Know the real number.
The down payment is only part of the cash you need
Most first-time buyers budget for the down payment and forget the rest. Here is what the official guides tell you to plan for:
The CFPB says most loans need at least 3% down and many need 5% or more. Fannie Mae says you may be able to buy with as little as 3% down. You don’t always need 20%.
Typically 2%–5% of the purchase price, on top of the down payment, according to the CFPB, Fannie Mae and Freddie Mac. Your actual amount depends on price, loan, lender and location.
Freddie Mac says most lenders ask you to prepay about two months of property tax and insurance reserves at closing.
Usually paid by you, and sometimes before closing. Prices vary by area and home size, so ask local inspectors.
The CFPB tells you to set aside money for moving costs and any renovations before deciding your down payment.
The CFPB’s rule of thumb is at least 3–6 months of expenses left over after closing. Fannie Mae suggests 3–6 months of essential expenses for surprise repairs.
Cash to have ready, using the 2%–5% closing-cost range and a 3-month cushion. Example inputs only. Your Loan Estimate has your real numbers.
Source: CFPB: Determine your down payment · Fannie Mae: Costs of homeownership · Freddie Mac: Understanding homebuying costs
Decide what you can afford before a lender tells you
Your debt-to-income ratio (DTI) is all your monthly debt payments divided by your gross monthly income. The CFPB notes that different loan products and lenders have different DTI limits, so being approved for an amount doesn’t mean it fits your budget.
- A widely quoted rule of thumb, the “28/36 rule,” suggests keeping housing costs near 28% of gross income and all debts near 36%. It is a guideline from the lending industry, not a law or a lender requirement.
- Gross income is before taxes. Check the payment against your take-home pay and your real budget too.
- Count the whole payment: principal, interest, property tax, insurance, PMI and any HOA dues.
Small rate, big money.
Your credit score and rate change your payment more than you think
The CFPB says that, in general, people with higher credit scores get lower interest rates, and that even a fraction of a percent can save thousands over the life of a loan. A larger down payment also usually means a lower rate. Look up typical rates for your score and state with the CFPB’s Explore interest rates tool, then try them below.
Extra per month at Rate B on a 30-year fixed loan (principal and interest only). Sample rates, not a quote.
Source: CFPB: 7 factors that determine your mortgage interest rate · CFPB: Explore interest rates
Under 20% down? Expect mortgage insurance, and know how it ends
Private mortgage insurance (PMI) is usually required on a conventional loan with less than 20% down. It protects the lender, not you. It is most often a monthly premium added to your payment and shown on your Loan Estimate.
You can ask to cancel
- When your balance is scheduled to reach 80% of the home’s original value (or earlier with extra payments).
- Conditions apply, such as a good payment history.
It ends automatically
- In general, when your balance is scheduled to reach 78% of the original value, if you’re current.
- FHA and VA loans have different rules. Ask your servicer.
Pre-approval vs. prequalification: the label matters less than the letter
The CFPB says lenders use the two words differently, and neither is a guaranteed loan offer. Some prequalify you on information you report and only preapprove after verifying it. What matters is whether sellers in your area will take your letter seriously.
- Ask each lender what they verified (income, assets, credit) and how long the letter is valid.
- Apply with more than one lender. Each must give you a standard Loan Estimate within 3 business days of your application, so you can compare them line by line.
- A local agent or a HUD-approved housing counselor can tell you what sellers expect.
Source: CFPB: Prequalification vs. preapproval · CFPB: What is a Loan Estimate?
Protect yourself, then budget for year one.
Inspection and contingencies: your exits if something goes wrong
Contingencies are conditions written into your offer, for example that the deal depends on a satisfactory inspection, on the home appraising at the price, or on your financing coming through. Their exact terms and deadlines depend on your contract and state, so go over them with your agent or attorney before you sign.
- An appraisal is for the lender. An inspection is for you. Hire your own inspector and attend if you can.
- Waiving contingencies can make an offer stronger, but it can also leave your deposit at risk. Know what you’re giving up.
- Get the inspection report before your contingency deadline, and ask the inspector which systems are oldest.
Source: Fannie Mae: Costs of homeownership (inspection fees as a buyer cost). Contingency rules vary by state and contract.
Escrow, property tax and insurance: your payment can change
Many lenders require an escrow account, which collects part of each monthly payment to pay your property tax and homeowners insurance. The CFPB notes these bills can change every year, and your total monthly payment changes with them, even on a fixed-rate loan.
- Look up the property’s current tax bill. It may be reassessed after the sale.
- Get homeowners insurance quotes before you make an offer, not the week of closing.
- You’ll get a Closing Disclosure at least 3 business days before closing. Compare it against your Loan Estimate.
- Some homeownership costs, like mortgage interest and property taxes, may be deductible if you itemize. See IRS Publication 530.
Source: CFPB: What is an escrow account? · CFPB: What is a Closing Disclosure? · IRS Publication 530
Year one: repairs don’t wait until you’ve rebuilt your savings
Fannie Mae tells new owners to prepare for unexpected costs like HVAC repairs or replacing appliances, and suggests a rainy-day fund of 3–6 months of essential expenses. You may also see percentage rules of thumb for yearly maintenance. They are rough guesses, not official figures, and your home’s age and condition matter much more.
- Use the inspection report to list what’s near the end of its life (roof, water heater, HVAC) and price those items.
- Budget for HOA dues and any special assessments, plus utilities that may be higher than you paid as a renter.
- Rebuild your emergency fund first, then take on projects.
Sources
- CFPB: Determine your down payment
- Fannie Mae: How you can prepare for the costs of homeownership
- Freddie Mac: Understanding homebuying costs
- CFPB: What is a debt-to-income ratio?
- CFPB: 7 factors that determine your mortgage interest rate
- CFPB: Explore interest rates
- CFPB: What is private mortgage insurance?
- CFPB: When can I remove PMI from my loan?
- CFPB: Prequalification vs. preapproval letter
- CFPB: What is a Loan Estimate?
- CFPB: What is a Closing Disclosure?
- CFPB: What is an escrow or impound account?
- IRS Publication 530: Tax information for homeowners
- HUD: Find a housing counselor
Sources checked October 15, 2026. Rules, rates and costs change, and many vary by state, lender and loan type.
Educational only, not financial, tax, or legal advice. This guide summarizes general U.S. rules and points to official sources. Loan terms, closing costs, contingencies and property taxes vary by lender, state and contract, and your Loan Estimate and Closing Disclosure control the details. Check with your lender, a HUD-approved housing counselor, or a licensed professional before you make decisions. The estimates run in your browser, and the numbers you type never leave your device.