First-Time Homebuyer Guide
Everything a first-time buyer needs to go from "can I afford this?" to keys in hand. Start with the affordability calculator below to see your maximum home price, then work through how the payment, PMI, and loan choice fit together.
How Much House Can You Afford?
Enter your income, debts, and down payment to see the maximum home price you can afford under the standard 28/36 debt-to-income rules — with property taxes and insurance already factored in.
Your Financial Details
Car payments, student loans, credit cards, etc.
Annual rate as % of home value
Maximum Home Price You Can Afford
$353,000
Based on the 28% DTI rule
Estimated Monthly Payment (PITI)
Debt-to-Income Analysis
Guideline: 28% max
Guideline: 36% max
Monthly Income: $8,333 | Max Housing (28% rule): $2,333 | Max Housing (36% rule): $2,500
Home Price
$353,000
Down Payment
$60,000
Loan Amount
$293,000
Down Payment %
17.0%
Want to dig deeper into the affordability math alone? The dedicated home affordability calculator shows the full front-end and back-end DTI breakdown.
Understanding Your Mortgage Payment Breakdown
The price on the listing is not your monthly payment. Lenders describe the real number with the acronym PITI — the four parts of every mortgage payment:
- Principal — the portion that pays down your loan balance and builds equity.
- Interest — the cost of borrowing. Early in the loan, most of your payment goes here; later, more goes to principal.
- Taxes— local property taxes, typically 0.5%–2.5% of the home's value per year depending on where you buy, collected monthly into an escrow account.
- Insurance — homeowners insurance, which your lender requires for as long as you have a mortgage.
If your down payment is under 20% on a conventional loan, PMI is added on top of PITI (covered next). A basic calculator that shows only principal and interest can understate your true payment by hundreds of dollars a month — which is why the affordability calculator above includes taxes and insurance in every result.
PMI Explained — and When You Can Remove It
Private mortgage insurance (PMI) protects the lender — not you — if you default on a conventional loan. Lenders require it whenever your down payment is under 20% (a loan-to-value ratio above 80%), because a smaller down payment is considered higher risk. PMI typically costs 0.5%–1.5% of the loan amount per year, billed monthly, and the rate depends on your credit score and loan-to-value ratio.
The good news is that PMI is temporary on a conventional loan. Under the Homeowners Protection Act:
- You can request cancellation at 80% LTV— once your balance reaches 80% of the home's original value.
- The lender must automatically remove PMI at 78% LTV, based on your original purchase price and scheduled payments.
- Making extra principal payments reaches the 80% threshold sooner, letting you request removal early.
To see your exact monthly PMI cost and the month it falls off, use the PMI calculator. Note that FHA mortgage insurance follows different rules — with less than 10% down it lasts the life of the loan, which is the main reason FHA borrowers refinance once they have enough equity.
FHA vs Conventional Loan Comparison
The two loan types most first-time buyers choose between are FHA and conventional. The right answer comes down to your credit score and down payment.
| FHA Loan | Conventional Loan | |
|---|---|---|
| Minimum down payment | 3.5% (580+ score) | 3% |
| Minimum credit score | 580 (or 500 with 10% down) | Typically 620 |
| Mortgage insurance | 1.75% upfront MIP + annual MIP | PMI only if under 20% down |
| When insurance ends | Life of loan if under 10% down; drops after 11 years if 10%+ down | Auto-removed at 78% LTV; cancel at 80% |
| Best fit | Lower credit or small down payment | Strong credit (740+) and 5%+ down |
In short: FHA tends to win for buyers with credit under 700 or down payments under 5%, because its insurance rate ignores your credit score and qualification is easier. Conventional is usually cheaper for strong-credit buyers because PMI is priced to your risk and drops off automatically. Run the actual FHA numbers — upfront and annual MIP included — with the FHA loan calculator, then quote both side by side.
Step-by-Step Homebuying Timeline
- Check your credit and budget. Pull your credit score, list your monthly debts, and run the affordability calculator above to set a realistic price range before you fall in love with a listing.
- Save your down payment and closing costs. Budget for the down payment plus closing costs, which typically run 2%–5% of the loan amount. The down payment savings goal calculator and closing costs calculator help you size both.
- Get pre-approved.A lender verifies your income, credit, and assets and issues a pre-approval letter. This tells you your real budget and shows sellers you're a serious buyer.
- Shop with a real-estate agent. Tour homes inside your pre-approved range and account for the full PITI payment — not just principal and interest — at each price point.
- Make an offer and go under contract.Your agent helps you write a competitive offer. Once accepted, you'll put down earnest money and open escrow.
- Inspection and appraisal.An inspection checks the home's condition; the lender's appraisal confirms the value supports the loan. Either can reopen negotiations.
- Underwriting and final approval. The lender does a deep dive on your file. Avoid new debt or job changes during this window — both can derail approval.
- Close. You sign the final paperwork, pay your down payment and closing costs, and get the keys. Welcome home.
Frequently Asked Questions
How much house can I afford as a first-time buyer?
Most lenders apply the 28/36 rule: your housing payment should stay under 28% of gross monthly income, and all your debt payments combined under 36%. The calculator above uses the more restrictive of the two and backs out taxes and insurance to give you a maximum home price. As a rough starting point, your affordable home price is often around 3 to 4 times your annual income, but your down payment, existing debts, rate, and local property taxes can move that figure substantially.
How much do I need for a down payment on my first home?
You do not need 20%. Conventional loans go as low as 3% down, FHA loans require 3.5% down with a 580 credit score, and VA and USDA loans allow qualified buyers to put 0% down. Putting down less than 20% on a conventional loan means paying PMI until you reach 20% equity, but it lets you buy years sooner. Weigh the cost of PMI against the cost of waiting and continuing to rent.
What credit score do I need to buy a house?
FHA loans allow scores as low as 580 (or 500 with 10% down), though many lenders add their own overlays requiring 620–640. Conventional loans generally start around 620, and the best rates go to borrowers above 740. A higher score lowers both your interest rate and, on a conventional loan, your PMI rate — so even a small score improvement before applying can save real money.
What is included in my monthly mortgage payment?
Your payment is more than principal and interest. The full figure, called PITI, includes Principal, Interest, property Taxes, and homeowners Insurance. If you put down less than 20% on a conventional loan, private mortgage insurance (PMI) is added on top. Basic calculators that show only principal and interest understate your true monthly cost — the affordability calculator above includes taxes and insurance.
When can I stop paying PMI?
On a conventional loan, you can request PMI cancellation once your balance reaches 80% of the home's original value, and the lender must automatically remove it at 78% LTV under the Homeowners Protection Act. Extra principal payments get you there sooner. FHA mortgage insurance works differently — with less than 10% down it lasts the life of the loan, so many FHA borrowers refinance into a conventional loan once they reach 20% equity.
Is an FHA or conventional loan better for a first-time buyer?
FHA tends to win for buyers with credit scores under 700 or down payments under 5%, because its mortgage insurance rate is the same regardless of credit score and qualification is easier. Conventional is usually cheaper for buyers with strong credit (740+) and at least 5% down, because conventional PMI is priced to your risk and drops off automatically at 80% LTV. Always quote both side by side.