TL;DR
Buying your first home requires a credit score of at least 580 (620 for the best rates), a down payment of 3% to 20%, a debt-to-income ratio under 43%, and stable income history. The median home price is now $415,200 and first-time buyers need approximately $97,000 in annual household income to qualify. This guide walks you through all 10 essential steps, from checking your finances through closing day, plus an interactive calculator to determine exactly how much home you can afford based on your income and savings.
Buying your first home can feel overwhelming. Between saving for a down payment, understanding mortgage requirements, and navigating a competitive market, many first-time buyers struggle to know where to begin. According to the National Association of Realtors, first-time buyers now represent just 21% of all home purchases, the lowest share on record since tracking began in 1981.
The challenges are real, but they are not insurmountable. This comprehensive guide breaks down every step of the home buying process, provides the exact income and savings requirements you need, and includes an interactive calculator to help you understand what you can realistically afford.
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Find a Top Agent Near YouFinancial Requirements for First-Time Buyers
Before you start browsing listings, you need to understand the financial benchmarks that lenders use to determine whether you qualify for a mortgage. Meeting these requirements positions you as a strong candidate and opens the door to better interest rates.
Credit Score Minimums by Loan Type
Your credit score is one of the most important factors in qualifying for a mortgage. Different loan programs have different minimum requirements, and your score also affects the interest rate you receive.
| Loan Type | Minimum Score | Best Rates Score | Down Payment |
|---|---|---|---|
| Conventional | 620* | 740+ | 3% - 20% |
| FHA | 580 (3.5% down) | 680+ | 3.5% - 10% |
| VA | No VA minimum | 700+ | 0% |
| USDA | 640 | 680+ | 0% |
*Note: As of November 2025, Fannie Mae and Freddie Mac removed the strict 620 minimum credit score requirement for conventional loans processed through their automated underwriting systems. However, most lenders still maintain their own minimum requirements around 620.
Debt-to-Income Ratio (DTI)
Your debt-to-income ratio measures how much of your monthly gross income goes toward debt payments. Lenders use two calculations:
Understanding DTI Ratios
Front-End DTI (Housing Ratio): Your projected housing payment divided by gross monthly income. Most lenders want this under 28%.
Back-End DTI (Total Debt Ratio): All monthly debt payments (housing, car loans, student loans, credit cards) divided by gross monthly income. Most lenders cap this at 43%, though some programs allow up to 50% with compensating factors.
Income and Employment Requirements
Lenders typically require at least two years of stable employment history. This does not mean you cannot change jobs, but gaps in employment or frequent job changes can raise red flags. You will need to provide:
- Two years of W-2 forms
- Recent pay stubs (typically last 30 days)
- Two years of tax returns (especially if self-employed)
- Verification of employment directly from your employer
Home Affordability Calculator
Use this calculator to determine how much home you can afford based on your income, savings, and the current interest rate environment. This tool calculates both your required income for a target home price and the maximum home price based on your current financial situation.
Income & Down Payment Calculator
The 10 Steps to Buying Your First Home
The home buying process typically takes 5 to 6 months from start to finish. Here is a detailed breakdown of each step you will take on your journey to homeownership.
Assess Your Financial Readiness
Check your credit score through AnnualCreditReport.com, calculate your debt-to-income ratio, and review your savings. Address any credit issues before applying for a mortgage. The average credit score for first-time buyers is 746, though you can qualify with scores as low as 580 for FHA loans.
Save for Down Payment and Closing Costs
First-time buyers put down an average of 9% of the purchase price. For a $415,200 home, that is approximately $37,368. Add another 3% for closing costs ($12,456), bringing your total savings target to roughly $50,000. Many buyers also use gift funds from family, with 25% of first-time buyers receiving financial help from relatives.
Get Pre-Approved for a Mortgage
Pre-approval shows sellers you are a serious buyer with verified financing. Unlike pre-qualification, pre-approval involves a credit check and verification of your income, assets, and employment. Pre-approval letters are typically valid for 60 to 90 days. Learn more about the pre-approval process.
Find a Top-Performing Real Estate Agent
A skilled buyer's agent advocates for your interests, helps you navigate negotiations, and guides you through paperwork. Look for an agent with experience helping first-time buyers in your target neighborhoods. The right agent can save you thousands and prevent costly mistakes. See how to choose the right agent for you.
Define Your Must-Haves and Start Searching
Create a prioritized list separating needs (bedrooms, location, commute) from wants (updated kitchen, large yard). Your agent will set up MLS searches matching your criteria and budget. Expect to tour 8 to 12 homes before finding the right fit.
Make a Competitive Offer
Your agent will help craft an offer that balances competitiveness with protection. This includes the purchase price, earnest money deposit (typically 1% to 3% of the price), contingencies, and proposed closing date. Be prepared for counteroffers and negotiations. Tips for making a winning offer.
Schedule a Home Inspection
Never skip the inspection. A licensed inspector examines the home's structure, systems (electrical, plumbing, HVAC), roof, foundation, and more. Inspections typically cost $300 to $500 and take 2 to 4 hours. The report helps you negotiate repairs or credits with the seller.
Complete the Appraisal
Your lender orders an appraisal to confirm the home's value supports the loan amount. If the appraisal comes in low, you may need to renegotiate the price, make up the difference in cash, or walk away using your appraisal contingency.
Finalize Your Mortgage
After clearing underwriting conditions, you will receive a Closing Disclosure at least three business days before closing. Review all terms, interest rate, monthly payment, and closing costs carefully. This document finalizes your loan terms.
Close on Your New Home
At closing, you will sign numerous documents, pay your down payment and closing costs (via wire transfer or cashier's check), and receive the keys. Bring government-issued ID, proof of homeowner's insurance, and your closing funds. The entire process takes 1 to 2 hours.
Choosing the Right Mortgage Type
Different mortgage programs suit different financial situations. Understanding your options helps you choose the loan that best fits your needs and saves you money over the life of the loan.
Conventional Loans
Conventional loans are the most common mortgage type, representing over 60% of all home loans. They are not backed by the government and typically require higher credit scores but offer more flexibility in terms and lower mortgage insurance costs for buyers with strong credit.
Conventional Loan Highlights
- Minimum down payment: 3% (with PMI)
- PMI removed once you reach 20% equity
- 2025 loan limit: $806,500 in most areas
- Best for buyers with 700+ credit scores
FHA Loans
FHA loans are insured by the Federal Housing Administration and designed for buyers with lower credit scores or smaller down payments. The trade-off is mandatory mortgage insurance for the life of the loan (unless you put 10% or more down).
FHA Loan Highlights
- Minimum down payment: 3.5% with 580+ credit score
- 10% down required for scores between 500 and 579
- 2025 loan limit: $524,225 to $1,209,750 depending on area
- Best for buyers with credit scores between 580 and 679
VA Loans
Available to eligible veterans, active-duty service members, and surviving spouses, VA loans offer exceptional benefits including no down payment and no private mortgage insurance. They are backed by the Department of Veterans Affairs.
VA Loan Highlights
- Zero down payment required
- No monthly mortgage insurance
- Funding fee: 2.3% for first use (can be financed)
- Best for qualifying military borrowers
USDA Loans
USDA loans help low-to-moderate income buyers purchase homes in eligible rural and suburban areas. Despite the name, many suburban areas near major cities qualify.
USDA Loan Highlights
- Zero down payment required
- Income limits apply (115% of area median income)
- Property must be in USDA-eligible area
- Guarantee fee instead of PMI
Confused About Which Loan Is Right for You?
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Get Matched with a Top AgentDown Payment Assistance Programs
If saving for a down payment seems daunting, you are not alone. The good news is that over 2,500 down payment assistance programs exist across the country, and the number continues to grow. According to Down Payment Resource, 43 new programs were added in Q1 2025 alone.
Source: NAR 2025 Profile of Home Buyers and Sellers
Types of Assistance Available
- Grants: Free money that does not need to be repaid
- Forgivable Loans: Second mortgages that are forgiven after you live in the home for a set period (often 5 to 10 years)
- Deferred Payment Loans: Second mortgages with no monthly payments, due when you sell, refinance, or pay off the first mortgage
- Low-Interest Loans: Second mortgages with below-market interest rates
Most programs have income limits, with 2,269 programs restricted to buyers earning at or below 80% to 120% of the area median income. Some 240 programs have no income restrictions at all.
Understanding Closing Costs
Beyond your down payment, you will need to budget for closing costs. These fees typically range from 2% to 5% of the loan amount and cover various services required to complete your purchase.
| Cost Category | Typical Range | Who Pays |
|---|---|---|
| Loan Origination Fee | 0.5% - 1% of loan | Buyer |
| Appraisal Fee | $300 - $600 | Buyer |
| Home Inspection | $300 - $500 | Buyer |
| Title Insurance | $1,000 - $2,000 | Buyer/Seller (varies) |
| Attorney Fees | $500 - $1,500 | Buyer |
| Prepaid Interest | Varies by close date | Buyer |
| Escrow Deposits | 2-6 months taxes/insurance | Buyer |
| Recording Fees | $50 - $250 | Buyer |
Pro Tip: Negotiate Seller Concessions
In many markets, sellers may agree to pay a portion of your closing costs. Your agent can negotiate seller concessions of up to 3% to 6% of the purchase price, depending on your loan type and down payment amount. This is especially common in buyer's markets or for homes that have been listed for a while.
First-Time Buyer Mistakes to Avoid
Learning from others' mistakes can save you time, money, and stress. Here are the most common pitfalls first-time buyers face and how to avoid them.
Mistake #1: Skipping Pre-Approval
House hunting before getting pre-approved wastes time looking at homes outside your budget. It also weakens your offer, as sellers prefer buyers with verified financing.
Mistake #2: Ignoring Total Monthly Costs
The mortgage payment is just one piece. Factor in property taxes, homeowner's insurance, HOA fees, utilities, and maintenance (budget 1% of home value annually for repairs).
Mistake #3: Making Major Financial Changes
Opening new credit cards, financing a car, or changing jobs during the mortgage process can derail your approval. Keep your financial profile stable from pre-approval through closing.
Mistake #4: Emptying Your Savings
Lenders want to see reserves after closing. Most require at least 2 months of mortgage payments in savings. Plus, you will need funds for moving, immediate repairs, and unexpected expenses.
Mistake #5: Skipping the Home Inspection
Never waive the inspection to make your offer more competitive. A thorough inspection can reveal costly issues that could turn your dream home into a money pit.
Avoid Costly Mistakes with Expert Guidance
Top-performing agents help first-time buyers navigate every step and avoid common pitfalls that cost thousands.
Find Your Top Agent NowFrequently Asked Questions
The amount depends on the home price and loan type. For a median-priced home of $415,200, first-time buyers typically need $37,368 for a 9% down payment, plus $12,456 for closing costs (3%), totaling approximately $50,000. However, with down payment assistance or low-down-payment loans, you could buy with as little as 3% down ($12,456) plus closing costs. VA and USDA loans require no down payment, reducing your upfront cash needs significantly.
The minimum credit score depends on your loan type. FHA loans accept scores as low as 500 with 10% down or 580 with 3.5% down. Conventional loans typically require 620, though this requirement is becoming more flexible. VA loans have no government-set minimum, but most lenders require 620. For the best interest rates, aim for a credit score of 740 or higher.
The typical home buying process takes 5 to 6 months from start to finish. This includes 1 to 2 months to get your finances in order and get pre-approved, 2 to 3 months of house hunting, and 30 to 45 days from accepted offer to closing. The timeline can vary based on your local market conditions, how quickly you find a home, and whether any issues arise during inspection or appraisal.
To afford a $400,000 home with 10% down at current interest rates (around 6.75%), you would need a household income of approximately $115,000 to $125,000 per year. This assumes a 28% front-end debt-to-income ratio, meaning your monthly housing payment should not exceed 28% of your gross monthly income. Your actual requirement may be higher or lower depending on your other debts, down payment amount, and local property tax rates.
The decision depends on your financial situation, how long you plan to stay, and local market conditions. Generally, buying makes sense if you plan to stay at least 5 years (to recoup closing costs through appreciation), have stable income and employment, and can afford the total monthly costs without stretching your budget. Renting may be better if you value flexibility, are unsure about your long-term plans, or if buying would strain your finances significantly.
Beyond the down payment and closing costs, first-time buyers often overlook ongoing expenses including property taxes (varies by location but averages 1% to 2% of home value annually), homeowner's insurance ($1,500 to $3,000+ per year), private mortgage insurance if less than 20% down ($100 to $300+ monthly), maintenance and repairs (budget 1% of home value annually), utilities (typically higher than renting), and HOA fees if applicable. Also budget for moving costs and immediate purchases like appliances or furniture.
Yes, having student loan debt does not disqualify you from buying a home. However, your monthly student loan payment affects your debt-to-income ratio. Lenders will include your student loan payment (or 0.5% to 1% of the balance for income-driven plans) when calculating your DTI. To improve your chances, pay down other debts, save a larger down payment, or consider FHA loans which allow higher DTI ratios. According to NAR, 43% of younger millennials have student loan debt with a median balance of $30,000.
If your offer is rejected, you have several options. You can submit a higher offer if you are willing and able to pay more. You can ask your agent to find out why the offer was rejected and address those concerns in a revised offer. If the home receives multiple offers, you may not have another chance with that property, so be prepared to move on to other listings. In competitive markets, having a strong pre-approval, offering earnest money, and minimizing contingencies can make your offers more attractive.
Your Path to Homeownership Starts Now
Buying your first home is one of the largest financial decisions you will make, but it does not have to be overwhelming. By understanding the financial requirements, following a structured process, and working with experienced professionals, you can navigate the journey with confidence.
The key steps to remember: get your finances in order, secure pre-approval, partner with a top-performing real estate agent, stay patient during your search, and protect yourself with proper inspections and contingencies.
With the median home price at $415,200 and first-time buyers needing approximately $97,000 in household income, preparation is essential. Use the calculator above to understand your specific requirements, and do not hesitate to explore down payment assistance programs that could make homeownership more accessible.
