How much money do I need to buy a house for the first time?

At minimum: your down payment (3–3.5% for conventional first-time buyer programs and FHA; 0% for VA and USDA), closing costs (2–5% of purchase price), and ideally 2–6 months of housing payment reserves. On a $350,000 home with 3.5% down: $12,250 down + ~$10,500 closing costs + ~$4,000 reserves = roughly $27,000 minimum liquid. Down payment assistance programs available through state HFAs can cover some or all of the down payment and sometimes closing costs for qualifying buyers.

What credit score do I need to buy a house?

Conventional loans: minimum 620, with 740+ needed for top-tier rates. FHA loans: 580 for the 3.5% down option; 500–579 with 10% down. VA and USDA loans have no government-set minimum but most lenders require 620–640. The rate difference between a 680 and a 760 score can be 0.5–0.75%, which translates to $25,000–$40,000 in extra interest on a $300,000 loan over 30 years — improving your score before applying is almost always worth the time.

How long does the home buying process take?

The mortgage process from accepted offer to closing typically runs 30–45 days for conventional loans (45–60 days for FHA). The broader journey — from saving and improving credit to receiving keys — commonly takes 6–24 months for first-time buyers. In competitive markets, buyers often make multiple offers over several months before winning one, so begin preparation well before your target move-in date.

What is PMI and how can I avoid it?

Private mortgage insurance (PMI) is required by conventional lenders when your down payment is below 20%. It typically costs 0.5–1.5% of the loan amount annually — roughly $100–$300/month on a $250,000 loan — and protects the lender, not you, if you default. Avoid it by putting 20% down, using a piggyback loan structure (80/10/10), or using a VA loan. Once you reach 20% equity in a conventional loan, you can request PMI cancellation; lenders must automatically remove it when you reach 22% based on the original amortization schedule.

What is earnest money and do I get it back if I back out?

Earnest money (also called a good faith deposit) is typically 1–3% of the purchase price, placed in escrow when your offer is accepted. If you back out for reasons covered by your contingencies — failed inspection, financing denial, low appraisal — you get it back in full. If you exit the contract for a reason not covered by a contingency (changed your mind, found another house), you typically forfeit the earnest money to the seller. This is why maintaining your contingencies as a first-time buyer is so important.

What first-time home buyer programs are available?

Every US state has a Housing Finance Agency (HFA) offering down payment assistance — typically 3–5% of the purchase price as a grant or forgivable second mortgage. Fannie Mae's HomeReady and Freddie Mac's Home Possible programs offer 3% down conventional loans with reduced PMI for income-eligible buyers. FHA loans (3.5% down) and VA loans (0% down for eligible veterans) are the most widely used. HUD's website maintains a directory of approved DPA programs by state, and most require a HUD-approved homebuyer education course as a condition.

First-Time Home Buyer Guide: Step-by-Step (2025)

620

Minimum credit score for most conventional loans

3–3.5%

Minimum down payment (conventional / FHA)

43%

Maximum back-end DTI for most conventional loans

2–5%

Closing costs as a percentage of purchase price

Step 1: Assess your financial readiness

Before you look at a single listing, you need three numbers: your credit score, your monthly debt payments (for DTI calculation), and your liquid savings. Your credit score determines whether you qualify and at what rate. A score of 740+ qualifies for the best conventional rates; 620–739 qualifies for most loans at higher rates; below 620, FHA is typically your primary option. Pull your reports from all three bureaus at AnnualCreditReport.com at least 6–12 months before you plan to buy — disputes and errors can take 30–90 days to resolve, and even small corrections can shift your rate tier.

Your monthly debt obligations — car loans, student loan minimums, credit card minimum payments — directly compete with housing in the DTI calculation. Lenders cap total monthly debt (including the new mortgage payment) at 43% of gross monthly income for conventional loans, and up to 50% for FHA with strong compensating factors. Paying off even a small installment loan before applying can meaningfully raise your qualifying purchase price.

Step 2: Save for down payment and closing costs

Conventional loan: 5–20% down; below 20% triggers PMI at 0.5–1.5% of the loan amount annually
Conventional 97 / HomeReady / Home Possible: 3% down for qualifying first-time buyers, with reduced PMI rates
FHA loan: 3.5% down with 580+ credit score; 10% down with 500–579; mandatory mortgage insurance premiums for the life of the loan if under 10% down
VA loan: 0% down for eligible veterans and active-duty service members; no PMI at any loan size
USDA loan: 0% down for eligible rural and some suburban properties; household income limits apply
Closing costs: typically 2–5% of the purchase price, due at closing — budget these separately from your down payment, not as part of it
Reserves: most lenders require 2–6 months of mortgage payments remaining in savings after closing — this is in addition to your down payment and closing costs

On a $350,000 home with 5% down ($17,500) and estimated 3% closing costs ($10,500), you need roughly $28,000–$35,000 liquid before applying, including a basic reserve. High-yield savings accounts and short-term CDs are appropriate for down payment savings — avoid market-risk exposure when your timeline is under two years.

Step 3: Calculate what you can actually afford

Lender approval and true affordability are different thresholds. A lender calculates your maximum mortgage based on gross income; your household budget runs on after-tax take-home pay. The 28/36 rule remains the most reliable guideline: housing costs (principal, interest, taxes, and insurance — PITI) shouldn't exceed 28% of gross monthly income, and total monthly debts shouldn't exceed 36%. These thresholds reflect comfortable affordability, not maximum technical qualification.

On a $90,000 gross income ($7,500/month), the 28% rule allows $2,100 for PITI. At a 6.75% rate with typical property taxes and insurance, $2,100 supports roughly a $290,000–$320,000 purchase price. The Home Affordability Calculator runs this math for your exact income, debt load, and down payment in about 30 seconds.

⚠️ Approval ceiling ≠ comfort zone

Getting approved for a $500,000 mortgage doesn't mean a $500,000 home fits your life. The lender doesn't know about your childcare costs, student loans not yet in repayment, travel budget, or the car you'll need to replace in two years. Use the lender's number as a ceiling, not a target.

Step 4: Get pre-approved (not just pre-qualified)

Pre-qualification is an informal estimate based on self-reported information — it carries almost no weight with sellers. Pre-approval involves a hard credit pull, income verification (W-2s, tax returns, pay stubs), and review of bank statements. A pre-approval letter tells sellers you're a serious buyer with confirmed financing capacity. In competitive markets, submitting an offer without a current pre-approval letter is nearly guaranteed to be ignored.

Shop pre-approvals from at least 2–3 lenders within a 14–45 day window — the three major credit bureaus treat multiple mortgage inquiries in that window as a single inquiry for scoring purposes. CFPB research shows that getting one additional rate quote saves the average buyer over $1,500 in total loan costs. Getting five quotes can save $3,000 or more. Even a 0.25% rate difference on a $300,000 loan is worth $15,000 over 30 years.

Step 5: Choose the right mortgage type

Conventional 30-year fixed: the most common choice — predictable payment, widely available; requires 620+ credit; PMI required below 20% down
Conventional 15-year fixed: higher monthly payment but typically 0.5–0.75% lower rate, roughly half the total interest paid, and equity builds twice as fast
FHA 30-year fixed: more accessible underwriting (500+ credit with 10% down, 580+ for 3.5% down); requires upfront MIP of 1.75% plus annual MIP for the loan's life if under 10% down
VA loan: the best deal in residential mortgages for eligible borrowers — 0% down, no PMI, competitive rates, flexible underwriting; limited to veterans, active duty, and qualifying surviving spouses
USDA Rural Development: 0% down for eligible properties; income limits tied to local median; typically requires 640+ credit; an underused option in suburban areas that many buyers don't know they qualify for
5/1 or 7/1 ARM: fixed rate for an initial period then adjusts annually; appropriate only when you have high certainty of selling or refinancing before the first rate adjustment

Step 6: Find a real estate agent and search for homes

A buyer's agent represents your interests in negotiations, helps you evaluate properties and comparable sales, and coordinates the transaction. Since the 2024 NAR settlement, buyer-agent compensation is more variable — you'll sign a buyer representation agreement before touring homes, and compensation terms should be discussed and agreed upfront. Interview 2–3 agents and understand the payment structure before committing.

When evaluating properties, separate cosmetic issues (paint, carpet, outdated fixtures) from structural ones (roof age, foundation, HVAC system, electrical panel). Cosmetic changes are cheap and predictable; structural issues are expensive and sometimes open-ended. Before making any offer on a home that interests you seriously, ask your agent to pull comparable sales (comps) from the past 90 days — the listing price is an asking price, not a fact.

Step 7: Make a competitive offer

Offer price: anchor to comps and days on market — your agent should pull data before you choose a number; don't rely on the Zestimate alone
Earnest money deposit: typically 1–3% of the purchase price; shows serious intent and is credited toward your closing costs at settlement
Inspection contingency: protects your right to renegotiate or exit if the inspection reveals major issues — never waive this as a first-time buyer without a thorough understanding of what you're accepting
Financing contingency: protects your earnest money if your loan is denied; standard in most financed transactions
Appraisal contingency: allows you to renegotiate or exit if the home appraises below the purchase price — important in markets where bidding wars push prices above comparables
Escalation clause: automatically outbids competing offers up to a ceiling you set — useful in active multiple-offer situations; ask your agent whether this is common in your target market
Proposed closing date: 30–45 days from accepted offer is typical for a financed purchase; sellers often prefer a specific timeline, so ask what works for them

Step 8: Home inspection and appraisal

Schedule your home inspection as soon as the offer is accepted — typically within 7–10 days under contract. A qualified inspector evaluates the structure, roof, HVAC system, electrical panel, plumbing, foundation, windows, and appliances. Cost: $350–$600 depending on home size and location. The inspection report gives you negotiating leverage: major issues can result in seller credits, repair agreements, or a price reduction. If the issues are severe and the seller won't negotiate, your inspection contingency lets you exit with your earnest money back.

The appraisal is ordered by your lender — a licensed appraiser independently confirms the property is worth at least the purchase price before the lender will fund the loan. If the appraisal comes in below your offer, you can renegotiate the price down, pay the gap in cash out-of-pocket, or exit the contract using your appraisal contingency. Appraisal cost: typically $400–$800, usually paid at the time of service rather than at closing.

Step 9: Navigate closing

Review the Closing Disclosure: received 3 business days before closing — verify the loan terms, interest rate, monthly payment, and closing costs against your original Loan Estimate; flag any discrepancies to your lender immediately
Wire funds: closing money (down payment plus closing costs) must arrive in the title company's account by a set deadline — confirm all wiring instructions by phone directly with the title company, never by email, to protect against wire fraud
Final walkthrough: conduct 24–48 hours before closing to verify property condition and confirm that agreed-upon repairs were completed as specified
Sign documents: expect 100+ pages; a notary or closing attorney guides you through each; the full signing typically takes 1–2 hours for a financed purchase
Receive keys: once documents are signed, funds are verified, and the deed is recorded with the county, the home is legally yours

First-time buyer programs and assistance

FHA loans: federally backed with flexible credit requirements and 3.5% minimum down payment — the most widely used first-time buyer mortgage
Fannie Mae HomeReady / Freddie Mac Home Possible: conventional loans with 3% down and reduced PMI rates for low-to-moderate income buyers; income limits apply
State Housing Finance Agency (HFA) programs: every US state has an HFA offering down payment assistance (DPA) as grants or forgivable second mortgages — typically 3–5% of the purchase price; income and purchase price limits apply
USDA Section 502 Direct and Guaranteed loans: 0% down for eligible rural and suburban properties; income limits tied to area median income
VA Home Loan Guaranty: available to eligible veterans, active duty, and qualifying surviving spouses; 0% down, no PMI, no loan limit with full entitlement — the best mortgage available for those who qualify
HUD Good Neighbor Next Door: 50% discount on HUD-owned homes for teachers, firefighters, law enforcement, and EMTs in designated revitalization areas
Most DPA programs require a HUD-approved homebuyer education course — typically 4–8 hours completed online; budget time for this requirement before applying

💡 Rate lock strategy

Once under contract, monitor rates and lock when you're within 30–45 days of your target close date. Ask your loan officer about float-down options — these let you capture a rate decrease after locking for a small fee, protecting you in both directions. Locking too early risks expiration; locking too late risks a rate increase while closing proceeds.

Common mistakes first-time buyers make

Making major financial changes before closing: a new car loan, new credit card, job change, or large undocumented bank transfer can delay or kill your loan approval — keep all finances static from pre-approval to closing day
Buying at the lender's maximum: qualifying for $480,000 doesn't mean $480,000 fits your monthly budget when taxes, insurance, maintenance, and other life costs are factored in on take-home pay
Waiving the home inspection: occasionally rational for experienced investors, almost never worth the risk for a first-time buyer — the cost of a missed structural defect dwarfs the cost of a lost offer
Underestimating closing costs: 2–5% of the purchase price is due at closing in addition to your down payment — this blindsides many buyers who saved for one but not the other
Not shopping mortgage lenders: accepting the first loan offer you receive can cost $15,000–$30,000 more in total interest over 30 years versus the best available rate for the same loan amount
Emotional commitment before the numbers work: falling in love with a specific home before reviewing inspection results, appraisal, and a realistic budget leads to overpaying, skipping protective contingencies, and stretching finances that shouldn't be stretched

Related calculators

Use the Home Affordability Calculator to find your maximum purchase price based on your exact income, monthly debts, and down payment — before you set foot in an open house. The Mortgage Calculator shows your precise monthly PITI breakdown for any combination of price, rate, term, and down payment. And the Debt-to-Income Ratio Calculator reveals exactly how your current debts affect your qualification ceiling and what paying off specific loans before applying would do to your buying power.

First-Time Home Buyer Guide: Complete Step-by-Step Process for 2025