Guide
Buying your first home is a big leap, but it becomes far less intimidating when you break it into steps and know the costs coming. Here's a plain-English roadmap from getting your finances ready to closing day.
Beyond the down payment, budget for closing costs, which the Consumer Financial Protection Bureau notes typically run 2% to 5% of the purchase price and cover the appraisal, title search and title insurance, lender origination fees, and prepaid taxes and insurance placed into an escrow account. If your down payment is under 20% on a conventional loan, you'll also pay PMI each month. Don't drain every dollar — keep an emergency fund for move-in surprises like a failed appliance or an unexpected repair the inspection missed.
It helps to think of the cash you need in three buckets: the down payment, the closing costs, and a reserve fund for the first year of ownership. Lenders often want to see that you have a few months of housing payments in reserve, and it protects you too. Many first-time buyers are surprised that the keys-in-hand cash requirement is meaningfully higher than the down payment alone once closing costs and reserves are added in.
Suppose you're buying a $320,000 home with an FHA loan and the minimum 3.5% down. Here's roughly what the upfront cash looks like:
| Item | How it's figured | Amount |
|---|---|---|
| Down payment | $320,000 × 3.5% | $11,200 |
| Closing costs (est.) | $320,000 × 3% | $9,600 |
| Suggested reserve | ~2 months of payments | $4,500 |
| Total cash to plan for | ~$25,300 |
The down payment alone is $11,200, but the realistic cash-to-close-plus-cushion figure is more than double that. Sellers or lenders sometimes cover part of the closing costs through credits, and down payment assistance can shrink the first line — but planning for the full number keeps you from being caught short at the closing table.
| Program | Down payment | Good to know |
|---|---|---|
| Conventional | As low as 3% | PMI required under 20% down; cancellable later |
| FHA | 3.5% (score 580+) | Flexible credit; carries mortgage insurance premiums |
| VA | 0% for eligible vets | No PMI; for qualifying service members and veterans |
| USDA | 0% in eligible areas | For qualifying rural and some suburban properties |
FHA loans are insured by the Federal Housing Administration, part of the U.S. Department of Housing and Urban Development; per HUD, the down payment can be as low as 3.5% with a credit score of 580 or higher (scores of 500–579 require 10% down). Many states and cities also offer down payment assistance grants and forgivable loans for first-time buyers — worth researching in your area. These are usually administered by a state housing finance agency and often come with income limits and a homebuyer-education requirement. Because the assistance can be a grant (never repaid) or a second loan (repaid or forgiven over time), read the terms carefully before you count on it.
One common point of confusion: for most of these programs, "first-time buyer" doesn't literally mean you've never owned a home. It usually means you haven't owned a primary residence in the past three years. That definition opens the door for many buyers who assume they don't qualify.
HUD-approved housing counseling is free or low-cost and can help you prepare, and some programs require it before closing. A counselor can review your budget, explain the loan estimate line by line, and flag anything that looks off. The CFPB's step-by-step homebuying tools are an excellent, unbiased starting point. Its guide to comparing Loan Estimates shows how to line up offers using the standardized government form — and it's worth doing, because the CFPB estimates shoppers can save $600 to $1,200 a year just by requesting offers from multiple lenders. Always compare Loan Estimates from at least three lenders; even a small difference in rate or fees adds up over the life of the loan.
Links to Amazon are affiliate links — as an Amazon Associate we earn from qualifying purchases at no cost to you.
These two terms get used interchangeably, but they're different. A pre-qualification is a quick, informal estimate based on numbers you tell the lender — useful for a ballpark, but not verified. A pre-approval is a deeper review where the lender pulls your credit and checks your income and assets, then issues a letter stating how much they're prepared to lend. Sellers take pre-approved offers far more seriously because the financing is much more likely to close. Get pre-approved before you start touring homes, and try to keep your finances stable afterward: avoid opening new credit lines, financing a car, or changing jobs mid-process, since any of these can change your approval.
Ready to run your numbers? The first-time buyer and affordability calculators estimate your budget, monthly payment, and which loan programs may fit your down payment and credit.
How much do I really need for a down payment? It depends on the loan. VA and USDA loans can require 0% down for eligible buyers, FHA starts at 3.5%, and conventional loans can go as low as 3%. Putting down less than 20% on a conventional loan means paying PMI until you build enough equity, so weigh a smaller down payment against the monthly cost of PMI.
What credit score do I need to buy a house? There's no universal minimum, but FHA loans generally allow scores from 580 (or 500 with 10% down), while conventional loans usually favor scores of 620 and above, with the best rates going to scores in the 740+ range. Improving your score before you apply can lower your rate and your monthly payment. The CFPB has free guidance on checking and improving your credit.
How long does the buying process take? From accepted offer to closing, a typical purchase takes about 30 to 45 days, though it can be faster with a cash-ready buyer or slower if the appraisal, inspection, or underwriting turns up issues. Getting pre-approved first and responding quickly to your lender's document requests keeps things moving.
→ Check your budget and buyer programs