Perhaps one of the easiest ways to purchase your first home is by taking out a Federal Housing Administration (FHA) loan, the loan that kick-started American homeownership. FHA loans work well for first-time homebuyers for several reasons. First, you only need to come up with a small down payment -- sometimes as low as 3.5 percent of the home's purchase price. For a $200,000 home, that would be $7,000. Closing costs are also low, and those costs can be folded into the loan. Finally, qualifying for an FHA loan is relatively easy. Why? Because an FHA loan is a mortgage insured by the federal government. Since the feds are willing to pay a claim to your lender if you default on your mortgage, lenders are willing to lend you the money, and can offer you a pretty good deal on rates and costs [source: U.S. Department of Housing and Urban Development].
The downsides? There's a limit on how much you can borrow (limits vary by locale), and the home you want to buy must be worth the selling price. Sometimes the processing of the loan can take longer than that of a traditional mortgage. You will also have to pay private mortgage insurance (PMI); it's generally required for any mortgage without a 20 percent down payment, but PMI payments for FHA loans are steeper than those for conventional mortgages [source: da Costa]. Still, an FHA loan can be a pretty sweet deal.