A First Key Fund FAQ for Homebuyers
Buying your dream home is one of the biggest milestones you’ll ever reach — and understanding your financing options can make the difference between feeling overwhelmed and feeling confident.
At First Key Fund, we believe smart financing isn’t just about getting approved — it’s about building long-term stability. The right loan structure can help you protect your budget, avoid surprises, and move into homeownership with a plan you feel good about.
Below is a simple FAQ-style guide to help you understand your options, know what lenders look for, and make smart choices as you get closer to purchasing your future home.
What are conventional loans?
A conventional loan is a mortgage that is not backed by the federal government. These loans can be a great option for buyers with strong financial qualifications, but they may be a little harder to qualify for than government-backed loan programs.
In most cases, lenders will require:
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Higher credit scores — typically 620 or above, though the best rates usually go to buyers closer to 740+
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Larger down payments — often 5% to 20% of the home’s price
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Lower debt-to-income (DTI) ratios — usually around 43% or less, meaning your monthly debt payments should not exceed 43% of your gross monthly income
One major advantage of conventional loans is that they often cost less over time if you qualify, because once you reach 20% equity, you can typically remove mortgage insurance.
Are there different kinds of conventional loans?
Yes — conventional loans usually fall into one of two categories:
1) Conforming loans
These meet the guidelines set by Fannie Mae and Freddie Mac, the government-sponsored enterprises that buy loans from lenders and package them into securities sold on the secondary market.
2) Nonconforming loans
These do not meet those guidelines, often because the loan amount is too large, the borrower’s profile is unique, or the terms fall outside typical requirements.
Is an FHA loan easier to get than a conventional loan?
For many buyers — yes.
An FHA loan is insured by the Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development (HUD). The FHA doesn’t issue loans directly, but it guarantees qualifying loans made by approved private lenders, which reduces risk for the lender.
That added security is why FHA loans often come with:
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Lower down payment requirements
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More flexible credit guidelines
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A smoother qualification path for many first-time buyers
Down payments can be as low as 3.5% in many cases (and sometimes 10% depending on the buyer’s situation).
FHA loans also have limits that vary by location. For example, in 2025, the FHA loan cap for a single-family home ranged from $524,225 to $1,209,750, depending on home prices in that market.
What about a VA loan — how does it work?
A VA loan is backed by the U.S. Department of Veterans Affairs, but like the FHA program, the VA does not issue the loan itself. Instead, it guarantees loans made by approved lenders.
For eligible veterans and service members, VA loans can offer extremely strong advantages, including:
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No down payment required in many cases
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Competitive interest rates
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Flexible qualification options
To apply, borrowers must first obtain a Certificate of Eligibility (COE) from the VA.
VA loans generally follow conventional loan limits, which for 2025 are:
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$806,500 in most U.S. counties (single-family homes)
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$1,209,750 in high-cost areas
Multi-unit properties have higher limits, and certain locations — including Alaska, Hawaii, Guam, and the U.S. Virgin Islands — typically follow the higher ceiling.
Loans above those limits are often considered jumbo loans, which usually come with stricter requirements.
✅ First Key Fund note: Beyond federal programs, many state and local programs also offer help for buyers — including down payment assistance and special homeownership incentives.
What’s the process — where do I begin?
Before you fall in love with a home, start touring properties, or make an offer, one step can put you ahead immediately:
Get preapproved for a mortgage.
Preapproval gives you a clear picture of your real buying power — and in a competitive market, it often separates serious buyers from everyone else.
During preapproval, lenders look at your:
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Credit score
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Income
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Debt-to-income ratio (DTI)
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Assets and overall financial profile
If you’re approved, you’ll receive a letter confirming the lender is willing to finance your purchase up to a set amount (based on terms and conditions).
That letter shows sellers you’re qualified and ready — and in many markets, it can help your offer stand out instantly.
How good does my credit have to be?
Credit is one of the biggest factors lenders use to decide:
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If you qualify
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How much you can borrow
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What interest rate you’ll receive
The stronger your credit, the more options you typically have — and the better your pricing can be.
Here are a few proven ways to strengthen your credit score:
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Pay down outstanding debt
Lower balances improve your credit utilization ratio, which heavily impacts your score. -
Check your credit report for errors
Mistakes happen — and correcting them can immediately help your score. -
Make every payment on time
Payment history is one of the biggest scoring categories. -
Avoid opening new credit lines right before buying
Multiple new accounts or major purchases can affect your score and DTI.
Don’t forget: lenders also look at your loan-to-value ratio (LTV)
Your LTV ratio compares your loan amount to the home’s purchase price. The more you put down, the less risky you appear to a lender — and that can improve your rate.
✅ One more tip: include all income sources when applying — even part-time work or a side hustle. Sometimes that extra income can make a real difference in approval terms.
How big does my down payment have to be?
Down payments affect your mortgage in a big way.
In general:
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A larger down payment can lead to a better interest rate and fewer restrictions.
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A smaller down payment may still work — but it may come with extra costs.
If you put down less than 20% on a conventional loan, your lender will usually require private mortgage insurance (PMI). PMI protects the lender if the borrower defaults, and the cost depends on your loan type, amount, and credit profile.
The good news: once your equity reaches a certain point, PMI doesn’t last forever.
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When your loan balance reaches 78% of the home’s value (22% equity), your lender should automatically cancel PMI
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If it doesn’t happen automatically, you can request removal
Pro tip from First Key Fund:
Don’t automatically buy the most expensive home you qualify for. A little breathing room in your monthly budget can protect you when the “real-world” homeownership costs show up — things like repairs, maintenance, taxes, and insurance.
Fixed-rate vs adjustable-rate mortgage — which is better?
This is one of the biggest decisions buyers face.
Fixed-rate mortgage
A fixed-rate mortgage means your interest rate stays the same for the full loan term. The biggest advantage is predictability: your principal and interest payment won’t change.
If rates are favorable when you lock in, you can keep that steady rate for years.
Adjustable-rate mortgage (ARM)
An adjustable-rate mortgage usually starts with a lower “intro” rate, which can make early payments more affordable and may help you qualify for more house.
But there’s a risk: after the initial period, the rate can rise — meaning your monthly payment can rise too.
Most ARMs start with a fixed rate for 5, 7, or 10 years, then adjust regularly (often monthly) based on a market index (like Treasury rates), plus an added amount from the lender.
Most ARMs have caps that limit how much and how fast the rate can increase — but it’s still important to understand what payment changes could happen later.
What else should I know about the home-buying process?
In many housing markets, homes can sell quickly — which means buyers need to be ready to act.
That includes having extra funds available for:
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Closing costs
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Inspections
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Appraisals
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Unexpected repairs or adjustments during negotiations
One thing we strongly recommend:
Always get a home inspection.
Inspections can uncover issues like:
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Roof problems
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Major system failures
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Gas leaks or safety concerns
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Expensive repairs you wouldn’t see during a walkthrough
Home inspections are one of the smartest protective steps you can take.
And once you’re preapproved and working with an agent, staying ready also means watching listings closely and moving quickly when the right opportunity shows up.
Common Home Financing Terms (Simple Definitions)
Conventional loan
A mortgage not backed by the government, often requiring a 620+ credit score, 5%–20% down, and a DTI around 43% or lower. PMI may be required until you reach 20% equity.
Conforming loan
A conventional loan that meets Fannie Mae and Freddie Mac guidelines — including limits on loan size and approval rules — so it can be sold on the secondary market.
Debt-to-income ratio (DTI)
A measurement comparing your monthly debt payments to your gross monthly income. Many lenders look for 43% or lower.
Equity
The portion of the home you own. It’s calculated as the home’s value minus what you still owe. Reaching 20% equity can eliminate PMI on conventional loans.
FHA loan
A mortgage insured by the Federal Housing Administration that allows lower down payments and more flexible qualification requirements than many conventional loans.
Loan limits
Maximum mortgage amounts set by programs and agencies. Conventional loan limits are set by the Federal Housing Finance Agency (FHFA), while FHA limits adjust by region based on housing prices.
Nonconforming loan
A loan that doesn’t meet Fannie Mae/Freddie Mac standards — often because it exceeds loan limits or the borrower’s situation doesn’t fit standard guidelines.
VA loan
A mortgage guaranteed by the Department of Veterans Affairs for eligible veterans, service members, and some surviving spouses. VA loans often offer strong terms and reduced lender risk.
Final Encouragement from First Key Fund
Financing doesn’t have to feel intimidating — but it does need to be understood. The more you know before you begin, the fewer surprises you’ll face later, and the stronger your choices will be.
If you’re preparing to buy your first home, we’re cheering you on — and we’re building programs designed to help more people reach the finish line with confidence.