First-Time Home Buyer Guide 2026: Down Payment, PMI & Closing Costs

The biggest myth in home buying is that you need 20% down to buy a house. In reality, 2026 offers more low-down-payment and zero-down-payment paths to homeownership than at almost any point in the past decade. This guide walks through exactly how much you really need, which loan programs fit different situations, and what to budget for beyond the down payment itself.

You Don't Need 20% Down — Here's What's Actually Required

Several mainstream loan programs allow first-time buyers to put down far less than 20%:

On a $300,000 home, the difference is significant: a 20% down payment means $60,000 in cash, while an FHA loan at 3.5% means just $10,500 — and a VA or USDA loan could mean $0 down at all, assuming you're eligible.

FHA vs Conventional: Which Should You Choose?

These are the two most common paths for first-time buyers without military or rural eligibility:

• FHA loans are insured by the Federal Housing Administration, which lets lenders approve borrowers with credit scores as low as 580 (with 3.5% down) or even 500 (with 10% down). FHA loans require mortgage insurance premiums (MIP) for the life of the loan in most cases, regardless of your down payment.
• Conventional loans through programs like HomeReady or Home Possible require a slightly higher credit score (typically 620+) but only charge private mortgage insurance (PMI) until you reach 20% equity — at which point PMI can be removed, lowering your payment.

If your credit score is above 680 and you can scrape together 3-5% down, conventional often costs less over time because PMI eventually disappears. If your credit is lower or you have minimal savings, FHA is usually the more accessible path.

Down Payment Assistance: Free Money You Might Be Missing

Beyond the loan programs themselves, thousands of down payment assistance (DPA) programs exist at the state, county, and city level — some offering grants of $10,000 to $30,000 or more that never need to be repaid, while others offer forgivable second loans if you stay in the home for a set number of years.

• Most DPA programs require you to be a first-time buyer — defined as not having owned a home in the past 3 years, not literally "never owned"
• Income limits typically apply, often based on your area's median income (AMI)
• Many programs must be paired with a specific loan type or lender, so check eligibility before house-hunting
• Search your state's housing finance agency website, plus county and city programs — there are over 2,000 DPA programs nationwide

What Is PMI and How Do You Avoid It?

Private Mortgage Insurance (PMI) protects the lender — not you — if you default on a conventional loan with less than 20% down. It typically costs 0.5% to 1.5% of your loan amount per year, added to your monthly payment.

• PMI automatically cancels once your loan balance reaches 78% of the original home value
• You can request cancellation earlier once you reach 80% loan-to-value, often through extra payments or home value appreciation
• FHA loans work differently — most require mortgage insurance for the life of the loan unless you refinance into a conventional loan later
• VA loans have no mortgage insurance at all, regardless of down payment

Closing Costs: The Expense Buyers Forget to Budget For

Closing costs are separate from your down payment and typically run 2% to 5% of the loan amount. On a $300,000 home, that's $6,000 to $15,000 due at signing — in addition to your down payment. Common closing costs include:

• Loan origination fees charged by the lender
• Appraisal and home inspection fees
• Title insurance and title search fees
• Attorney or escrow fees, depending on your state
• Prepaid property taxes and homeowner's insurance
• Recording fees paid to your local government

Some down payment assistance programs also cover part of closing costs, and some sellers can be negotiated into covering a portion as part of the offer — ask your real estate agent about "seller concessions" when making an offer.

Step-by-Step: How to Prepare to Buy Your First Home

1. Check your credit score and dispute any errors — this determines your rate and which loans you qualify for
2. Calculate your debt-to-income ratio; most lenders want your total housing payment plus other debts under 43% of gross income
3. Research first-time buyer programs and down payment assistance in your state and county
4. Get pre-approved (not just pre-qualified) by 2-3 lenders to compare rates and fees
5. Use the mortgage calculator above to test different loan amounts, down payments, and terms against your budget
6. Save separately for closing costs — don't assume your down payment covers everything
7. Start house-hunting only after you know your real budget, not before

How Much House Can You Actually Afford?

A common rule of thumb is to keep your total monthly housing payment — including principal, interest, taxes, and insurance — under 28% of your gross monthly income. Total debt payments, including the mortgage, should generally stay under 36% to 43% depending on the lender.

Use the calculator above to enter different loan amounts and see the resulting monthly payment, then compare it against your take-home pay to find a comfortable price range before you start touring homes.

Frequently Asked Questions

Do I really not need 20% down to buy a house?

Correct. FHA loans require just 3.5% down, conventional programs like HomeReady require 3%, and VA or USDA loans can require 0% down for eligible buyers. The 20% figure only matters for avoiding PMI on a conventional loan — it is not a requirement to qualify for a mortgage.

What credit score do I need as a first-time home buyer?

FHA loans accept scores as low as 580 with 3.5% down, or 500 with 10% down. Conventional loans typically require 620 or higher. VA and USDA loans don't have a fixed government minimum, but most lenders look for at least 620.

Can down payment assistance be combined with FHA or conventional loans?

In most cases, yes. Many state and local DPA programs are specifically designed to pair with FHA loans, and some work with conventional loans as well. Check your specific program's requirements, since some restrict which loan types qualify.

How much should I save for closing costs?

Budget 2% to 5% of your loan amount. On a $250,000 loan, that's $5,000 to $12,500. Some of this may be covered by seller concessions or down payment assistance programs, so ask your lender and agent about both options early in the process.