $100,000. If you make 80% or less, if if your house was making $80,000, you would be granted a 3% down 3% down conventional loan. And that, of course, on a $300,000 house is only $9,000. So most of the time, FHA is going to beat F conventional as a down payment source, unless you are low income earner earning 80% less than the area median income, in which case you'll enjoy a 3% down conventional loan. Let's talk about how much these loans allow for debt in your financial profile. So, for example, on the FHA side, it allows more debt than the conventional side. Allows up to about 56% of your income can be represented by contractual debt on your credit reports. What does that mean? That means your housing payment, principal and interest, property taxes, property insurance, HOA dues, and your your monthly mortgage insurance premium. That's your housing ratio. All that can be uh that's your housing payment along with your credit cards, your installment loans, your student loans, any other kind of debt. All that combined can be up to 56% on in the FHA world, but can only be 50% in the conventional world. So, going back to the example of an $80,000 household income, FHA allows $400 more of debt than the conventional loan side does. So, there's more latitude there. That's that's a good advantage for FHA. Let's touch on the interest rate involved in both the FHA and the conventional loans. And this hasn't always been the case, but for the last couple years, the gap between the FHA and the conventional loan is about a half a percent. That's not that's nothing small. In other words, the FHA's rates are lower by about a half a percent across the board uh than than a conventional loan. That's been going on for like I said at least a couple years now. So right now with about a 620 score in our hypothetical example, you're going to get about a 6% on the FHA versus a 6 and a half% on the conventional. What's the difference on a $300,000 purchase? That's about $200. That's not that's nothing small. And a lot of that is due to on a 620 score, your monthly mortgage insurance premium is far more expensive in the conventional world than the FHA world. So what is what's the monthly mortgage insurance premium? Whenever you don't come out of pocket for 20%, you have to pay monthly mortgage insurance in case you default. So in the FHA world, that's always 0.55%. In the conventional world, it's it's bound by your credit score. So again, at a 620 score, the difference between a 6 and a half and a 6% rate in the conventional versus FHA is going to be about 200 bucks and largely due to not only the rate gap, but also the mortgage insurance premium. Hope that makes sense. got a little nerdy there. Let me give you one more nuance before I sum all this up and tell you when is the best time to use an FHA versus when is the best time to use a conventional. Let's take the example of a $300,000 purchase, $80,000 household, but it's a one wage earner. Let's go to the traditional model that they'll say the husband's making $80,000 a year and the wife is chasing, you know, two kids around the house doing the best she can there. In the FHA world, you have to add not only his debt, of course, but the wife's debt on top of his. And sometimes that knocks you that that exceeds the FHA debt to income limit of 56% which we talked about earlier. In a conventional loan, you don't have to do that. In other words, if the husband is on going to be on the loan just using his income, you do not have to add the wife's debt load to his. Sometimes that's going to be the only route to take. So the conventional is is a offers that big advantage there of not provide of not having to add your nonborrowing spouse's debt. Hope that makes sense. Before I summarize all this, I promised you something complimentary and I have a very uh great offer for you. I'm going to be hosting a first-time home buyers webinar that's going to be on April the 9th, Thursday, 7:00 p.m. Central time. So grab some popcorn, grab your spouse if you're married, settle in. and I'm going to give you some great information and it's going to put you in confidence so that you can start that whole process if you're looking for a home over the next 3 to six or even nine months out. Hover over this QR code right here, you'll see that'll take you to the landing page for sign up. And again, that's April the 9th, Thursday, 700 p.m. Central time. I hope to see you there. It's going to be a great time. But let's get into the summary of why you would use an FHA or when you would use an FHA loan versus a conventional. There's really only three times you're going to use a conventional loan. And that is if your credit scores are say higher than 720 740. So very you enjoy a very good credit score. Secondly, if you're the only income on the loan and your spouse has a lot of debt uh that's going to exceed the FHA limits, you're going to want to use the conventional loan. And then lastly, uh if you have potential collections uh that show up, uh the conven the conventional loans could be a little more lenient in terms of in terms of collections and you'll have to go with the conventional loan. Those are your three times. Other than that, you'll always use the FHA loan. Why? Because it has a lower rate. It usually has a lower down payment and it allows for debt, which we talked about the $300,000 purchase, the debt to income. You're going to allow it's going to allow for $400 more in terms of your debt load. So, most times you're going to use FHA, but there's going to be times that you're going to use conventional. I can help you with both those. Hit that QR code. I do really want to see it. The webinar is going to be great fun. You're going to learn a lot. Bring the popcorn. That's going to be April the 9th. That's Thursday, Central time. Adjust your clocks accordingly. There's a link in the description below if that QR code is not working. I'm Kevin Fagan, the mortgage patriot. As always, on your side. Make it a great one. END OF TRANSCRIPT