First-Time Homebuyer Guide 2026

Buying your first home is the largest financial decision most people ever make — and in 2026, the landscape is different from what your parents experienced. Mortgage rates sit in the 6.5-7% range after coming down from 2024-2025 peaks. Home prices remain elevated. Down payment requirements vary wildly depending on the loan program. And dozens of federal, state, and local assistance programs exist specifically for first-time buyers, yet most people never use them because they do not know they qualify.

This guide is not a surface-level overview. We cover every number you need: exact down payment percentages by loan type, affordability calculations at three income levels, itemized closing costs, a side-by-side loan comparison table, and the complete step-by-step process from checking your credit score to picking up the keys. If you are thinking about buying your first home in 2026, this is the comprehensive resource you need.

Down Payment Options for First-Time Homebuyers

The biggest misconception in real estate is that you need 20% down to buy a home. You do not. While 20% eliminates private mortgage insurance (PMI), the vast majority of first-time buyers put down far less. According to the National Association of Realtors, the average first-time homebuyer down payment is approximately 8% — and millions of buyers put down 3-3.5% or even 0%.

Here is how down payment requirements break down by loan type in 2026:

• Conventional loans (3-5% minimum): Fannie Mae's HomeReady and Freddie Mac's Home Possible programs allow 3% down for borrowers earning up to 80% of area median income. Standard conventional loans typically require 5% down. On a $350,000 home, that is $10,500-$17,500
• FHA loans (3.5% minimum): The Federal Housing Administration insures these loans, making them accessible to buyers with lower credit scores. With a 580+ score, you can put down 3.5%. With a 500-579 score, you need 10% down. On a $350,000 home, the 3.5% down payment is $12,250
• VA loans (0% down): Available to active-duty military, veterans, and eligible surviving spouses. No down payment is required at all. No monthly mortgage insurance either — making VA loans the single best mortgage product available
• USDA loans (0% down): For homes in eligible rural and suburban areas (which includes many communities outside major cities). No down payment required. Income limits apply — generally 115% of area median income
• State and local DPA programs (grants up to $25,000): Nearly every state offers down payment assistance (DPA) for first-time buyers. These come as grants (free money), forgivable second mortgages, or deferred-payment loans. Amounts range from $5,000 to $25,000 depending on the program and location

The right down payment amount depends on your financial situation. Putting down 20% eliminates PMI and reduces your monthly payment, but it requires significant savings. Putting down 3-5% gets you into a home faster but adds $100-$300/month in PMI and means higher monthly payments. For most first-time buyers, putting down 5-10% while keeping 3-6 months of expenses in an emergency fund strikes the right balance.

Loan Types Compared: FHA, VA, USDA, and Conventional

Choosing the right mortgage program can save you tens of thousands of dollars over the life of your loan. Each program has distinct advantages and trade-offs. Here is the side-by-side comparison:

A few critical details that the table does not fully capture:

• FHA mortgage insurance is permanent on loans with less than 10% down. If you put down less than 10%, MIP stays for the entire 30-year life of the loan. The only way to remove it is to refinance into a conventional loan once you have 20% equity. This is a significant long-term cost that many buyers overlook
• VA loans have a funding fee ranging from 1.25% to 3.3% of the loan amount. This fee is usually rolled into the loan. First-time VA borrowers with no down payment pay 2.15%. Veterans with service-connected disabilities are exempt from the funding fee entirely
• Conventional loans become the cheapest option once you have 20% equity because PMI drops off entirely. With FHA, you are stuck paying MIP unless you refinance. This makes conventional loans the better long-term choice for buyers who plan to build equity quickly
• USDA income limits are stricter than FHA — you must earn below 115% of the area median income. In high-income areas, this can be over $100,000, but in lower-cost areas the limit may be $75,000-$85,000

Current Mortgage Rates in 2026 and What They Mean for First-Time Buyers

As of early 2026, the 30-year fixed mortgage rate — the most common loan product for first-time buyers — averages approximately 6.5-7.0% nationally. This is down from the 7.0-7.5% peaks seen in late 2024 and parts of 2025, but still significantly above the historic lows of 2.65-3.5% that existed in 2020-2021. For a detailed look at how rates have moved and where experts predict they are heading, see our mortgage rates hub.

What do these rates mean in practical terms? Here is the monthly principal and interest payment on a $300,000 loan (roughly a $330,000 home with 10% down) at different rates:

The difference between 6.5% and 7.0% on a $300,000 loan is $100/month and $35,894 over the life of the loan. This is why shopping multiple lenders matters — getting a rate that is even 0.25% lower saves you real money. Most mortgage advisors recommend getting quotes from at least three lenders, as rates can vary by 0.25-0.50% between lenders for the same borrower on the same day.

For context on how current rates compare to recent trends, our analysis of mortgage rate movements in Utah shows how rates have been trending downward since late 2025. While that article focuses on the Utah market specifically, the rate trajectory is similar nationwide.

How Much House Can You Afford? The 28/36 Rule Explained

The 28/36 rule is the standard formula lenders use to determine how much house you can afford. It has two parts:

• The 28% rule (front-end ratio): Your total monthly housing costs — mortgage payment, property taxes, homeowner's insurance, PMI, and HOA fees — should not exceed 28% of your gross monthly income
• The 36% rule (back-end ratio): Your total monthly debt payments — housing costs plus car loans, student loans, credit card minimum payments, and any other debt — should not exceed 36% of your gross monthly income

Some lenders, particularly with FHA loans, allow debt-to-income (DTI) ratios up to 43% or even 50% with compensating factors (large cash reserves, strong credit). But just because you can borrow that much does not mean you should. Stretching to 43% DTI leaves very little room for unexpected expenses, savings, or lifestyle spending.

Here is what the 28/36 rule looks like at three common income levels, assuming a 6.75% mortgage rate, 5% down payment, 1.1% property tax rate, $1,200/year homeowner's insurance, and no other debts:

Notice how $400/month in existing debt (a car payment plus student loan minimums, for example) reduces your affordable home price by $35,000-$40,000. This is why financial advisors recommend paying down debt before house hunting — every dollar of monthly debt you eliminate increases your home buying power.

A buyer earning $80,000 with no other debts can afford approximately $290,000 at today's rates. Add a $400/month car payment and that drops to $250,000. Add $200/month in student loans on top of the car payment, and the affordable price drops to approximately $220,000. Your credit score also plays a role — buyers with higher scores qualify for lower rates, which increases the home price they can afford at the same monthly payment. For more on how credit scores affect borrowing, see our guide to credit scores.

The Pre-Approval Process: What to Expect

Getting pre-approved for a mortgage is the most important step you can take before house hunting. Pre-approval is a formal letter from a lender stating the specific loan amount, interest rate, and terms you qualify for based on a verified review of your financial situation. It is not the same as pre-qualification, which is just an informal estimate.

Pre-Qualification vs Pre-Approval

• Pre-qualification: A quick estimate based on self-reported income and debts. Usually involves a soft credit pull (no impact on your score). Takes 5-10 minutes online. Carries little weight with sellers
• Pre-approval: A formal review of your income, assets, debts, and credit history. Involves a hard credit pull (may lower your score 3-5 points temporarily). Takes 1-3 business days. Demonstrates to sellers that you are a serious, qualified buyer

Documents You Need for Pre-Approval

Gather these before you apply to speed up the process:

• Income verification: Two most recent pay stubs, W-2 forms from the past two years, and two years of federal tax returns. Self-employed borrowers need two years of business tax returns and a year-to-date profit and loss statement
• Asset documentation: Two months of bank statements (all pages, including blank ones), investment account statements, and documentation of your down payment source
• Identification: Government-issued photo ID and Social Security number
• Debt information: Recent statements for all loans, credit cards, and other obligations
• Rental history: Names and contact information for landlords over the past two years

Hard Pull vs Soft Pull

The pre-approval process requires a hard credit inquiry, which can temporarily lower your score by 3-5 points. However, the credit scoring models recognize that mortgage shopping involves multiple inquiries — all mortgage hard pulls within a 14-45 day window (depending on the scoring model) count as a single inquiry. This means you can apply with 3-5 lenders within a two-week period without additional damage to your score.

A pre-approval letter is typically valid for 60-90 days. If your home search takes longer, you may need to re-apply, which requires updated documents and another hard pull.

Closing Costs Breakdown for First-Time Buyers

Closing costs are the fees charged by lenders, title companies, government agencies, and other parties to complete a real estate transaction. For first-time buyers, these costs are often a surprise — they add 2-5% of the purchase price on top of your down payment, and most must be paid in cash at closing.

On a $350,000 home, closing costs typically range from $7,000 to $17,500. Here is the itemized breakdown:

Several strategies can reduce your closing costs:

• Negotiate seller concessions: In a balanced or buyer's market, sellers may agree to pay 2-3% of closing costs as part of the purchase agreement. FHA allows up to 6% seller concessions; conventional allows 3-9% depending on down payment
• Shop for title insurance: Title insurance fees vary significantly between companies. Get at least two quotes — savings of $500-$1,000 are common
• Ask about lender credits: Some lenders offer credits toward closing costs in exchange for a slightly higher interest rate. This can make sense if you plan to refinance within a few years
• Close at the end of the month: Prepaid interest is calculated from your closing date to the end of the month. Closing on the 28th means you prepay 2-3 days of interest instead of 15-25 days

Your lender is required to provide a Loan Estimate within three business days of your application, detailing all expected closing costs. Compare Loan Estimates from multiple lenders side by side — some fees are fixed while others are negotiable. Homeowner's insurance is another required closing cost; see our home insurance cost guide for typical premiums by state and coverage level.

First-Time Homebuyer Programs and Assistance in 2026

First-time buyer programs can dramatically reduce your out-of-pocket costs. Many buyers leave thousands of dollars on the table because they do not know these programs exist or assume they will not qualify. Here are the major programs available in 2026:

Federal Programs

• FHA loans: Backed by the Federal Housing Administration. Minimum 3.5% down with 580+ credit score. Available through any FHA-approved lender. Mortgage insurance is required but rates are competitive for lower-score borrowers. The 2026 FHA loan limit is $498,257 in most areas
• VA loans: For veterans, active-duty service members, and eligible surviving spouses. Zero down payment, no monthly mortgage insurance, and typically the lowest rates available. The VA funding fee (1.25-3.3%) can be rolled into the loan. No loan limit for borrowers with full entitlement
• USDA loans: For homes in eligible rural and suburban areas. Zero down payment. Income limits apply (115% of area median income). Annual guarantee fee of 0.35% is significantly cheaper than FHA MIP. Check USDA's eligibility map — many areas just outside major metros qualify
• Good Neighbor Next Door: A HUD program offering 50% discounts on HUD-owned homes in revitalization areas for law enforcement officers, teachers (pre-K through 12th grade), firefighters, and EMTs. Buyers must commit to living in the home for at least 36 months. Properties are listed at HUD's Good Neighbor website
• Fannie Mae HomePath: Fannie Mae-owned foreclosure properties available to buyers with down payments as low as 3%. HomePath Ready Buyer program offers up to 3% in closing cost assistance after completing a homebuyer education course. Properties listed at HomePath.com

State-Level Down Payment Assistance (DPA) Programs

Nearly every state operates at least one DPA program, and many have multiple options. These programs typically offer one or more of the following:

• Grants: Free money that does not need to be repaid. Amounts range from $5,000 to $25,000. Often funded through state housing finance agencies
• Forgivable second mortgages: A second loan for the down payment that is forgiven (you do not repay it) after you live in the home for a specified period, usually 5-10 years
• Deferred-payment second mortgages: No monthly payments required. The loan comes due when you sell, refinance, or pay off the first mortgage
• Below-market-rate first mortgages: Some state housing agencies offer first mortgage rates 0.25-0.75% below market rates to qualifying buyers

Qualification typically requires: first-time buyer status (have not owned a home in the past three years), income below a specified limit (often 80-115% of area median income), completion of a homebuyer education course, and minimum credit score (usually 620-640). Contact your state's housing finance agency directly or ask your lender which DPA programs they participate in.

Employer-Assisted Housing Programs

An often-overlooked benefit: many large employers offer housing assistance to employees, including down payment matching, forgivable loans, or grants. Check with your HR department — companies in healthcare, education, technology, and government are most likely to offer these programs.

PMI Explained: What It Costs and How to Avoid It

Private mortgage insurance (PMI) is required on conventional loans when your down payment is less than 20%. PMI protects the lender (not you) if you default on the loan. It is an additional monthly cost that adds $100-$400 per month for most first-time buyers, and understanding how it works can save you thousands.

What Does PMI Cost?

PMI typically costs 0.5-1.5% of your loan amount per year, paid monthly. The exact rate depends on your credit score, down payment percentage, and loan-to-value ratio. Here are typical PMI costs on a $300,000 loan:

As the table shows, both your credit score and down payment amount significantly affect PMI costs. A buyer with a 660 score putting 5% down pays $261/month in PMI, while a buyer with a 760+ score putting 10% down pays just $56/month — a $205/month difference.

When Does PMI Drop Off?

On conventional loans, PMI is automatically cancelled when your loan balance reaches 78% of the original appraised value (meaning you have 22% equity). You can also request PMI removal at 80% loan-to-value by contacting your servicer and proving your home has maintained or increased in value. If your home has appreciated significantly, you may be able to get a new appraisal showing sufficient equity to remove PMI even sooner.

How to Avoid PMI Entirely

• Put 20% down: The most straightforward approach, but requires significant savings — $70,000 on a $350,000 home
• Piggyback loan (80/10/10): Take a first mortgage for 80% of the price, a second mortgage (home equity loan or HELOC) for 10%, and put 10% down. No PMI needed because the first mortgage is only 80% LTV. The second mortgage has a higher rate, but the total cost is often lower than PMI
• Lender-paid PMI (LPMI): The lender pays your PMI in exchange for a higher interest rate (typically 0.25-0.50% higher). This can make sense if you plan to stay in the home short-term because the higher rate costs less per month than separate PMI
• VA loan: No PMI at any down payment level. If you are eligible, this is the best way to avoid PMI

Step-by-Step Home Buying Process for First-Time Buyers

The home buying process typically takes 3-6 months from start to close, though preparation should begin 6-12 months before you want to move. Here is the complete timeline:

Step 1: Check Your Credit Score (6-12 Months Before)

Pull your free credit reports from all three bureaus at AnnualCreditReport.com. Check for errors and dispute any inaccuracies. If your score is below 620, focus on improving it before applying for a mortgage — even a 20-40 point improvement can save you 0.25-0.50% on your interest rate, which is thousands of dollars over the life of the loan.

Step 2: Save for Your Down Payment and Closing Costs (6-12 Months Before)

Determine your target home price using the 28/36 rule calculations above. Save for both the down payment (3-20% of price) and closing costs (2-5% of price). For a $300,000 home with 5% down, you need $15,000 for the down payment plus $6,000-$15,000 for closing costs — a total of $21,000-$30,000 in cash. Keep savings in a high-yield savings account while you accumulate.

Step 3: Get Pre-Approved (2-3 Months Before)

Apply with at least three lenders within a 14-day window. Compare the Loan Estimates you receive — focus on the interest rate, APR (which includes fees), and total closing costs. Your pre-approval letter tells sellers you are a serious, qualified buyer and gives you a clear budget for your home search.

Step 4: Find a Real Estate Agent

Interview 2-3 buyer's agents before choosing one. Look for experience with first-time buyers, knowledge of your target neighborhoods, and strong communication skills. In most markets, the seller pays the buyer's agent commission, so this representation costs you nothing directly. Ask for references from recent first-time buyer clients.

Step 5: House Hunt and Make an Offer

Tour homes within your pre-approved budget. When you find the right home, your agent will help you write a competitive offer. Key negotiation points include: purchase price, closing date, earnest money deposit (typically 1-3% of price), contingencies (inspection, appraisal, financing), and any seller concessions toward closing costs.

Step 6: Home Inspection (After Accepted Offer)

Hire a licensed home inspector to evaluate the property's condition. Inspections typically cost $300-$500 and take 2-4 hours. The inspector checks the roof, foundation, plumbing, electrical, HVAC, and more. If significant issues are found, you can negotiate repairs, a price reduction, or walk away. Never skip the inspection — it is your best protection against costly surprises.

Step 7: Appraisal and Underwriting

Your lender orders an appraisal to confirm the home is worth at least what you are paying. If the appraisal comes in low, you can renegotiate the price, make up the difference in cash, or walk away. Meanwhile, the lender's underwriting team verifies all your financial documents. Do not open new credit accounts, make large purchases, or change jobs during this period — any change can jeopardize your approval.

Step 8: Final Walk-Through and Closing

Walk through the property 24-48 hours before closing to confirm the condition matches what you agreed to buy. At closing, you sign the mortgage documents, pay your down payment and closing costs (via cashier's check or wire transfer), and receive the keys. The entire closing meeting typically takes 1-2 hours.

Common First-Time Buyer Mistakes to Avoid

After covering the process, here are the most expensive mistakes first-time buyers make — and how to avoid each one:

Mistake 1: Waiving the Home Inspection

In competitive markets, some buyers waive the inspection to make their offer more attractive. This is extremely risky. A $400 inspection can reveal $20,000-$50,000+ in hidden problems — foundation cracks, roof damage, faulty wiring, plumbing issues, mold, or pest infestations. If you buy a home with a major structural defect, you are on the hook for the repair. Even in a bidding war, consider offering a shorter inspection period (5 days instead of 10) rather than waiving it entirely.

Mistake 2: Not Shopping Multiple Lenders

According to the Consumer Financial Protection Bureau, borrowers who get quotes from at least three lenders save an average of $1,500 over the life of their loan — and some save significantly more. Rates can vary by 0.25-0.75% between lenders for the same borrower on the same day. Yet many first-time buyers only apply with one lender. Apply with at least three (credit union, bank, and online lender or mortgage broker) within a 14-day window to rate-shop without additional credit score impact.

Mistake 3: Draining Your Entire Savings for the Down Payment

Your down payment should not be your last dollar. After closing, you need an emergency fund (3-6 months of expenses) for unexpected repairs, medical bills, or job loss. A new homeowner should also budget $1,000-$3,000 for immediate expenses like locks, paint, basic tools, and minor repairs that come up in the first few months. If putting 10% down would leave you with no reserves, put 5% down instead and keep the difference as your safety net.

Mistake 4: Making Large Purchases Before Closing

The time between pre-approval and closing is not the time to buy a new car, open credit cards, or finance furniture. Lenders re-check your credit and employment before closing. A new auto loan or credit card balance can push your DTI ratio over the limit and cause your mortgage to be denied at the last minute. Wait until after closing to make major purchases.

Mistake 5: Ignoring Total Housing Costs

Your mortgage payment is not your total housing cost. Property taxes ($200-$800/month depending on location), homeowner's insurance ($100-$300/month), PMI ($50-$300/month), HOA fees ($0-$500+/month), utilities ($200-$400/month), and maintenance (budget 1% of home value per year, or $250-$350/month on a $300,000-$400,000 home) all add up. A $1,800 mortgage payment can easily become $2,800-$3,200 in total monthly housing costs.

Mistake 6: Buying Based on Emotion Instead of Numbers

Falling in love with a house and overpaying by $20,000-$30,000 above your budget is common among first-time buyers. Set your maximum price based on the 28/36 rule and do not exceed it. There will always be another house. Overstretching your budget leads to being "house poor" — owning a nice home but unable to save, travel, or enjoy life because every dollar goes to the mortgage.

For strategies to strengthen your credit profile before applying for a mortgage, our credit score guide covers the fundamentals of how credit scores work and how to improve them. Your credit score directly affects the mortgage rate you qualify for — a 700 versus a 740 score can mean a 0.25% rate difference, which is $15,000-$20,000 over 30 years on a $300,000 loan. Also explore our GoMyFinance credit score analysis for tools to monitor your progress.

Frequently Asked Questions About Buying Your First Home

How much do first-time homebuyers need for a down payment in 2026?

First-time homebuyers in 2026 can put down as little as 0% with VA or USDA loans, 3% with conventional loans (such as Fannie Mae HomeReady or Freddie Mac Home Possible), or 3.5% with FHA loans. On a $350,000 home, a 3% down payment is $10,500, a 3.5% FHA down payment is $12,250, and 20% is $70,000. Many state and local programs also offer down payment assistance grants of $5,000-$25,000 that do not need to be repaid. The average first-time buyer puts down approximately 8% according to the National Association of Realtors.

What credit score do I need to buy a house for the first time?

The minimum credit score to buy a house depends on the loan type. FHA loans require a minimum score of 580 for the 3.5% down payment option (500 with 10% down). Conventional loans typically require 620-640. VA and USDA loans have no official minimum, but most lenders require 620+. To get the best mortgage rates in 2026 (currently around 6.5% for 30-year fixed), you generally need a score of 740 or higher. Every 20-point increase in your score can reduce your rate by 0.125-0.25%.

How much house can I afford on a $80,000 salary?

On an $80,000 salary with no other debts, you can afford a home priced at approximately $280,000-$330,000 using the 28/36 rule. At 6.75% interest with 5% down, your maximum comfortable monthly payment (28% of gross income) is $1,867. This supports a loan of about $265,000-$310,000 depending on property taxes and insurance in your area. If you have other debts (car payment, student loans), your affordable price drops because lenders want your total debt-to-income ratio below 36-43%.

What are closing costs for first-time homebuyers?

Closing costs for first-time homebuyers typically range from 2% to 5% of the purchase price. On a $350,000 home, expect $7,000-$17,500 in closing costs. Major items include: loan origination fee (0.5-1% of loan), appraisal ($400-$700), title insurance ($1,000-$3,000), escrow deposits for taxes and insurance (2-6 months prepaid), recording fees ($50-$250), and attorney fees where required ($500-$1,500). Some closing costs are negotiable, and many first-time buyer programs offer closing cost assistance.

Is it better to get an FHA or conventional loan as a first-time buyer?

For first-time buyers with credit scores below 700 and limited down payments, FHA loans are usually better because they offer lower credit requirements (580 minimum) and only 3.5% down. For buyers with scores above 700 and at least 5% down, conventional loans are often the better choice because they have lower mortgage insurance costs and the PMI can be cancelled once you reach 20% equity. FHA mortgage insurance (MIP) stays for the life of the loan unless you refinance. Compare both options with your lender to see which results in a lower total monthly payment for your specific situation.