First-Time Homebuyer's Mortgage Guide
Buying your first home is equal parts exciting and terrifying, mostly because nobody teaches you the rules until you are already playing. Here is the plain-English version of what actually matters, in the order you will encounter it.
How much down payment do you really need?
You have probably heard “20% or nothing.” That is outdated. Conventional loans go as low as 3% down and FHA loans 3.5% down. On a $350,000 home, that is the difference between saving $70,000 and saving about $10,500. The tradeoff: putting down less than 20% usually means paying PMI (more on that below), and a bigger down payment always means a smaller loan and less interest.
Get pre-approved before you fall in love
A pre-approval is a lender’s written estimate of how much they will lend you, based on a real check of your income, debts, and credit. It is not a final promise, but sellers take pre-approved buyers far more seriously — in a competitive market it can be the difference between winning and losing a house. Get it before you start touring, and know that the approved amount is a ceiling, not a target.
Fixed vs adjustable rate
- Fixed-rate mortgage: your rate never changes. A 30-year fixed is the default choice for most first-time buyers because the payment is predictable for the entire loan.
- Adjustable-rate mortgage (ARM): starts lower, then adjusts after an initial period (say 5 or 7 years). It can make sense if you are confident you will sell or refinance before the adjustment — but that confidence has burned plenty of people.
Monthly principal + interest ≈ $1,990.
Formula: M = P × r(1+r)n ÷ ((1+r)n − 1), where r is the monthly rate and n is the number of payments.
Closing costs: the bill nobody warns you about
Beyond the down payment, expect 2–5% of the purchase price in closing costs: lender fees, appraisal, title insurance, prepaid taxes and insurance. On that $350,000 home, budget another $7,000–$17,500. Ask your lender for a Loan Estimate early — it itemizes every fee so there are no surprises at the signing table.
PMI is not forever
Private mortgage insurance protects the lender, not you, and typically costs 0.5–1% of the loan per year until you reach 20% equity. The good news: you can usually drop it once your balance falls to 80% of the home’s value. When you get there, call your servicer — they will not always remove it automatically.
Before you shop, check what you can actually afford with our house affordability calculator, then model the payment with the mortgage calculator.
What credit score do I need to buy a house?
Conventional loans generally want 620+, FHA loans can go down to 580 (or 500 with 10% down). A higher score mostly buys you a lower rate — even half a percent saves tens of thousands over 30 years.
Is 3% down a bad idea?
Not automatically. It gets you in sooner and preserves cash for emergencies and repairs. The downsides are PMI, a larger loan, and less cushion if prices dip. Run both scenarios before deciding.
How long does pre-approval last?
Usually 60–90 days. Do not open new credit cards, finance furniture, or change jobs between pre-approval and closing — lenders re-check, and surprises can kill the loan.