Step 1: Check your credit and your budget
Your credit score decides which loans you can get and the rate you pay. FHA loans accept lower scores than most conventional loans, and the best rates go to the highest scores. Check your credit reports for free and fix any mistakes first: see credit scores explained.
Your budget: lenders often look at the 28/36 rule: housing costs up to 28% of your income before tax, and all debt payments up to 36%. The home affordability calculator works out a price from your income, savings and debts.
Step 2: Choose a loan
| Loan | Smallest down payment | Mortgage insurance | Who it suits |
|---|---|---|---|
| Conventional | 3% for first-time buyers | PMI under 20% down; you can ask to cancel it once you owe 80% of the home’s value | Good credit |
| HomeReady (Fannie Mae), Home Possible (Freddie Mac) | 3% | PMI, often cheaper | Income up to 80% of the area median |
| FHA | 3.5% with a credit score of 580 or more, 10% with 500–579 | 1.75% upfront plus a yearly premium (MIP) | Lower credit scores |
| VA | Nothing | None, but a one-off funding fee | Veterans, service members and some surviving spouses |
| USDA | Nothing | Upfront and yearly guarantee fees | Homes in eligible rural and suburban areas, income up to 115% of the area median |
FHA mortgage insurance
On most 30-year FHA loans, the yearly premium is 0.55% of the loan with 3.5% down, and 0.50% with 5% or more down. It’s paid for the life of the loan, unless you put down 10% or more, when it ends after 11 years. Many owners later refinance into a conventional loan to drop it.
Example: a $300,000 home with 3.5% down ($10,500) needs a $289,500 loan. The upfront premium of 1.75% is $5,066, usually added to the loan, and the yearly premium starts at about $133 a month.
VA funding fee
On your first VA loan, the funding fee is 2.15% of the loan with less than 5% down, 1.5% with 5% to 9.99%, and 1.25% with 10% or more. It can be added to the loan. Veterans who get VA disability compensation don’t pay it.
Loan limits
In 2026, FHA loans go up to about $541,000 for a single-family home in most counties, and up to $1,249,125 in the most expensive. Conventional loans that Fannie Mae and Freddie Mac buy go up to $832,750 in most counties ($1,249,125 in high-cost areas). Above that you need a jumbo loan, which usually needs a bigger down payment.
Step 3: Save the down payment, and look for help
- State and local help: most states’ housing finance agencies, and many cities, offer down payment assistance for first-time buyers, as grants or low-cost second loans. Ask your lender, or a HUD-approved housing counselor (free or low cost).
- Your IRA: you can take up to $10,000 in your lifetime out of an IRA for a first home without the 10% early withdrawal penalty, though you still pay income tax on traditional IRA money. You count as a first-time buyer if you haven’t owned a main home in the past 2 years.
- Gifts: family can give you money for the down payment on most loans. The lender will ask for a gift letter.
- Conventional, 20% down
- $92,000
- Conventional, 3% down
- $24,000
- FHA, 3.5% down
- $26,000
- VA or USDA, nothing down
- $12,000
Closing costs of 3% of the price for every loan; yours could be 2% to 5%. With less than 20% down you also pay mortgage insurance each month (PMI or FHA MIP), and FHA, VA and USDA loans add an upfront fee, usually added to the loan.
Step 4: Budget for closing costs
| Cost | What it is |
|---|---|
| Closing costs | Usually 2% to 5% of the price: lender fees, appraisal, title insurance and recording fees |
| Prepaid costs | The first months of property tax and home insurance, paid into an escrow account |
| Earnest money | A deposit when your offer is accepted, counted towards your down payment at closing |
| Home inspection | A few hundred dollars, and worth it |
| Moving and furnishing | Varies |
Some states and cities also charge a transfer tax. You can ask the seller to pay some of your closing costs as part of your offer.
Property tax and home insurance vary a lot by state. Our mortgage calculator by state starts from the typical home price and property tax rate where you live, and the property tax calculator compares every state’s rate.
Step 5: The buying process
- Get preapproved by one or more lenders. Compare their Loan Estimates: lenders must give you one within 3 business days of applying.
- Make an offer with your earnest money.
- Get a home inspection and an appraisal. Most offers can be cancelled if these turn up problems.
- Final approval: you get a Closing Disclosure at least 3 business days before closing. Check it against your Loan Estimate.
- Closing: you sign, pay the down payment and closing costs, and get the keys.
It often takes 30 to 60 days from accepted offer to closing.
Does the mortgage interest deduction help?
You can deduct the interest on up to $750,000 of mortgage debt, a limit that’s now permanent, but only if you itemize. Most first-time buyers get more from the standard deduction, so don’t count on a tax break when you work out what you can afford. Our itemized deduction calculator shows whether you’d get one.
Not sure buying beats renting where you live? Try the rent vs buy calculator.