Written by Jacob Sipos
Published Sep 25, 2026

How To Buy Your First House

If you are ready to buy your first house, do not assume you need a 20 percent down payment before you can even begin.

There are several ways people buy homes with much smaller down payments. Some qualified conventional mortgages can start around 3 percent down. Federal Housing Administration loans can allow a 3.5 percent minimum down payment for qualifying borrowers. Eligible military borrowers may qualify for a Department of Veterans Affairs backed loan with no down payment. Some qualified buyers purchasing eligible rural properties can use a United States Department of Agriculture loan with 100 percent financing. State and local programs may also help eligible buyers with down payments or closing costs.

The important part is not finding the program with the smallest number and immediately choosing it.

Your job is to compare the complete cost, monthly payment, cash required at closing, mortgage insurance, fees, eligibility rules, and long term effect on your finances.

This guide starts at the beginning. We will explain the terminology as we go, compare the major low down payment choices, and then walk through what happens from the day you decide to buy through the day you receive the keys.

Step One: Figure Out What You Can Actually Afford

Before looking at houses, figure out what a comfortable home payment looks like for your life.

A mortgage payment is more than the amount you borrowed divided by the number of months. Your total monthly housing cost can include principal, interest, property taxes, homeowners insurance, mortgage insurance, homeowners association dues, and sometimes other costs.

Learn these terms first

• Principal: the amount of the loan that you still owe.
• Interest: what the lender charges for lending you money.
• Property taxes: taxes assessed on the property by local taxing authorities.
• Homeowners insurance: insurance covering specified losses involving your home and property.
• Mortgage insurance: insurance that protects the lender against certain losses when a borrower defaults. Some low down payment mortgages require it.
• HOA dues: fees charged by a homeowners association when the property belongs to one.
• Closing costs: various costs and prepaid expenses connected with obtaining the mortgage and completing the purchase.

Suppose a lender tells you that you qualify for a $500,000 home. That does not automatically mean buying a $500,000 home is the best choice for you.

Write down your monthly take home income and your normal expenses. Include debt payments, childcare, transportation, food, insurance, subscriptions, savings, and the things you actually spend money on. Then test the proposed housing payment against that budget.

Ask yourself what happens after you become a homeowner. Can you still save? Can you handle a repair? Can you furnish the home without immediately using credit cards? Can you absorb an insurance or tax increase?

Step Two: Understand Your Main Mortgage Options

A mortgage is the loan most people use to purchase a home. You usually obtain it from a bank, credit union, mortgage company, or mortgage broker.

Different mortgage programs have different rules. This is why a first time buyer should not ask only, “What interest rate can you give me?” Ask, “Which loan programs do I qualify for, and what would each one cost me?”

Here are four major categories worth understanding.

Conventional Loans: You May Not Need 20 Percent Down

A conventional mortgage is a mortgage that is not insured or guaranteed by a federal government program such as the Federal Housing Administration, Department of Veterans Affairs, or United States Department of Agriculture.

Many first time buyers hear “conventional loan” and assume it means 20 percent down. That is not always true.

Some conventional programs allow qualified borrowers to put as little as 3 percent down. For example, Fannie Mae’s HomeReady mortgage advertises down payments as low as 3 percent for eligible borrowers. Freddie Mac’s Home Possible mortgage also offers down payments as low as 3 percent and has income eligibility requirements. Freddie Mac also offers HomeOne for qualified first time buyers with a 3 percent down payment option.

What does 3 percent actually mean?

If you buy a $400,000 home, 3 percent is $12,000.

That is very different from a 20 percent down payment of $80,000.

However, putting less than 20 percent down on a conventional mortgage commonly means paying private mortgage insurance, usually shortened to PMI. PMI protects the lender, not you, if the loan defaults. The cost depends on factors such as the loan, credit profile, down payment, and insurer.

One potential advantage of conventional mortgage insurance is that it may later be removable when applicable requirements are satisfied. Do not assume it disappears automatically in every situation. Ask the lender exactly how cancellation works for the mortgage you are considering.

Who might consider a low down payment conventional loan?

A buyer with qualifying credit, income, and finances who wants to preserve more cash may want to compare conventional options. It can also be important for someone who has enough for 20 percent down but does not want to use every available dollar just to avoid mortgage insurance.

For example, imagine you have $90,000 saved and are buying a $400,000 home. Putting $80,000 down would leave only $10,000 before considering closing costs and other expenses. A smaller down payment could leave substantially more cash available. Whether that is worth the additional mortgage balance and potential mortgage insurance is a calculation you should make before deciding.

FHA Loans: A Common Lower Down Payment Option

FHA stands for Federal Housing Administration.

An FHA loan is not money borrowed directly from the Federal Housing Administration. You generally obtain the mortgage from an FHA approved private lender, while the loan is insured through the FHA program.

FHA mortgages can be useful for buyers who may not fit conventional lending as easily. FHA program rules permit a minimum required investment of 3.5 percent for qualifying transactions. Eligibility still depends on the borrower’s finances, lender underwriting, property requirements, loan limits, and other rules.

What would 3.5 percent look like?

On a $300,000 home, 3.5 percent is $10,500.

On a $400,000 home, 3.5 percent is $14,000.

On a $500,000 home, 3.5 percent is $17,500.

Again, that is the down payment calculation. It does not mean $17,500 is necessarily all the cash needed to purchase a $500,000 property.

Understand FHA mortgage insurance

FHA mortgages generally include mortgage insurance costs. This is commonly described as an upfront mortgage insurance premium and an annual mortgage insurance premium that is generally paid through monthly installments. The exact treatment depends on the loan.

This matters when comparing FHA with conventional financing. A lower barrier to entry can be valuable, but you should compare the complete monthly payment and long term mortgage insurance structure rather than looking only at the down payment.

VA Loans: An Important Option for Eligible Military Buyers

VA stands for the United States Department of Veterans Affairs.

A VA backed purchase loan is available to eligible Veterans, service members, and certain surviving spouses who meet the program and lender requirements. You still obtain the mortgage through a private lender. The VA guarantees part of the loan, which allows lenders to offer qualifying borrowers special terms.

One of the largest advantages is that an eligible VA borrower can often purchase with no down payment when program conditions are satisfied and the sales price does not exceed the appraised value. The VA also states that VA backed purchase loans do not require monthly private mortgage insurance or FHA style mortgage insurance premiums. citeturn0search0turn0search10

What does no down payment mean?

If an eligible buyer purchases a $400,000 home using qualifying 100 percent VA financing, the buyer may not have to provide a traditional down payment toward the purchase price.

That does not automatically mean buying the house costs $0 out of pocket. There can still be closing costs, prepaid expenses, inspections, and other costs. Depending on the transaction, some costs may be negotiated with the seller or handled in other permitted ways.

What is a Certificate of Eligibility?

You will hear the abbreviation COE. It means Certificate of Eligibility. This document shows the lender that you meet the service related eligibility requirements for the VA home loan benefit. The VA explains that buyers can request a COE and provide it to a lender as part of the process. citeturn0search1

What is the VA funding fee?

Many VA borrowers pay a one time VA funding fee. It helps support the program. The amount can vary based on the type of loan, down payment, and whether the benefit has been used before. Some eligible borrowers are exempt. The VA says the first use purchase funding fee is typically 2.15 percent when applicable, while rates can vary in other circumstances. citeturn0search4turn0search11

Do not look at “zero down” and stop your analysis. Ask the lender whether you owe the funding fee, whether you are exempt, how it will be paid, what your closing costs are, and what your final monthly payment will be.

USDA Loans: No Down Payment for Some Eligible Rural Buyers

USDA stands for the United States Department of Agriculture.

The name can confuse first time buyers because they assume a USDA mortgage is only for farms. The USDA Single Family Housing Guaranteed Loan Program is designed to help eligible low and moderate income households purchase qualifying primary residences in eligible rural areas.

The USDA says eligible borrowers can receive 100 percent financing, meaning no traditional down payment, when program requirements are satisfied. The guaranteed program has income limits and property location requirements. The USDA currently states that household income generally cannot exceed 115 percent of the applicable median household income for this program. citeturn0search14

What counts as rural?

Do not guess based on whether an area looks rural to you. USDA eligibility is based on program maps and rules. An area outside a major urban center may qualify even if it does not look like farmland.

If you are interested in a property, check the address through the USDA eligibility system or ask a USDA approved lender to confirm eligibility.

Who should investigate USDA financing?

If you are open to living outside dense urban areas and your household income fits the program, it is worth asking about. The combination of eligible location, income rules, property requirements, and underwriting determines whether it works for you.

Down Payment Assistance: The Option Many First Time Buyers Never Ask About

A mortgage program and a down payment assistance program are not necessarily the same thing.

Your main mortgage is usually called the first mortgage. Some assistance programs provide additional money toward the down payment or closing costs. That assistance might be structured as a grant, forgivable assistance, deferred loan, repayable second mortgage, or another form of financing.

The rules vary dramatically by state, city, county, housing finance agency, lender, income, occupation, and program.

What is a second mortgage or junior loan?

If assistance is provided as a loan secured by the property in addition to your primary mortgage, it may be called a second mortgage, junior loan, or subordinate loan. It sits behind the first mortgage.

Some programs require monthly payments. Some defer payments. Some may forgive amounts after conditions are satisfied. Others become due when you sell, refinance, pay off the first mortgage, stop occupying the property, or experience another event described in the agreement.

Assistance does not automatically mean free money. Read exactly how it works.

A California example

Programs are location specific, but California provides a useful example of how assistance can work. The California Housing Finance Agency MyHome Assistance Program currently describes deferred payment junior loans for eligible first time homebuyers. For qualifying FHA financing, MyHome can provide up to the lesser of 3.5 percent of the purchase price or appraised value for down payment or closing cost assistance. For qualifying conventional financing, it can provide up to the lesser of 3 percent. Payments on this assistance are deferred under the program’s terms. citeturn0search7turn0search9

This is exactly why you should ask a knowledgeable lender what exists where you are buying. Your state or community may have programs with completely different rules.

Ask these questions about any assistance program

• Is this money a grant or a loan?
• Does it have to be repaid?
• Does interest accrue?
• Are monthly payments required?
• When does repayment become due?
• What happens if I sell or refinance?
• Is there an income limit?
• Is there a purchase price limit?
• Do I have to be a first time homebuyer?
• Is homebuyer education required?
• Does using the program change my first mortgage’s interest rate or fees?

Step Three: Get Preapproved Before You Seriously Shop

A mortgage preapproval is a lender’s preliminary evaluation of your ability to qualify for a mortgage based on financial information and documentation. It is not the same as final loan approval.

The lender may review items such as your income, employment, assets, debts, and credit. Be prepared to provide documentation such as pay statements, bank statements, tax documents, identification, and information about your debts or other income.

Do not automatically use the first lender you speak with

Mortgage lenders can offer different interest rates, fees, credits, and loan structures. VA guidance specifically tells eligible buyers to shop because lender rates and fees can differ. The same comparison habit is useful regardless of loan type. citeturn0search1

Ask several lenders to explain:

• Which loan programs you qualify for
• The proposed interest rate and annual percentage rate
• Estimated monthly payment
• Down payment required
• Mortgage insurance
• Lender fees
• Estimated closing costs
• Whether discount points are included
• Whether down payment assistance is available
• How much cash you would need to close

APR means annual percentage rate. On a mortgage disclosure it is designed to reflect the interest rate plus certain loan costs, expressed as an annual rate. It is useful when comparing loans, but you should still examine the actual fees and terms.

The Entire Home Buying Process From Start to Finish

What Happens Between an Accepted Offer and Closing?

This period can feel confusing because many things happen at once.

Your lender is finalizing the mortgage. The property is being inspected and appraised. The title or settlement process is checking ownership and preparing for transfer. Insurance must usually be arranged. Your financial documents may be updated. Contract deadlines must be followed.

Do not make major financial moves without talking to your lender

After preapproval, avoid assuming the loan is guaranteed. Buying a new car, opening new credit, financing furniture, moving large amounts of money without documentation, changing employment, or substantially increasing credit card balances can affect underwriting.

If something in your finances needs to change, contact your loan professional before making assumptions about the effect.

Keep your cash cushion in mind

Buying a home is not the finish line for your savings account.

Imagine you have $40,000 available. If your down payment and closing costs consume $39,000, you become a homeowner with $1,000 in cash. A broken water heater, moving expense, insurance deductible, appliance failure, or plumbing problem can immediately become new debt.

Compare the benefit of a larger down payment with the benefit of keeping appropriate reserves. There is no single correct amount for every buyer.

First Time Homebuyer Mistakes to Avoid