First-Time Home Buyer Guide (US): Down Payments, PMI & the Real Cash You Need

The biggest myth in home buying is that you need 20% down. The median first-time buyer in the US puts down roughly 8–9%, and several mainstream loan programs allow 3–3.5%. What you actually need is three numbers added together — down payment, closing costs, and a post-purchase reserve — and a realistic monthly budget. This guide walks the whole path in order.

Step 1 — Find your price range before you browse listings

Lenders apply the 28/36 rule: housing costs up to ~28% of gross monthly income, total debt payments up to ~36% (some programs stretch to 43%+). On a $90,000 income with modest debts, that supports roughly $2,100/month of housing — around a $300,000 mortgage at current rates. Two cautions: the lender's maximum is their risk limit, not your comfortable budget; and the payment they quote includes property tax and insurance (PITI), so a P&I-only mental estimate undershoots. Check your DTI ratio first — it's the number underwriting actually screens.

Step 2 — The three-part cash target

Down payment

• Conventional loans: as low as 3% down for first-time buyers (Fannie/Freddie programs); 5% is common.
• FHA: 3.5% down with a 580+ credit score — friendlier underwriting, but mortgage insurance lasts longer.
• VA (veterans) and USDA (rural): 0% down for those who qualify.
• 20% down avoids PMI entirely and gets the best pricing — ideal, not required.

Closing costs

Budget 2–5% of the purchase price for lender fees, title insurance, escrow setup, appraisal, and prepaid taxes/insurance. On a $350,000 home that's $7,000–$17,500 — cash, on top of the down payment. Sellers can sometimes credit part of it; lenders can roll some in for a higher rate.

Reserves

Keep 3–6 months of the new housing payment in savings after closing (some loans require showing reserves). First-year ownership reliably produces surprises — and your emergency fund should survive the purchase intact.

The down payment calculator totals all of this for any price and percentage, and flags whether your deposit triggers PMI.

Step 3 — Understand PMI before you fear it

Put down less than 20% on a conventional loan and you'll pay private mortgage insurance — typically 0.3–1% of the loan per year ($75–$250/month on a $300k loan) until you reach 20% equity, at which point you can request cancellation. PMI is a cost, not a catastrophe: the right comparison is PMI paid versus years of rent (and possible price appreciation) while saving the bigger deposit. In many markets, buying earlier with PMI wins that math; run it honestly with the rent vs. buy calculator.

Step 4 — Credit and pre-approval

• Six months out: pull your credit reports, dispute errors, pay every bill on time, and push utilization down. Each 20-point credit tier roughly changes your rate by 0.125–0.5% — worth tens of thousands over a loan's life.
• Don't open or close accounts, finance a car, or change jobs mid-process if avoidable.
• Get pre-approved (not just pre-qualified) by 2–3 lenders. Pre-approval is an underwritten letter sellers take seriously, and collecting multiple Loan Estimates is the only way to actually compare pricing. Rate-shopping inquiries within a ~45-day window count as one.

Step 5 — Shop with the full monthly cost in view

For each candidate house, build the real monthly number: principal & interest (mortgage calculator — it models full PITI), property tax (0.3–2.4% of value per year depending on state), homeowners insurance, PMI, HOA dues, and a maintenance reserve (1–2% of home value per year is the standard guidance). Two houses at the same price can differ by $600+/month once taxes and HOA are real. Also weigh the 15- vs 30-year term decision — first-time buyers usually take the 30 for flexibility, which is reasonable; just decide deliberately.

Step 6 — Offer to closing, briefly

1. Offer + earnest money (1–3%, credited at closing).
2. Inspection — a few hundred dollars that routinely saves thousands; negotiate repairs or credits from the findings.
3. Appraisal — the lender's check that the price is supported; a low appraisal reopens negotiation.
4. Final walkthrough and closing — sign, wire the cash to close (verify wire instructions by phone — wire fraud targets exactly this moment), get keys.

Mistakes that cost first-time buyers the most

• Buying at the pre-approval maximum. It leaves nothing for saving, repairs, or life. Set your own ceiling below the lender's.
• Skipping the inspection to win a bidding war. You're buying the largest unknown of your life as-is.
• Draining every account to close. House-poor is a predictable, avoidable condition.
• Comparing rate instead of APR across lenders — APR includes the fees.
• Forgetting the buy-vs-rent math entirely. If you may move within ~5 years, transaction costs often make renting the better trade — check the crossover point.

The bottom line

The real entry ticket is roughly 6–13% of the purchase price in cash (3–8% down + 2–5% closing + reserves) and a monthly payment that fits under 28% of gross income with your other goals intact. Get the price range, build the cash plan, then let pre-approval — not Zillow — set the budget.