Start With Affordability, Not Listings

Before you fall in love with a house, figure out what you can actually afford. Lenders look at two ratios:

Front-end ratio (housing DTI): Your total monthly housing cost (mortgage + taxes + insurance + PMI + HOA) divided by gross monthly income. Lenders typically want this at or below 28%.

Back-end ratio (total DTI): All monthly debt payments (housing + car + student loans + credit cards) divided by gross monthly income. Lenders typically cap this at 36-43%, depending on the loan program.

Use the Affordability Calculator to see what these ratios mean for your specific income and debts. It shows three scenarios: conservative (comfortable), traditional (standard bank approval), and maximum (stretched but possible).

The Down Payment Reality

You do not need 20% down. Common options:

Conventional: As low as 3% down (with PMI)

FHA: 3.5% down (with mortgage insurance for the life of the loan)

VA: 0% down (for eligible veterans)

USDA: 0% down (for eligible rural areas)

Putting down less than 20% means you'll pay PMI, which typically adds $75-200/month. But waiting years to save 20% means paying rent the entire time — and home prices may rise faster than your savings.

The real math: Compare the cost of PMI over the time it takes to reach 20% equity versus the rent you'd pay while saving for a larger down payment. In many markets, buying sooner with PMI wins.

Closing Costs

Budget 2-5% of the purchase price for closing costs. On a $320,000 home, that's $6,400-$16,000. This is separate from your down payment. Closing costs include:

Origination fees

Appraisal

Title insurance

Escrow setup (prepaid taxes and insurance)

Recording fees

Some of these can be negotiated. Seller concessions (where the seller covers a portion of closing costs) are common, especially in buyer-friendly markets.

What Lenders Look At

1. Credit score: 740+ gets the best rates. 680+ is solid. Below 620 significantly limits options.
2. DTI ratios: See above. Lower is better.
3. Employment history: 2+ years of stable employment in the same field.
4. Down payment source: Lenders want to see that it's from savings, not from new debt. Gift funds from family are usually acceptable with a gift letter.
5. Reserves: Some lenders want to see 2-6 months of mortgage payments in savings after closing.

Hidden Costs of Homeownership

Your mortgage payment is not your total housing cost. Budget for:

Property taxes (1-2.5% of home value per year, varies dramatically by state)

Homeowner's insurance (0.25-0.5% of home value per year)

Maintenance (general rule: 1% of home value per year)

HOA fees (if applicable — $200-500/month is common)

Utilities (often higher than renting — you're heating/cooling more space)

Your First Step

Run the Affordability Calculator with your real numbers — income, debts, target down payment. Then load the First-Time Buyer template to see a realistic starter scenario with PMI, taxes, and insurance included.

First-Time Home Buyer: What to Know Before You Start