First-Time Home Buyer Guide
Everything you actually need to know before you buy. Direct, with the numbers.
Most first-time buyer guides are written to push you toward a lender or an agent. This one is written to make you a better-informed buyer. The goal is to walk in knowing what every line on a Loan Estimate means and what is and is not negotiable.
Buying a home in 2026 looks different than it did in 2021. Rates are higher. Inventory is mixed by metro. The August 2024 NAR settlement changed how buyer agents get paid. And lenders have gotten more creative about how they hide fees inside the rate. Here is the playbook.
How much do you actually need for a down payment?
The 20% rule is a myth. The median first-time buyer puts down 8% (NAR, 2024). Conventional loans go down to 3% with first-time buyer programs. FHA goes to 3.5%. VA and USDA can be zero down for qualified borrowers.
But down payment is only one of three numbers you need. The other two are closing costs (2 to 5 percent of price) and reserves (one to six months of payments depending on loan type). A 5 percent down payment on a $400,000 home is $20,000, but you also need roughly $12,000 to $20,000 for closing and reserves. Plan for the full picture.
- Conventional: 3 to 5 percent down for first-time buyers
- FHA: 3.5 percent down with 580+ credit score
- VA: 0 percent down for eligible service members and veterans
- USDA: 0 percent down for rural and some suburban properties
- Reserves: 1 to 6 months of full payment in cash, depending on loan type
What credit score do you need?
Lenders quote you off the middle of three FICO scores pulled from Equifax, Experian, and TransUnion. Conventional loans technically start at 620. Best pricing typically begins at 740 and improves through 780. FHA goes down to 580 with 3.5 percent down or 500 with 10 percent down.
If your middle score is in the high 600s, raising it 20 to 40 points before applying often saves more than any other lender negotiation. Pay down revolving balances below 10 percent of credit limits. Do not close old cards. Do not apply for new credit while you are shopping for a mortgage.
Conventional, FHA, VA, USDA. Which one fits you?
Conventional loans are the default for borrowers with 5 percent down or more and a 680+ score. FHA is built for lower down payments and lower credit, but mortgage insurance is harder to remove. VA is the best deal in the country if you qualify. USDA is geographically limited but excellent.
The right loan is rarely whichever one has the lowest rate today. It is the one that fits your down payment, your credit, and how long you plan to keep the house. A loan officer who is not asking you that last question is selling you, not advising you.
Closing costs. What is real and what is junk.
Closing costs typically run 2 to 5 percent of the price. The Loan Estimate breaks them into Section A (origination charges from the lender), Section B (services you cannot shop for, like the appraisal), Section C (services you can shop for, like title), and Section E and F (taxes, recording, prepaids).
Section A is where most negotiation happens. Application fees, processing fees, underwriting fees, and rate-lock fees are often padded. A clean Section A on a $400,000 loan should be in the $1,000 to $2,500 range. If you see $3,500 or more, ask why. Get three Loan Estimates and compare Section A line by line. The difference is real money.
- Section A: lender origination, application, underwriting, processing
- Section B: appraisal, credit report, flood certification (cannot shop)
- Section C: title, settlement, survey, pest (can shop)
- Section E: government recording and transfer taxes
- Section F: prepaid interest, escrow, first-year insurance
How to shop lenders without getting destroyed by leads
Apply for a Loan Estimate from at least three lenders within a 14-day window. All inquiries inside that window count as one credit pull, so your score does not get hit multiple times. The Loan Estimate is a standardized 3-page form. Same line items, same order, same definitions. That is the entire point.
Ignore advertised rates. They assume excellent credit, large down payment, owner-occupied, no cash-out, with discount points already paid. Your actual quoted rate will be different. The Loan Estimate is what matters.
Buyer agents after the NAR settlement
As of August 2024, buyer agent commission is no longer baked into the listing price by default. You sign a buyer representation agreement that spells out exactly what you owe your agent. Some agents charge a flat fee. Some charge a percentage. Some offer rebates.
If you go without a buyer agent, the seller is paying less in total commissions. You should reflect that in your offer, either as a price reduction or as a seller credit toward closing. The savings are real. So is the extra responsibility for due diligence.
After your offer is accepted
Inspection within 7 to 10 days. Appraisal ordered by the lender. Title work begins. Insurance shopped (do not auto-bind with the first quote). Final loan approval. Closing Disclosure delivered at least 3 business days before closing. Final walkthrough. Sign.
Two things matter most in this phase. Compare the Closing Disclosure line by line against your most recent Loan Estimate. Lender fees in Section A cannot increase at all. Section C fees cannot increase by more than 10 percent in aggregate if you used a lender-recommended provider. If you see a number move, ask before you sign.
Frequently asked
There is no single number. Lenders qualify you on debt-to-income ratio, not absolute income. As a rough anchor, your annual gross income should be roughly one third of the home price for a comfortable purchase. So $120,000 of household income comfortably supports a $360,000 to $420,000 home in most markets. High property tax states push that down. VA loans push it up.
Only if you are confident you will keep the loan past the breakeven. Each point costs 1 percent of the loan amount and typically buys 0.25 percent off the rate. On a $400,000 loan, one point is $4,000 and saves about $66 a month. Breakeven is 60 months. If you might refinance or move sooner, points are a bad bet.
Lock when you have an accepted offer and a clear closing date. A 30 to 45 day lock is standard and usually free. Floating in a falling-rate environment can save you. Floating in a rising-rate environment can cost you the deal. Most buyers should not try to time the market on a lock.
An escrow account holds your monthly contributions for property tax and homeowners insurance, then pays those bills when due. Most loans require escrow when down payment is below 20 percent. It protects the lender. It also smooths your cash flow because you pay 1/12 of the annual bill each month instead of one big lump.