diff --git a/changelogs/fragments/first_found_template_fix.yml b/changelogs/fragments/first_found_template_fix.yml
new file mode 100644
index 00000000000..70fe6b58628
--- /dev/null
+++ b/changelogs/fragments/first_found_template_fix.yml
@@ -0,0 +1,2 @@
+bugfixes:
+  - first_found lookup now gets 'untemplated' loop entries and handles templating itself as task_executor was removing even 'templatable' entries and breaking functionality. https://github.com/ansible/ansible/issues/70772
diff --git a/lib/ansible/executor/task_executor.py b/lib/ansible/executor/task_executor.py
index bc08c6791ae..784f80a5a1c 100644
--- a/lib/ansible/executor/task_executor.py
+++ b/lib/ansible/executor/task_executor.py
@@ -224,14 +224,11 @@ class TaskExecutor:
         items = None
         if self._task.loop_with:
             if self._task.loop_with in self._shared_loader_obj.lookup_loader:
-                fail = True
-                if self._task.loop_with == 'first_found':
-                    # first_found loops are special. If the item is undefined then we want to fall through to the next value rather than failing.
-                    fail = False
 
+                # TODO: hardcoded so it fails for non first_found lookups, but thhis shoudl be generalized for those that don't do their own templating
+                # lookup prop/attribute?
+                fail = bool(self._task.loop_with != 'first_found')
                 loop_terms = listify_lookup_plugin_terms(terms=self._task.loop, templar=templar, fail_on_undefined=fail, convert_bare=False)
-                if not fail:
-                    loop_terms = [t for t in loop_terms if not templar.is_template(t)]
 
                 # get lookup
                 mylookup = self._shared_loader_obj.lookup_loader.get(self._task.loop_with, loader=self._loader, templar=templar)
diff --git a/lib/ansible/plugins/lookup/first_found.py b/lib/ansible/plugins/lookup/first_found.py
index 24b3b704417..d92e9354674 100644
--- a/lib/ansible/plugins/lookup/first_found.py
+++ b/lib/ansible/plugins/lookup/first_found.py
@@ -226,6 +226,8 @@ class LookupModule(LookupBase):
             try:
                 fn = self._templar.template(fn)
             except (AnsibleUndefinedVariable, UndefinedError):
+                # NOTE: backwards compat ff behaviour is to ignore errors when vars are undefined.
+                #       moved here from task_executor.
                 continue
 
             # get subdir if set by task executor, default to files otherwise
diff --git a/test/integration/targets/lookup_first_found/tasks/main.yml b/test/integration/targets/lookup_first_found/tasks/main.yml
index d0ca91eaf54..7aa9742708b 100644
--- a/test/integration/targets/lookup_first_found/tasks/main.yml
+++ b/test/integration/targets/lookup_first_found/tasks/main.yml
@@ -102,3 +102,48 @@
 
 - assert:
     that: "no_terms|first == '/etc/hosts'"
+
+- name: handle templatable dictionary entries
+  block:
+
+  - name: Load variables specific for OS family
+    assert:
+      that:
+        - "{{item|quote}} is file"
+        - "{{item|basename == 'itworks.yml'}}"
+    with_first_found:
+      - files:
+          - "{{ansible_id}}-{{ansible_lsb.major_release}}.yml"  # invalid var, should be skipped
+          - "{{ansible_lsb.id}}-{{ansible_lsb.major_release}}.yml"  # does not exist, but should try
+          - "{{ansible_distribution}}-{{ansible_distribution_major_version}}.yml"  # does not exist, but should try
+          - itworks.yml
+          - ishouldnotbefound.yml  # this exist, but should not be found
+        paths:
+          - "{{role_path}}/vars"
+
+  - name: Load variables specific for OS family, but now as list of dicts, same options as above
+    assert:
+      that:
+        - "{{item|quote}} is file"
+        - "{{item|basename == 'itworks.yml'}}"
+    with_first_found:
+      - files:
+          - "{{ansible_id}}-{{ansible_lsb.major_release}}.yml"
+        paths:
+          - "{{role_path}}/vars"
+      - files:
+          - "{{ansible_lsb.id}}-{{ansible_lsb.major_release}}.yml"
+        paths:
+          - "{{role_path}}/vars"
+      - files:
+          - "{{ansible_distribution}}-{{ansible_distribution_major_version}}.yml"
+        paths:
+          - "{{role_path}}/vars"
+      - files:
+          - itworks.yml
+        paths:
+          - "{{role_path}}/vars"
+      - files:
+          - ishouldnotbefound.yml
+        paths:
+          - "{{role_path}}/vars"
diff --git a/test/integration/targets/lookup_first_found/vars/ishouldnotbefound.yml b/test/integration/targets/lookup_first_found/vars/ishouldnotbefound.yml
new file mode 100644
index 00000000000..e4cc6d5dbc1
--- /dev/null
+++ b/test/integration/targets/lookup_first_found/vars/ishouldnotbefound.yml
@@ -0,0 +1 @@
+really: i hide
diff --git a/test/integration/targets/lookup_first_found/vars/itworks.yml b/test/integration/targets/lookup_first_found/vars/itworks.yml
new file mode 100644
index 00000000000..8f8a21a46d7
--- /dev/null
+++ b/test/integration/targets/lookup_first_found/vars/itworks.yml
@@ -0,0 +1 @@
+doesit: yes it does