The First-Time Homebuyer's Complete Guide

The First-Time Buyer Landscape (and How This Guide Works)

Buying your first home may be the largest financial decision you ever make, and today it takes more planning than it did a generation ago. Understanding the current landscape helps you set realistic expectations before you begin.

In 2025, first-time buyers made up just 21% of all home buyers — a record low since the National Association of Realtors began tracking in 1981. For context, before the 2008 housing downturn, first-timers were routinely about 40% of the market. Over the same period the median age of first-time buyers rose to an all-time high of 40, up from the late 20s in the 1980s.

The takeaway is encouraging, not discouraging: the buyers who reach the closing table almost always get there through preparation, not luck. This guide walks through every stage — from checking whether you are financially ready, to understanding loan programs and down payment assistance, to reading your final closing paperwork.

How this guide works. MortEdu is a purely educational publisher. It is not a lender, broker, or loan servicer, it does not originate or offer loans, and it never sells or shares your information with lenders or any third party. Everything below explains concepts in plain English so you can make informed decisions and ask sharper questions. It is educational information, not personalized financial, legal, or tax advice.

Who Counts as a First-Time Homebuyer?

The phrase is broader than it sounds. You do not necessarily have to have never owned a home.

The U.S. Department of Housing and Urban Development (HUD) defines a first-time homebuyer as someone who has had no ownership interest in a principal residence during the three-year period ending on the date of purchase. So if you owned a home years ago but have rented for the past three years, you may qualify as a first-time buyer again.

HUD's definition also recognizes several special exceptions, which can matter for program eligibility:

• Displaced homemakers — an individual who has not worked full-time in the labor force for a number of years but provided unpaid household work for a family.
• Single parents who previously owned a home only with a former spouse while married.
• Someone whose only prior ownership was a principal residence not permanently affixed to a permanent foundation.
• Someone whose only prior ownership was a property that was not code-compliant and could not be brought into compliance for less than the cost of building a permanent structure.

This status matters because it can unlock assistance programs and certain loan features. Always confirm the definition used by a specific program, since some programs set their own criteria.

Are You Financially Ready to Buy?

Before focusing on houses, it helps to honestly assess your financial foundation. Lenders look at four broad areas, and so should you.

• Income stability. Steady, documentable income matters more than a high income. Lenders typically want to see a consistent history, often around two years, and they verify it with pay stubs, W-2s, or tax returns for self-employed applicants.
• Employment history. Lenders generally look for a stable, documentable income history — often about two years — because it helps them judge whether income is likely to continue. Gaps or a recent switch to a different field are not automatic disqualifiers, but they are among the things an underwriter reviews.
• Existing debt. Monthly obligations — car loans, student loans, credit cards, personal loans — reduce how much home you can afford, because they count against your debt-to-income ratio (explained in the next section).
• Savings. You need money for a down payment, closing costs, and ideally a cushion of reserves after closing so a surprise expense does not derail you.

If any of these areas is shaky, time spent strengthening it is rarely wasted. Buying a little later with a solid foundation usually beats buying at the edge of what you can manage.

How Much House Can You Afford? DTI and the 28/36 Guideline

Affordability is driven less by the sticker price and more by your debt-to-income ratio (DTI) — the share of your gross (pre-tax) monthly income that goes toward debt payments.

A widely used rule of thumb is the 28/36 guideline:

• 28% (front-end): aim to keep total housing costs at or below 28% of gross monthly income.
• 36% (back-end): aim to keep all monthly debt — housing plus car, student, and credit-card payments — at or below 36%.

These are guidelines, not laws; some loan programs allow higher ratios. Here is how the math looks at a few income levels:

How much income do I need? Work the guideline backward. Estimate the full monthly housing payment for a home you like, then check what income keeps that near 28% of gross pay while total debt stays near 36%. There is no single national number — it depends on the price, your rate, your other debts, and local taxes and insurance.

Budget for the full cost of ownership, not just principal and interest. Real ownership costs include property taxes, homeowners insurance, any HOA dues, utilities, and ongoing maintenance and repairs. A payment that fits the 28% guideline on paper can still strain you if maintenance and utilities are ignored.

Credit Scores: How They Shape Your Loan and Your Rate

Your credit score influences two things: whether you qualify for a given loan program, and the interest rate you are offered. A stronger score generally means access to more programs and a lower rate, which can save many thousands of dollars over the life of a loan.

What score do I need? Requirements vary by loan type. Government-backed programs are often more flexible than conventional loans. For example, FHA loans allow a 3.5% minimum down payment for borrowers with a FICO score of 580 or higher, while scores of 500 to 579 require 10% down. Conventional loans generally expect a higher score than FHA, but lenders set their own minimums, so there is no single universal cutoff. VA and USDA loans do not set a government minimum score; individual lenders apply their own standards.

How to check your credit. You are entitled to free credit reports from the nationwide credit bureaus at AnnualCreditReport.com, the official federally authorized source. Review each report for errors before you apply.

How to strengthen your credit before applying:

• Pay every bill on time — payment history is the single largest factor for most scoring models.
• Lower your credit-card balances relative to your limits (your utilization).
• Avoid opening new credit accounts or taking on new loans in the months before you apply.
• Dispute genuine errors on your reports with the credit bureau.
• Keep older accounts open, since length of credit history helps.

Small, consistent improvements over a few months can move you into a better rate tier.

How Much Down Payment Do You Really Need? (The 20% Myth)

The idea that you must put 20% down is one of the most persistent myths in home buying — and for most first-time buyers, it is simply not true.

The data makes this clear: first-time buyers put down a median of 10%, while repeat buyers put down a median of 23%. In other words, the typical first-time buyer puts down about half of the mythical 20%.

Many loan programs allow far less:

• Some conventional programs, such as Fannie Mae's HomeReady, allow as little as 3% down.
• FHA loans allow 3.5% down with a score of 580 or higher.
• VA loans require no down payment for eligible borrowers.
• USDA loans offer 100% financing (zero down) in eligible rural areas.

So why does 20% get mentioned so often? With a conventional loan, putting 20% down lets you avoid private mortgage insurance (PMI). Below 20%, you typically pay mortgage insurance until you build enough equity. That is a real tradeoff — a smaller down payment gets you in sooner but usually adds a monthly insurance cost — but it is a choice, not a barrier.

Saving for Your Down Payment and Cash to Close

You generally need cash for three things: the down payment, closing costs, and a reserve cushion after you move in. The combined total you bring to the table is often called your cash to close.

Where do first-time buyers get this money? According to the data, 59% of first-time buyers used personal savings for their down payment, 26% tapped financial assets such as a 401(k) or stocks, and 22% used a gift or loan from family or friends.

Practical saving strategies:

• Set a specific target (down payment plus estimated closing costs plus a reserve) and a timeline, then automate transfers into a dedicated account.
• Keep down payment money in a safe, liquid account rather than volatile investments you will need soon.
• Reduce high-interest debt, which both frees cash flow and improves your DTI.
• Explore down payment assistance (covered later), which can shrink how much you must save.

How much should I save? Beyond the down payment, plan for closing costs of roughly 2% to 5% of the price (see the next section), plus a cushion for moving, immediate repairs, and a few months of reserves. Draining every dollar to close leaves no margin for the first surprise expense.

Closing Costs Explained

Closing costs are the fees required to finalize your loan and purchase — separate from your down payment. These costs typically range from 2% to 5% of the home purchase price.

Common items include:

• Lender fees — origination charges, underwriting, and any discount points.
• Third-party services — appraisal, credit report, title search and title insurance, settlement or attorney fees.
• Government charges — recording fees and any transfer taxes.
• Prepaids and escrow — upfront homeowners insurance, property taxes, and prepaid interest deposited into your escrow account.

Closing costs have grown meaningfully in recent years — a trend the CFPB has flagged as a rising burden on borrowers. That is a strong reason to compare offers from more than one lender and to scrutinize each fee on your Loan Estimate. In some cases a seller may agree to pay part of your closing costs as a negotiated concession.

Loan Program Overview: Conventional vs. FHA vs. VA vs. USDA

Four broad categories cover most first-time purchases. Conventional loans are not government-backed (though many follow Fannie Mae or Freddie Mac guidelines); FHA, VA, and USDA loans are backed by federal agencies. Here is a side-by-side view of the key differences:

The sections that follow explain each program in more detail so you can see which ones fit your situation.

Low-Down-Payment Conventional Loans (3% Down)

Conventional loans are not just for buyers with 20% saved. Several programs are designed specifically for lower down payments:

• Conventional 97 — allows a 3% down payment on a fixed-rate loan for a primary residence.
• HomeReady (Fannie Mae) — lets qualified buyers put down as little as 3%, with features aimed at moderate-income buyers.
• Home Possible (Freddie Mac) — a comparable 3%-down option with income-based eligibility.

The main tradeoffs to understand:

• Income limits. HomeReady and Home Possible are tied to area median income, so higher earners in a given area may not qualify. Conventional 97 does not use an income limit but has other conditions.
• Homebuyer education. Some low-down conventional programs require completing an approved homebuyer education course before closing.
• Mortgage insurance. With less than 20% down you will pay PMI, but conventional PMI can be canceled later as you build equity (explained in the mortgage insurance section).

Because program rules change, confirm current details on the program's official page and compare offers from multiple lenders.

FHA Loans Explained

FHA loans are insured by the Federal Housing Administration (part of HUD) and are popular with first-time buyers for their flexibility. They allow a 3.5% minimum down payment with a FICO score of 580 or higher; scores of 500 to 579 require 10% down.

In exchange for insuring the loan, FHA charges mortgage insurance in two parts:

• Upfront MIP. FHA charges an Upfront Mortgage Insurance Premium of 1.75% of the base loan amount, which is typically financed into the loan rather than paid in cash.
• Annual MIP. An ongoing premium is paid monthly as part of your payment.

An important distinction: depending on your down payment and loan terms, FHA annual MIP may remain for the life of the loan, and borrowers often remove it only by refinancing into another loan type once they have enough equity. Check current HUD guidelines for the specifics that apply to your loan. FHA loans also require the property to meet certain minimum condition standards found during the appraisal.

VA Loans Explained

VA loans are guaranteed by the U.S. Department of Veterans Affairs and are among the strongest options for those who qualify. VA-backed purchase loans require no down payment, and they carry no monthly mortgage insurance — a meaningful monthly savings compared with low-down conventional or FHA loans.

Instead of ongoing mortgage insurance, VA charges a one-time funding fee. For a first use with no down payment, the funding fee is 2.15% of the loan amount, and some veterans — such as those receiving VA disability compensation — are exempt. The fee can usually be financed into the loan.

Who is eligible? Generally, qualifying active-duty service members, veterans, and certain surviving spouses who meet service requirements. Eligibility is confirmed through a Certificate of Eligibility (COE). The home must be your primary residence and pass a VA appraisal. Because there is no monthly mortgage insurance and no required down payment, VA loans can be especially cost-effective for eligible first-time buyers.

USDA Rural Loans Explained

USDA loans, backed by the U.S. Department of Agriculture's Rural Development program, are built to support homeownership in less-densely-populated areas. The Single Family Housing Guaranteed Loan Program offers 100% financing (zero down) in eligible rural areas for households earning up to 115% of area median income.

Two eligibility filters define the program:

• Geographic eligibility. The property must be in a USDA-eligible area. Many suburban and small-town locations qualify, not just remote farmland — USDA publishes an eligibility map to check specific addresses.
• Income limits. Household income must fall within the program's limit for the area, expressed relative to area median income.

Like other zero-down programs, USDA loans include fees in place of a down payment: an upfront guarantee fee and an annual fee. For buyers who fit the geographic and income criteria, USDA can open the door to homeownership with no down payment.

Mortgage Insurance Compared: Conventional PMI vs. FHA MIP

If you put down less than 20% on a conventional loan, or you use an FHA loan, you will pay some form of mortgage insurance. It protects the lender if the loan defaults — not you — but it is what makes low down payments possible. The two main types work very differently.

What is PMI and how do I get rid of it? PMI is private mortgage insurance on a conventional loan. Under the federal Homeowners Protection Act, you can request PMI cancellation once your loan balance reaches 80% of the home's original value, and it must automatically terminate at 78% if your payments are current. This cancelability is a key advantage of conventional PMI over FHA MIP, which is often harder to remove without refinancing.

Down Payment Assistance: Grants, Forgivable Loans, and Second Mortgages

Down payment assistance (DPA) is help — usually from a state or local government agency or nonprofit — that reduces the cash you need up front. It is one of the most underused resources for first-time buyers, and availability is broad: thousands of down payment assistance programs are offered nationwide by state housing finance agencies, counties, cities, and nonprofits (U.S. Department of Housing and Urban Development).

DPA generally comes in a few forms:

• Grants — funds that do not have to be repaid, subject to program rules.
• Forgivable loans — a second loan that is forgiven over time (for example, if you stay in the home a set number of years).
• Deferred second mortgages — a loan with no payments until you sell, refinance, or pay off the first mortgage.
• Repayable second mortgages — a low-interest loan repaid alongside your primary loan.

How does it work? You typically qualify based on income limits, sometimes a homebuyer education course, and often first-time-buyer status. The assistance is usually applied at closing toward your down payment or closing costs. A caution: legitimate government and nonprofit programs do not charge a fee simply to "unlock" your assistance. Be wary of anyone who asks for payment to access a grant — that is a common scam pattern.

State Housing Finance Agencies and Finding Legitimate Local Programs

The most reliable place to find real assistance is your State Housing Finance Agency (HFA). Every state has one, and they administer or list first-time-buyer loans, down payment assistance, and homebuyer education, all with published eligibility rules.

To find legitimate programs without falling for scams:

• Start with your state HFA's official website and any city or county housing department.
• Use HUD's resources at HUD.gov, including its directory of HUD-approved housing counseling agencies.
• Confirm that a program is government- or nonprofit-administered, with clear published criteria.
• Avoid programs that pressure you, guarantee approval, or charge fees just to apply.

Because programs, funding, and rules change frequently, verify current details directly with the agency before you rely on any single figure. MortEdu points readers to these official sources rather than to specific lenders, and it never shares your information with any third party.

Using Gift Funds (and Documenting Them Correctly)

Can I use gift money for my down payment? In many cases, yes. Gift funds are a common source — recall that 22% of first-time buyers used a gift or loan from family or friends. But lenders have rules about who may give the money and how it must be documented.

Key points to understand:

• A gift must be a true gift. It cannot be a disguised loan that you are expected to repay. Lenders usually require a signed gift letter stating the amount, the relationship, and that no repayment is expected.
• Eligible donors vary by loan type. Conventional and government-backed programs each have rules about acceptable sources, often close family members, and sometimes others depending on the program.
• Paper trail matters. Lenders typically want to see the funds transferred and deposited, matching the gift letter, so the money can be sourced during underwriting.

Because documentation requirements are specific, ask the lender exactly what they need before the money changes hands. Clean documentation prevents last-minute delays at closing.

Pre-Qualification vs. Pre-Approval (and Why Pre-Approval Matters)

These two terms are often confused, but the difference is important when you start shopping.

Why pre-approval matters: it tells you a realistic budget grounded in verified numbers, and it signals to sellers that your offer is credible. In competitive markets, many sellers will not seriously consider an offer without a pre-approval letter. Getting pre-approved early — before you fall in love with a home — keeps you from shopping outside your range and strengthens your position when you make an offer.

Choosing Your Loan: Fixed vs. ARM, 15 vs. 30 Years, and Points

Two structural choices shape your monthly payment and long-term cost: the rate type and the loan term.

Fixed-rate vs. adjustable-rate (ARM):

15-year vs. 30-year term: a 30-year loan has a lower monthly payment but more total interest over time; a 15-year loan has a higher monthly payment but builds equity faster and costs far less interest overall. Neither is universally "better" — it depends on your budget and goals.

Discount points: a point is an upfront fee equal to 1% of the loan amount that you can pay to lower (buy down) your interest rate. Points can make sense if you keep the loan long enough to recoup the upfront cost, and less sense if you may sell or refinance soon. Your Loan Estimate shows whether points are included.

The Step-by-Step Homebuying Timeline

Every purchase is a little different, but the path usually follows the same order. Seeing the whole sequence helps you know where you are and what comes next.

1. Assess your finances — review income, debt, credit, and savings; set a realistic budget using the 28/36 guideline.
2. Save and explore assistance — build your down payment and closing-cost funds; research DPA and your state HFA.
3. Get a pre-approval — gather documents and obtain a pre-approval letter from one or more lenders.
4. Choose a buyer's agent — find an agent to represent your interests.
5. Shop for homes — tour properties within your budget and priorities.
6. Make an offer — submit an offer with earnest money and contingencies.
7. Open escrow and inspect — complete the home inspection and negotiate repairs if needed.
8. Loan processing and appraisal — the lender orders an appraisal and underwrites your loan.
9. Review closing documents — read your Closing Disclosure carefully at least three business days before closing.
10. Close and get the keys — sign, bring your funds, and take ownership.

How long does it take? Saving and preparing can take months or years, but once you have an accepted offer, closing often takes a few weeks to a couple of months, depending on the loan, inspections, and how quickly documents are provided. Responding promptly to your lender's requests is one of the biggest factors in a smooth timeline.

Working With a Buyer's Real Estate Agent

A buyer's agent represents you — not the seller — throughout the search, offer, and closing. A good agent helps you find suitable homes, interpret local market conditions, structure a competitive offer, coordinate inspections, and navigate negotiations.

What to keep in mind:

• Representation. A buyer's agent has a duty to act in your interest. You will typically sign a buyer-representation agreement that spells out the relationship and the agent's compensation.
• Compensation is negotiable. How and how much a buyer's agent is paid is negotiable and should be clearly stated in your agreement before you tour homes. Read it carefully so there are no surprises.
• Interview more than one. Ask about local experience, communication style, and how they handle competitive situations.

Choose someone who explains options clearly and answers questions patiently — you are the decision-maker, and a strong agent supports that rather than pressuring you.

Making an Offer: Earnest Money, Contingencies, and Negotiation

When you find the right home, your agent helps you submit a written offer. A few core concepts appear in nearly every offer:

• Earnest money. A good-faith deposit that shows the seller you are serious. It is held in escrow and typically applied toward your down payment or closing costs at closing. If you back out for a reason not protected by a contingency, you may risk this deposit.
• Contingencies. Conditions that must be met for the sale to proceed, which protect you. Common ones include a financing contingency (you can exit if your loan falls through), an inspection contingency (you can renegotiate or exit based on inspection findings), and an appraisal contingency (protection if the home appraises below the offer price).
• Negotiation. Price is only one lever. Closing-cost credits, repairs, the closing date, and included items can all be negotiated. Your agent helps you weigh what matters most and how strong to make each term.

An offer is a balance: stronger terms can win a home in a competitive market, but contingencies exist to protect you from real risks. Understand what each one does before waiving it.

The Home Inspection and the Appraisal

These two steps happen after your offer is accepted, and they protect different things. It is easy to confuse them, so it helps to keep them straight.

• The home inspection protects you. A licensed inspector examines the home's condition — roof, structure, systems, plumbing, electrical, and more — and gives you a report. It is not pass/fail; it is information. Based on it, you may ask the seller to make repairs, offer a credit, or, if your inspection contingency allows, walk away.
• The appraisal protects the lender (and, indirectly, you). An independent appraiser estimates the home's market value so the lender does not lend more than the property is worth. If the appraisal comes in below the purchase price — an appraisal gap — you may need to renegotiate, bring more cash, or rely on an appraisal contingency.

Skipping the inspection to make an offer more attractive is a common temptation in competitive markets, but it removes an important safeguard against expensive surprises. Understand what you are giving up before waiving it.

Homeowners Insurance, Property Taxes, and Escrow Accounts

Your monthly payment is usually more than principal and interest. Lenders often bundle four things together in what is called PITI: principal, interest, taxes, and insurance.

• Homeowners insurance protects the property against covered losses and is typically required by the lender. Shop for coverage the same way you shop for a loan.
• Property taxes are set by local governments and vary widely by location. They can change over time and materially affect your monthly payment.
• Escrow account — many lenders collect a portion of your annual taxes and insurance each month and hold it in escrow, then pay those bills for you when due. This spreads large annual bills into manageable monthly amounts.

Because taxes and insurance premiums change, your escrow is reviewed periodically, and your total payment can rise or fall even on a fixed-rate loan. Budgeting for these ongoing costs — not just principal and interest — is essential to avoid being caught off guard after you move in.

Reading the Loan Estimate and Closing Disclosure

Two standardized forms let you compare offers and verify your final terms. Learning to read them is one of the highest-value skills a first-time buyer can build.

• Loan Estimate (LE). After you apply, the lender must provide a Loan Estimate, generally within three business days. It lays out the interest rate, monthly payment, closing costs, and key features in a standard format, so you can compare offers from different lenders apples-to-apples.
• Closing Disclosure (CD). At least three business days before closing, you receive the Closing Disclosure, which shows the final terms and costs. Compare it against your Loan Estimate to confirm nothing changed unexpectedly.

When comparing offers, look beyond the interest rate to the APR (which folds in certain costs), the total closing costs, and whether points are included. The CFPB's Owning a Home resources explain these forms in detail. Because loan costs have risen substantially in recent years, comparing multiple Loan Estimates can save real money.

The Closing (Settlement) Process

Closing — also called settlement — is where ownership transfers to you. Knowing what to expect makes the day far less stressful.

What to review beforehand: read your Closing Disclosure carefully during the three-business-day window and compare it to your Loan Estimate. Question any fee you do not recognize.

What to bring: a government-issued photo ID, and your funds to close, usually by wire transfer or cashier's check as directed by the settlement agent.

What to expect: you will sign the note, the mortgage or deed of trust, and related documents; funds are disbursed; and the deed is recorded. Afterward you receive the keys.

An important safety note: wire-transfer fraud targeting homebuyers is common. Scammers send fake wiring instructions by email. Always verify wire instructions by calling the settlement or title company at a phone number you independently confirm — never a number or account from an unexpected email. When money and credentials are involved, slow down and verify.

First-Time Buyer Tax Considerations at a High Level

Homeownership can carry tax implications, though whether they benefit you depends on your personal situation. This is general education, not tax advice.

• Mortgage interest. Interest you pay on a qualifying home loan may be deductible if you itemize deductions rather than take the standard deduction, subject to IRS limits.
• Property taxes. State and local property taxes may be deductible if you itemize, subject to the applicable federal limit on state and local tax deductions.
• Points. Discount points paid at closing may be deductible under certain conditions.
• Standard vs. itemized. Because the standard deduction is substantial, many homeowners find it does not exceed the standard deduction — so the mortgage interest deduction does not always change their taxes.

Rules and limits change, and everyone's situation differs. Consult a qualified tax professional or the official guidance at IRS.gov before making decisions based on expected tax benefits.

Common First-Time Buyer Mistakes (and How to Avoid Them)

Most costly mistakes are avoidable with a little awareness. Watch for these:

• Shopping before getting pre-approved — you may fall for a home outside your real budget.
• Opening new credit or making big purchases before closing — a new car loan or credit card can change your DTI and jeopardize your approval. Keep your finances steady until you have the keys.
• Draining every dollar to close — leaving no reserves means the first repair becomes a crisis.
• Skipping the inspection — waiving it can hide expensive problems.
• Not comparing lenders — because closing costs have risen in recent years, comparing several Loan Estimates can meaningfully lower your costs.
• Assuming you need 20% down — many buyers qualify with far less, as the data on median down payments shows.
• Overlooking down payment assistance — with thousands of programs available, many eligible buyers never check.
• Underestimating the full cost of ownership — taxes, insurance, maintenance, and utilities all add up.

Preparation and patience prevent most of these. When in doubt, slow down and ask questions before you sign.

HUD-Approved Homebuyer Education and Housing Counseling

One of the best free or low-cost resources for first-time buyers is HUD-approved housing counseling. These agencies are certified by HUD to provide unbiased guidance — they are not trying to sell you a loan.

What they offer:

• Homebuyer education courses that walk through budgeting, credit, loan types, and the buying process. Some low-down-payment and assistance programs require completing one before closing.
• One-on-one counseling to review your finances, credit, and readiness, and to help you understand your options.
• Help identifying legitimate assistance programs for which you may qualify.

You can find HUD-approved counseling agencies through HUD.gov and general consumer guidance through the Consumer Financial Protection Bureau. Because these resources are neutral and consumer-focused, they pair well with your own research. MortEdu provides education in the same spirit — and never sells or shares your information with lenders or any third party.

FHA vs. Conventional: How to Think About the Choice

Is an FHA loan or a conventional loan better for a first-time buyer? There is no universal answer — the right choice depends on your credit, savings, and goals. Instead of a verdict, use a framework based on the factors that actually differ:

• Credit. FHA is generally more forgiving of lower scores, allowing 3.5% down at 580, or 10% down at 500–579. Conventional loans usually expect stronger credit.
• Mortgage insurance removal. Conventional PMI can be canceled as you build equity (at 80%, automatic at 78%), while FHA MIP often stays for the life of the loan unless you refinance. Over many years, this difference can be significant.
• Down payment. Both offer low-down options (3% conventional; 3.5% FHA), so the down payment alone rarely decides it.
• Property condition. FHA appraisals apply minimum property standards, which can matter for older or fixer-upper homes.

A practical approach: get a pre-approval for the options you may qualify for, then compare actual Loan Estimates side by side — including the monthly payment, mortgage insurance, and long-term cost. A HUD-approved counselor can help you weigh the tradeoffs for your specific situation.

Plain-English Glossary of Mortgage and Homebuying Terms

• Amortization — how each payment is split between interest and principal over the life of the loan.
• APR (Annual Percentage Rate) — the loan's yearly cost including certain fees, useful for comparing offers.
• Appraisal — an independent estimate of a home's market value, ordered by the lender.
• Cash to close — the total funds you bring to closing (down payment plus closing costs, minus credits and deposits).
• Closing costs — fees to finalize the loan and purchase, typically 2% to 5% of the price.
• Contingency — a condition in the purchase contract that protects the buyer (financing, inspection, appraisal).
• DTI (debt-to-income ratio) — the share of gross monthly income going to debt payments.
• Down payment assistance (DPA) — grants or loans that reduce the cash needed up front.
• Earnest money — a good-faith deposit made with an offer, held in escrow.
• Equity — the portion of the home you own outright (value minus what you owe).
• Escrow — an account that collects and pays your property taxes and insurance; also refers to the neutral holding of funds during a transaction.
• Funding fee — a one-time VA loan fee charged in place of monthly mortgage insurance.
• HFA (Housing Finance Agency) — a state agency that administers first-time-buyer loans and assistance.
• LTV (loan-to-value) — the loan amount as a percentage of the home's value.
• MIP — FHA mortgage insurance premium (upfront and annual).
• PMI — private mortgage insurance on a conventional loan with less than 20% down.
• Points — an upfront fee (1 point = 1% of the loan) paid to lower the interest rate.
• Pre-approval — a lender's conditional commitment based on verified finances.
• PITI — principal, interest, taxes, and insurance; the components of many monthly payments.
• Underwriting — the lender's process of verifying and approving your loan.

Frequently Asked Questions

How much do I need for a down payment on my first home? Less than most people think. First-time buyers put down a median of 10%, and programs allow as little as 3% (conventional), 3.5% (FHA), or 0% (VA and USDA for those who qualify).

Do I really need 20% down? No. Twenty percent lets you avoid PMI on a conventional loan, but the typical first-time buyer puts down far less.

What credit score do I need to buy a house? It varies by program. FHA allows 3.5% down at 580, and 10% down at 500–579; conventional loans generally expect higher scores set by the lender.

What is the minimum credit score for an FHA loan? 500 with 10% down, or 580 for the 3.5% down option.

Can I buy a home with no down payment? Possibly. VA loans require no down payment for eligible borrowers, and USDA loans offer 100% financing in eligible rural areas.

How much are closing costs? Typically 2% to 5% of the purchase price, separate from the down payment.

What first-time homebuyer programs and grants are available? Many — thousands of down payment assistance programs are offered nationwide by state and local agencies and nonprofits. Start with your state Housing Finance Agency and HUD.gov.

Who counts as a first-time homebuyer? Generally, someone with no ownership interest in a principal residence during the prior three years, plus certain exceptions.

Can I use gift money for my down payment? Often yes, with a signed gift letter and proper documentation showing it is a true gift, not a loan.

How long does the homebuying process take? Saving and preparing can take months to years; once you have an accepted offer, closing commonly takes a few weeks to a couple of months.