Published May 15, 2025 · 11 min read

First-Time Home Buyer Mortgage Guide

Getting Started: What First-Time Buyers Need to Know

Buying your first home is exciting — and honestly, a little overwhelming. You're about to make the largest financial decision of your life, and the mortgage process is full of unfamiliar terms, paperwork, and decisions that feel high-stakes. The good news? Millions of people navigate this successfully every year, and you can too.

The first thing to understand is that a mortgage is simply a loan secured by the property you're buying. You'll make monthly payments over 15 or 30 years that cover the loan principal, interest, property taxes, and homeowners insurance. This combined payment is called PITI (Principal, Interest, Taxes, Insurance), and it's the number that really matters when budgeting.

Most lenders want your total housing payment to stay below 28% of your gross monthly income — this is called the "front-end ratio." So if you earn $75,000 a year ($6,250/month), your maximum PITI payment should be around $1,750. They also look at your "back-end ratio" — total debt payments (mortgage + car + student loans + credit cards) should stay below 36%–43% of gross income.

For a deeper dive on affordability, check out our guide on how much house you can afford.

Mortgage Loan Types for First-Time Buyers

Not all mortgages are created equal. Here are the main options you'll encounter, with real cost comparisons:

*FHA MIP for life with under 10% down. **Most VA lenders require 620+.

• Conventional loans: The most common type, offered by banks and mortgage lenders without government backing. Require a minimum credit score of 620 and as little as 3% down through programs like Fannie Mae's HomeReady. If you put less than 20% down, you'll pay private mortgage insurance (PMI) — typically $80–$200/month on a $300,000 loan. The big advantage: PMI goes away once you reach 20% equity. Read our PMI guide for details.
• FHA loans: Backed by the Federal Housing Administration, these allow credit scores as low as 580 with just 3.5% down. On a $280,000 home, that's a down payment of $9,800. The trade-off is mandatory mortgage insurance for the life of the loan (if under 10% down), plus a 1.75% upfront MIP added to your loan balance. On a $270,000 FHA loan, that upfront charge is $4,725.
• VA loans: Available to veterans, active military, and surviving spouses. Zero down payment required and no PMI — a significant advantage that can save you $200+/month. There's a one-time VA funding fee (1.25%–3.3% of the loan) but it can be rolled into the loan. For a $300,000 purchase, that's $3,750–$9,900.
• USDA loans: For homes in eligible rural and suburban areas (which includes many areas near cities). Zero down payment, competitive rates, and an annual guarantee fee of 0.35%. Income limits apply — generally 115% of area median income.

Most first-time buyers end up choosing either a conventional loan with 5–10% down or an FHA loan. Your credit score, savings, and debt load will determine which option gives you the best deal. Always get quotes for both types and compare total costs over the first 5–7 years.

How Much Down Payment Do You Actually Need?

The old rule of "you need 20% down" is a myth — at least for first-time buyers. While putting 20% down eliminates PMI and lowers your monthly payment, most first-time buyers put down far less. The National Association of Realtors reports the typical first-time buyer puts down just 6%.

Here's what the numbers actually look like on a $320,000 home at 6.5%:

The difference between 3% and 20% down is about $538/month — but it also requires $54,400 less in savings to get started. For many first-time buyers, getting into the market sooner with a smaller down payment beats waiting years to save 20%, especially if home prices are rising 3%–5% annually in your area.

Don't forget: you also need cash for closing costs (2%–5% of the loan, or $6,000–$15,000), moving expenses, and a reserve fund. A realistic savings target for a 5% down purchase of a $320,000 home is about $30,000–$35,000 total. Use a mortgage calculator to compare scenarios for your specific price range.

Your Credit Score: Why It Matters More Than You Think

Your credit score is the single most influential factor in determining your mortgage interest rate — and even small rate differences translate to enormous cost differences over 30 years.

Here's the real-world impact on a $300,000, 30-year loan:

The difference between a 760 and 620 credit score is $251/month and $90,360 over 30 years. That's the cost of a poor credit score — and it doesn't include the higher PMI rates you'll also pay.

If your score is below 740, consider spending 3–6 months improving it before applying:

• Pay down credit cards: Getting utilization below 30% (ideally below 10%) can boost your score 20–40 points. If you have a $5,000 limit, keep balances under $500.
• Don't open new accounts: Each hard inquiry can drop your score 5–10 points temporarily.
• Dispute errors: About 1 in 5 credit reports contain errors. Check all three bureaus at AnnualCreditReport.com.
• Become an authorized user: Being added to a family member's old, well-managed credit card can boost your score quickly.

Getting Pre-Approved: Your First Real Step

Before you start touring homes, get pre-approved. A pre-approval letter tells sellers you're a serious buyer with financing lined up — and in competitive markets, offers without pre-approval often get ignored entirely.

Pre-approval is different from pre-qualification. Pre-qualification is a quick estimate based on self-reported information. Pre-approval involves a full review of your finances: income verification, credit check, and asset documentation. It carries much more weight with sellers.

Here's what lenders will look at during pre-approval:

• Credit score: 740+ gets the best rates; 680–739 is solid; 620–679 is workable but costs more in rate and PMI
• Income verification: Two years of W-2s, recent pay stubs, and federal tax returns. Self-employed borrowers typically need 2 years of tax returns and may face more scrutiny.
• Debt-to-income ratio (DTI): Your total monthly debts (including the new mortgage) should stay below 43% of gross income. Lower is better — below 36% is considered strong.
• Assets: Bank statements (last 2–3 months) showing your down payment, closing costs, and reserves. Large deposits will need to be explained with documentation.
• Employment history: Two years of stable employment in the same field. Job changes are fine, but gaps need explanation.

A borrower earning $85,000/year with a 720 credit score, $15,000 in savings, and $400/month in existing debts could typically get pre-approved for a loan of $280,000–$320,000. The CFPB recommends getting quotes from at least three lenders, as rates and fees can vary by 0.5% or more — which is tens of thousands of dollars over the life of your loan.

Closing Costs and Hidden Fees

Your down payment isn't the only cash you need at closing. Expect to pay 2%–5% of the loan amount in closing costs. On a $300,000 mortgage, that's $6,000–$15,000 on top of your down payment.

Here's a detailed breakdown of typical closing costs:

• Loan origination fee: 0.5%–1% of the loan ($1,500–$3,000). This is the lender's fee for processing your application.
• Appraisal: $400–$700. Required by the lender to verify the home's value supports the loan amount.
• Title insurance: $1,000–$2,500. Protects against ownership disputes. You'll usually pay for both lender's and owner's policies.
• Home inspection: $300–$500. Technically optional, but never skip this. A $400 inspection can reveal $20,000+ in hidden problems — bad roof, foundation cracks, plumbing issues.
• Prepaid taxes and insurance: 2–6 months of property taxes and insurance into escrow, often $2,000–$4,000.
• Attorney fees: $500–$1,500 (required in some states).
• Recording fees: $50–$250 for recording the deed and mortgage with local government.
• Credit report fee: $25–$75 per borrower.

Some lenders offer "no-closing-cost" mortgages, but these typically roll the fees into a higher interest rate — often 0.25%–0.5% higher. On a $300,000 loan, that extra rate costs $75–$150 per month for 30 years ($27,000–$54,000 total). Paying closing costs upfront almost always saves more. To understand how these costs affect your monthly payment, see our mortgage payment calculation guide.

First-Time Buyer Programs and Assistance

Don't leave money on the table. There are hundreds of programs designed specifically for first-time home buyers that can save you thousands:

• Down payment assistance (DPA): Many states and cities offer grants or forgivable loans of $5,000–$20,000 for down payment and closing costs. "Forgivable" means if you stay in the home for 5–10 years, you never pay it back. Check HUD's state-by-state list of approved programs.
• Mortgage credit certificates (MCC): A federal tax credit that lets you deduct 20%–40% of your mortgage interest directly from your tax bill — not your taxable income, but the actual tax you owe. On a $280,000 loan at 6.5%, you'd pay about $18,000 in interest the first year. A 25% MCC credit saves you $4,500 in taxes. That benefit continues every year you own the home.
• State housing finance agencies: Often offer below-market interest rates exclusively for first-time buyers. A rate of 5.75% vs. 6.5% on a $280,000 loan saves you roughly $125/month — over $45,000 across the life of the loan.
• Employer assistance programs: Some large employers offer down payment assistance or favorable mortgage terms. Ask your HR department.
• Community land trusts: In some areas, nonprofits own the land and sell you just the house at a reduced price, making homeownership accessible in expensive markets.

The definition of "first-time buyer" is broader than you'd think. According to HUD, anyone who hasn't owned a home in the past three years qualifies. So even if you owned a home previously, you might still be eligible for these programs.

The Home Buying Timeline: What to Expect

Understanding the typical timeline helps you plan and reduces anxiety. Here's what a realistic first-time purchase looks like:

• 6–12 months before: Check your credit, start saving aggressively, and research neighborhoods. This is also when you should get pre-approved so you know your budget.
• 1–3 months: Actively search for homes, attend open houses, and work with a real estate agent (buyer's agents are typically free to you — the seller pays their commission).
• Day 1–3: Find the right home and submit an offer. Your agent will help you determine a competitive price based on comparable sales.
• Day 3–10: Offer accepted. Your earnest money deposit (typically $1,000–$5,000) goes into escrow. Schedule the home inspection.
• Day 10–14: Home inspection completed. Negotiate repairs or credits based on findings.
• Day 14–21: Appraisal ordered and completed. The lender verifies the home is worth what you're paying.
• Day 21–35: Loan processing and underwriting. The lender verifies all your documentation. Avoid making any big financial changes during this period.
• Day 35–45: Clear to close. Final walkthrough of the home. Sign closing documents. Get the keys!

Total time from offer to keys: typically 30–45 days. Cash buyers can close faster (2–3 weeks), but most financed purchases take 35–45 days.

Common Mistakes to Avoid

After working with thousands of borrowers, here are the mistakes we see first-time buyers make most often:

• Shopping for homes before getting pre-approved. You'll waste time looking at homes outside your budget — or worse, lose out on the one you love because another buyer had financing ready. Get pre-approved first, then shop.
• Ignoring your credit score months in advance. Check your score at least 6 months before you plan to buy. Paying down a credit card from $4,800 to under $1,500 could boost your score by 30–50 points and save you thousands in interest over the life of the loan.
• Draining your savings for the down payment. Lenders want to see reserves — typically 2–3 months of mortgage payments in the bank after closing. If your payment will be $2,100/month, keep at least $4,200–$6,300 in reserve. Plus you need a buffer for moving costs, immediate repairs, and life.
• Making big purchases before closing. Buying a car, opening new credit cards, or financing furniture before your loan closes can tank your approval. Lenders re-check your credit 1–3 days before closing day. Even co-signing someone else's loan counts.
• Not comparing lenders. The difference between a 6.25% and 6.75% rate on a $300,000 loan is about $100/month — that's $36,000 over 30 years. Always get at least three quotes and compare the Loan Estimate documents side by side.
• Skipping the home inspection. In competitive markets, some buyers waive inspections to win bidding wars. This is extremely risky. A $400 inspection can uncover $10,000–$50,000+ in hidden problems — structural issues, roof damage, mold, faulty wiring.
• Maxing out your pre-approval amount. Just because you're approved for $350,000 doesn't mean you should spend $350,000. Leave room in your budget for unexpected costs, lifestyle, and savings. A good rule: aim for a home that's 80%–90% of your maximum pre-approval.

Your Pre-Purchase Checklist

Before you start the process, make sure you can check off these items:

1. Credit score checked — all three bureaus, with any errors disputed
2. Savings target met — down payment + closing costs + 3 months of reserves
3. Debt under control — DTI ratio below 36% (or at least below 43%)
4. Employment stable — at least 2 years in the same field
5. Pre-approval obtained — from at least 2–3 lenders for rate comparison
6. Budget calculated — using a mortgage calculator with taxes, insurance, and PMI included
7. Assistance programs researched — check HUD, your state housing agency, and local programs
8. Real estate agent selected — interview 2–3 agents, choose one who specializes in first-time buyers

The home buying process can feel like a marathon of paperwork, but every step has a purpose. Stay organized, ask questions, and lean on your lender and real estate agent for guidance. They've walked thousands of buyers through this exact process.

For help running the numbers on specific homes, try our complete mortgage calculator guide. And to understand the math behind your monthly payment, check our mortgage payment formula guide. If you're debating between loan terms, our 15 vs 30-year comparison breaks down the trade-offs with real examples.

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