First-Time Home Buyer Questions, Answered

There’s no single salary that buys a home — it depends on the price, the rate, your debts, and your down payment, because lenders look at your total monthly debts against your gross income. Take the $700,000 example I use on this site: with 3.5% down on an FHA loan at 6.94%, the full monthly payment is $5,881, and at a 43% debt-to-income ratio that works out to about $164,000 a year in gross income before your other debts. At a tighter 36% ratio, the same payment needs about $196,000 a year. If your debts are low, the number comes down; if you have a car payment and student loans, it goes up. Run your own income and debts through the affordability calculator instead of guessing from a salary chart — that’s the number that actually matters.

You need two buckets of money, and mixing them up is the most common mistake I see. The down payment is the part that goes toward the price of the house — with FHA, that’s 3.5%, so $24,500 on a $700,000 home or $21,000 on a $600,000 home. Cash to close is everything else you pay at closing, and closing costs alone usually run 2% to 5% of the price, so $14,000 to $35,000 on a $700,000 home. Put together, I tell buyers to plan on $38,500 to $59,500 in cash to close on a $700,000 FHA purchase before they count any help. And don’t drain your savings to get there — keep an emergency fund separate, because the house will still need things after you move in. I walk through both buckets in how to save for a down payment.

For an FHA loan, 580 is the line I talk about most: at 580 and above, you can buy with 3.5% down. If your score is 500 to 579, FHA still allows a loan, but the down payment jumps to 10%, which is a much bigger pile of cash. Around 680 is where conventional loans start to open up with better terms, and a higher score usually means a better rate, which changes your monthly payment more than most people expect. So the honest answer is that you don’t need perfect credit, but your score decides how much cash you need and what your payment looks like. If your score is below where you want it, check the credit-score checklist before you start shopping — fixing it first is usually cheaper than paying for it in the rate for 30 years.

Pre-approval is a lender checking your real numbers — income, assets, and credit — and telling you, in writing, how much you can borrow and what the payment looks like. It’s different from a pre-qualification, which is just an estimate from numbers you tell someone without any verification. To do it, I need your two most recent pay stubs, your last two years of tax returns and W-2s (full returns if you’re self-employed), your last two months of bank statements, plus your ID, Social Security number, and date of birth. The credit check is a hard pull on all three bureaus, and the whole thing usually takes 5 to 20 minutes — often the same day. A pre-approval is typically good for 60 to 90 days, and it’s the step that lets you shop inside your real budget instead of guessing. I explain the difference in full in pre-approval vs. pre-qualification, and the process itself is on the pre-approval page.

I frame it as about 60 days in my 60-day checklist, and that’s realistic for a first-time buyer who is already pre-approved. The pre-approval itself is the fast part, often the same day. House hunting is the part nobody can promise you a date for, because it depends on how many homes you look at and how quickly you find one that fits your budget. Once you’re under contract, it’s inspections, appraisal, underwriting, and final numbers — a lot of waiting on other people’s schedules. The buyers who move fastest are the ones who gathered their documents early, so the loan file isn’t waiting on a missing bank statement.

Closing costs are all the fees you pay to actually close the loan and transfer the house, on top of the down payment — and they’re the number most first-time buyers forget to save for. They usually run 2% to 5% of the purchase price, so $14,000 to $35,000 on a $700,000 home, and they cover things like the appraisal, the inspection, the title and escrow fees, the lender’s fees, and the prepaid tax and insurance your loan servicer collects upfront. Some of those are fixed, some are negotiable, and some — like seller concessions — can be negotiated as part of your offer, which I explain in the hidden costs of buying a home. Your lender has to give you a Loan Estimate that lists every one of these line by line, so ask for it early and read the actual numbers. If a fee doesn’t make sense to you, ask what it is — a good lender can answer that in plain English.

Yes, down payment assistance is real — but it’s not a pile of free money sitting there for anyone who asks, and that’s the part people get wrong. Most programs are grants, forgivable loans, or deferred loans, and they each have their own rules about credit, income, and the home you’re buying. One example I cover on this site is the Empowered 3.5% program, which covers the full 3.5% FHA down payment for borrowers who meet one of four criteria and have a 620+ credit score and a homebuyer counseling course — it’s forgiven after 6 months. Other programs are run by individual states and cities, so the help available to you depends on where you buy, and programs open and close. Start with the down payment assistance hub and the down payment assistance finder, and check the actual terms before you count on any of it.

Your monthly payment is a lot more than principal and interest, and if you only budget for those two, you’ll be short every month. On the $700,000 FHA example I use on this site, the payment is $5,881, and it breaks down like this: $4,545 of principal and interest, $729 of property tax, $292 of homeowner’s insurance, and $315 of FHA mortgage insurance. Tax and insurance go into escrow, so your lender collects them with the payment and pays them for you, but they’re still your money going out every month. That payment doesn’t include utilities, maintenance, or HOA dues if the home has them, so budget for those separately. Run any house through the mortgage calculator and look at the full breakdown — the principal and interest number alone is not your payment.

Yes, you can buy if you’re self-employed — I do it for self-employed buyers regularly, and the process is the same, but the paperwork is different. Instead of pay stubs and W-2s, a lender will usually want your last two years of tax returns, and they may average your income across those years rather than using your best month. You’ll also need bank statements and usually a profit-and-loss statement, because the lender has to see that the income is real and steady. If tax returns don’t tell your whole story — and for a lot of self-employed people they don’t — there are alternate programs that use bank statements instead of tax returns, which I cover in bank statement, P&L, and DSCR loans. That doesn’t mean you can’t get a regular loan; it just means we have to pick the program that fits how your income actually works, and start with the documents early.

I don’t try to time rates, and I don’t think you should either, because no one can tell you what rates will do next with any certainty — and waiting is a bet either way. If the payment works at today’s rate and you plan to stay in the home for a while, waiting for a drop you can’t predict usually costs you more in rent and time than it saves. If the payment doesn’t work at today’s rate, waiting for a better rate won’t fix a budget gap — you need a lower price, a bigger down payment, or a different loan structure. One middle path is a rate buydown, where you pay points upfront to lower the rate, and I work through that math — how long it takes to break even — in pay points to buy down your rate or wait. Either way, run the numbers at today’s rate first on the rates page, then decide with the real payment in front of you, not a guess about next year.