Buying your first home is exciting. It's also a big financial decision, and figuring out where to start can feel overwhelming.
How much money do you actually need? What kind of mortgage should you consider? And how do you know whether you're financially ready?
If you've been putting off homeownership because you think you need perfect credit or a 20% down payment, you might be surprised by the options available.
There's no single path to buying your first home. Your finances, goals, and circumstances all play a role in determining what makes sense for you.
Here's what to know before taking that first step.
Do you reallly need 20% down to buy a home?
One of the biggest misconceptions about buying a home is that you need to save 20% of the purchase price for a down payment.
You don't. While a larger down payment can offer certain advantages, including a smaller loan balance and potentially lower monthly payments, several mortgage programs allow qualified buyers to purchase with considerably less.
Depending on the loan program and your eligibility, you may have options requiring as little as 3%, 3.5%, or even no down payment.
But your down payment is only one piece of the financial picture. You'll also want to account for closing costs, moving expenses, and the savings you'll need after becoming a homeowner.
The goal isn't necessarily to make the smallest down payment possible. It's to find a financing option that works for your budget today and your financial goals down the road.
Understanding Your First-Time Homebuyer Loan Options
Different mortgage programs are designed to serve borrowers with different financial circumstances.
Understanding the basics can help you ask better questions and make informed decisions when comparing your options.
Conventional Loans
Conventional loans are mortgages that aren't insured or guaranteed by a federal government agency.
Some conventional loan programs allow qualified borrowers to purchase a home with as little as 3% down.
Programs like Fannie Mae's HomeReady and Freddie Mac's Home Possible offer low-down-payment options for eligible borrowers, subject to income limits and other program requirements.
Conventional financing may be worth exploring if you have established credit, steady qualifying income, and some savings available for a down payment.
Depending on your down payment, private mortgage insurance (PMI) may be required. However, unlike certain government-backed mortgage insurance programs, conventional PMI may be eligible for cancellation once applicable requirements are met.
FHA loans
Federal Housing Administration (FHA) loans are government-insured mortgages that can provide another path to homeownership.
Qualified borrowers may be able to purchase a home with as little as 3.5% down.
FHA loans can be worth considering for buyers whose credit profiles or financial circumstances make certain conventional loan options more challenging.
However, FHA loans have specific credit, property, and underwriting requirements. They also require mortgage insurance premiums, which affect the overall cost of financing.
The right choice depends on more than the down payment. Comparing monthly payments, upfront expenses, and long-term costs can help you understand which program may be a better fit.
VA loans
If you're an eligible veteran, active-duty service member, National Guard or Reserve member, or qualifying surviving spouse, you may have access to VA home loan benefits.
VA-backed loans offer several potential advantages, including:
- No down payment requirement from the VA for eligible borrowers, although a down payment may be needed in certain circumstances.
- No monthly mortgage insurance.
- Competitive financing options.
- The ability to use your VA home loan benefit more than once, subject to applicable requirements.
VA loans also have specific eligibility, entitlement, and property requirements. Some borrowers pay a VA funding fee, while others qualify for an exemption.
If you have military service, understanding your VA home loan eligibility is an important part of exploring your financing options.
USDA loans
USDA loans are designed to support eligible borrowers purchasing homes in qualifying rural areas.
Despite the name, some properties in communities outside major metropolitan areas may qualify.
Eligible borrowers may be able to purchase with no down payment, provided they meet applicable income, credit, property, and other program requirements.
USDA financing isn't available for every property or borrower, but it's an option worth exploring if you're considering a home in an eligible area.
What about down payment assistance programs?
Even with a low-down-payment mortgage, coming up with the upfront costs of purchasing a home can be challenging.
That's where down payment assistance programs may help.
State housing finance agencies, local governments, and other organizations offer programs designed to make homeownership more accessible for eligible buyers.
Depending on the program, assistance may be available through:
- Grants: Funds that generally don't require repayment when program conditions are satisfied.
- Forgivable loans: Assistance that may be forgiven after meeting certain requirements, such as remaining in the home for a specified period.
- Deferred-payment loans: Financing that may not require regular payments but must be repaid when certain events occur, such as selling or refinancing the property.
Some programs are specifically designed for first-time buyers, while others may be available to qualifying repeat buyers.
Eligibility can depend on income, purchase price, location, household size, homebuyer education requirements, and other factors.
Funding availability also varies. Not every program is offered in every location, and some assistance may come with repayment obligations or restrictions.
Before counting on assistance as part of your homebuying budget, make sure you understand how the program works and whether it can be combined with your mortgage financing.
How much house can you really afford?
Getting approved for a mortgage and feeling comfortable with your monthly housing expenses aren't necessarily the same thing.
Lenders consider factors such as income, credit history, existing debts, assets, and applicable loan requirements when determining how much you may qualify to borrow.
But your personal budget includes more than what appears on a mortgage application.
Think about your everyday expenses, savings goals, transportation costs, family needs, and how much financial flexibility you want to maintain.
Your total monthly housing expenses may include:
- Mortgage principal and interest.
- Property taxes.
- Homeowners insurance.
- Mortgage insurance, if applicable.
- Homeowners association fees, if applicable.
You'll also want to plan for utilities, maintenance, and unexpected repairs.
The right homebuying budget is one that supports your life, not just your loan approval.
Not sure where to start? Our affordability calculator can help you explore potential homebuying scenarios based on your financial information.
Can Seller or Builder Incentives Help?
Depending on local market conditions, sellers and homebuilders may offer incentives that help buyers manage certain upfront expenses or financing costs.
These incentives can take several forms.
Closing Cost Contributions
In some transactions, a seller or builder may agree to contribute toward eligible closing costs.
This can reduce the amount of money you need to bring to closing, although contribution limits and permitted uses vary by loan program.
Mortgage Rate Buydowns
A mortgage rate buydown is another option that may be available in certain transactions.
A temporary buydown uses funds contributed at closing to reduce the borrower's scheduled payments during an initial period. The payment subsidy eventually ends, and the borrower becomes responsible for payments based on the full note rate.
A permanent buydown generally involves paying discount points to obtain a lower interest rate for the loan term.
Each option has different costs, requirements, and potential benefits.
Before accepting an incentive, it's important to understand the full financing terms, how your payments may change, and whether the arrangement makes sense for your situation.
An incentive isn't automatically a better deal. Compare the overall cost of the home and financing rather than focusing only on the advertised savings.
Your First Steps Toward Homeownership
You don't need to have every detail figured out before exploring your options.
But taking a few steps early can help you understand where you stand and what comes next.
1. Review Your Financial Picture
Start by looking at your income, monthly debts, savings, and credit history.
You don't need to make assumptions about whether you'll qualify. Understanding your current finances gives you a useful starting point for discussing possible loan options.
2. Explore Your Mortgage Options
Different loan programs come with different down payment requirements, mortgage insurance costs, and eligibility guidelines.
Learning about those differences can help you identify options worth exploring based on your circumstances.
If you're eligible for military benefits or down payment assistance, include those possibilities in the conversation.
3. Understand Prequalification and Preapproval
You may hear both terms during the homebuying process, but they aren't necessarily interchangeable.
Prequalification often involves an initial review of financial information to estimate potential borrowing options.
Preapproval may involve a more detailed evaluation, including verification of certain financial information. The process varies by lender, and a preapproval isn't a guarantee of final loan approval.
Understanding where you stand before making an offer can help you shop with a clearer picture of your financing options.
4. Build Your Homebuying Team
A knowledgeable real estate agent can help you understand local market conditions, evaluate properties, and navigate the purchase process.
Your mortgage loan officer can help explain financing requirements, estimated expenses, and how different mortgage options may affect your budget.
Having the right information early can make it easier to evaluate decisions as they come up.
5. Give Yourself Room to Make a Good Decision
Buying your first home doesn't have to happen on someone else's timeline.
You may be financially ready to start looking now, or you may decide to spend additional time building savings, reducing debt, or exploring different neighborhoods.
Either way, understanding your options puts you in a better position to make a decision that works for you.
Should you keep renting or buy your first home?
Even when financing options are available, purchasing a home isn't automatically the right choice.
If you're planning to stay in one area for several years and feel comfortable with the financial responsibilities, homeownership may be worth exploring.
If you anticipate a move, want more flexibility, or are still working toward certain financial goals, renting may make more sense for now.
There isn't a universal break-even point that tells everyone when buying becomes better than renting. The answer depends on housing costs, transaction expenses, market conditions, and your personal circumstances.
Our rent vs. buy calculator can help you compare potential scenarios and see how the numbers may work for you.
Start With a Conversation
Buying your first home comes with plenty of questions. You shouldn't have to figure out every answer before reaching out for guidance.
At Benchmark, we believe the mortgage process should start with understanding your goals, not pushing you toward a particular loan or purchase price.
Whether you're ready to explore financing options or simply want to know what homeownership could look like for your budget, a local Benchmark loan officer can help you understand the process and evaluate your next steps.
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There's no obligation, no pressure, and getting pre-qualified takes less time than ordering dinner.
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This year really could be the year. Let's make it happen.
This article is for educational purposes only. This is not a commitment to lend, a rate quote, or a pre-approval. All loans are subject to credit approval and program guidelines. Loan programs, interest rates, and terms are subject to change without notice.