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Complete guide to buying your first home

A no-BS walkthrough of the financing side of buying your first home — from saving the down payment through closing day.

Last updated April 2026

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If you’ve never bought a home before, the financing side can feel like a maze of jargon and gatekeepers. Most of the gatekeeping is real (getting a mortgage approved is genuinely complicated) but most of the jargon isn’t. This guide walks through the financing decisions in order, with calculator links so you can run your own numbers.

Stage 1: Figure out what you can actually afford

Before you look at any houses, figure out a realistic price range. The two numbers that matter:

  1. What lenders will approve you for (your DTI-constrained max)
  2. What you can actually live with (your budget-constrained max)

These are usually different. Lenders will let you borrow more than you’d be comfortable paying.

Use the Affordability calculator to see what you can qualify for at standard DTI thresholds (28%/36%, 36%/43%, 43%/50%). The lower end is what most CFPs recommend. The higher end is what lenders will actually approve.

A subtlety: your “affordability” depends on more than your income. It depends on your existing monthly debts (student loans, car payments, credit cards), your down payment, your credit score, and your tolerance for being house-poor.

Stage 2: Understand the down payment landscape

You don’t need 20% down. Common minimums:

  • Conventional 97: 3% down for first-time buyers
  • HomeReady / Home Possible: 3% down with income limits
  • FHA: 3.5% down with 580+ FICO
  • VA: 0% down for eligible veterans
  • USDA: 0% down for eligible rural areas

Below 20% on a conventional loan you’ll pay PMI (private mortgage insurance). FHA loans charge a different mortgage insurance (MIP) that — for most loans with <10% down originated after June 2013 — lasts the life of the loan. The escape is refinancing to conventional once you have 20% equity.

Run your numbers in the PMI Removal calculator to see when you’d be able to drop PMI under different scenarios.

Where the down payment can come from

Most people use savings, but down payments can also come from:

  • Gift funds from family (or in some loan programs, employers, charities, friends with documented interest). Use the Gift Funds Wizard to see what documentation you’ll need based on the donor and loan type.
  • Down payment assistance (DPA) programs at the state, county, and city level. Often forgivable second loans or grants.
  • 401(k) loans — controversial but sometimes the right move for short bridges. You pay yourself back the interest.
  • Roth IRA contributions (the contributions, not earnings) can be withdrawn tax- and penalty-free at any time.
  • First-time buyer IRA exception: $10,000 lifetime from a traditional IRA without the 10% penalty (still taxed).

Stage 3: Get pre-approved (not just pre-qualified)

Pre-qualified = the lender did a soft credit check and you told them your income. Worth nothing.

Pre-approved = the lender pulled your credit, verified your income with pay stubs / tax returns, and ran your file through automated underwriting (DU/LP). Worth showing to sellers.

A pre-approval letter is good for 60–90 days. After that, the lender re-pulls. Try to time pre-approval close to when you’re ready to make offers.

Shop multiple lenders

Get Loan Estimates from at least 3 lenders. The Loan Estimate is a standardized 3-page form so you can compare them directly. Watch for:

  • Interest rate (and discount points to get there)
  • Origination fee (lender’s own fees)
  • Total estimated cash to close

Pulling your credit at multiple mortgage lenders within a 14-day window counts as a single inquiry for FICO purposes — so shopping doesn’t hurt your score the way you might fear.

Stage 4: Make the offer

When you find the house, your real estate agent writes the offer. Key financial pieces:

  • Earnest money deposit (EMD): typically 1–3% of purchase price (5–10% in competitive markets). Goes into escrow with title company. Applied to closing costs. Forfeited if you back out without using a contingency.
  • Financing contingency: lets you back out if your loan falls through. Don’t waive this unless you’re very sure of your financing.
  • Inspection contingency: lets you back out (or renegotiate) based on the home inspection.
  • Appraisal contingency: lets you back out if the home appraises for less than the contract price. The Appraisal Gap Planner walks through your options if this triggers.

Stage 5: Underwriting (the awkward 30–45 days)

After your offer is accepted, the lender goes into formal underwriting. You’ll get a list of “conditions” — additional documents the underwriter needs. Common requests:

  • Updated pay stubs / bank statements
  • Letter of explanation for any large deposits
  • Source of funds for any gifts (donor bank statements, gift letter)
  • Letter of explanation for credit inquiries

Critical: don’t change anything financial during underwriting.

  • Don’t change jobs
  • Don’t open new credit (no Best Buy financing for the new fridge)
  • Don’t make any large unexplained deposits
  • Don’t pay off old collections (counterintuitive, but it can reactivate them on your report)

The lender re-runs your credit and re-verifies employment a few days before closing. A surprise on either kills the deal.

Stage 6: The Closing Disclosure (CD)

3 days before closing, the lender sends a Closing Disclosure — the final accounting of every fee, your loan terms, and your cash to close. Compare it line-by-line against your most recent Loan Estimate. Some fees can change freely, some have a 10% tolerance, some can’t change at all. If anything looks off, ask.

Use the Closing Cost Estimator to sanity-check the CD against typical fee ranges.

Stage 7: Closing day

You sign 50 pages. The funds wire (you wire your portion the day before or the morning of — verify wire instructions BY PHONE because wire fraud in real estate is a thriving criminal industry). The deed transfers. You get the keys.

Common first-time buyer mistakes

  • Buying at the top of your DTI range. Lenders approve you for more than you can comfortably afford. Use the lower stress-test tier in the Affordability calculator.
  • Forgetting maintenance. Plan for 1% of home value per year for routine upkeep, plus a separate reserve for capex (roof, HVAC, water heater).
  • Underestimating closing costs. Budget 2–5% of price beyond your down payment.
  • Optimizing for the lowest rate without comparing fees. A loan with a 0.125% lower rate but $5,000 more in fees often loses on break-even. APR includes most fees and lets you compare apples to apples.
  • Assuming you need 20% down. You don’t. PMI is annoying but manageable; the bigger question is whether buying makes sense at your time horizon. The Rent vs Buy calculator helps with that.

Tools you’ll use along the way

Bookmark the glossary for the terms.