When buying your first home, the down payment is one of the biggest costs to prepare for. This is the amount of money you pay upfront when you purchase a home. It helps reduce the size of your loan, and often affects your interest rate and monthly mortgage payments.
Most first time homebuyers put down between 3% and 20% of the purchase price. For example, if the home costs $300,000, a 3% down payment would be $9,000. A 20% down payment would be $60,000. The more you can pay upfront, the lower your monthly payment will be—and the less you’ll pay in interest over time.
Some loans, like FHA loans, allow lower down payments, which can be helpful for buyers who haven’t saved much yet. However, lower down payments usually mean you’ll have to pay extra costs like mortgage insurance.
It’s a good idea to use a mortgage calculator to test different scenarios. You can estimate your monthly payment, how much you’ll need for your down payment, and what other costs will look like.
In addition to your down payment, don’t forget about closing costs. These are the fees you pay when your home loan is finalized. They usually range from 2% to 5% of the total home price. That means a $300,000 home might come with $6,000 to $15,000 in closing costs.
These fees include the appraisal, title search, home inspection, lender fees, and more. You’ll get a detailed list in your loan estimate. It’s important to review this carefully so there are no surprises on closing day.
Many first time homebuyers qualify for payment assistance programs. These can include down payment help, closing cost assistance, or both. The help might come as a grant, a low-interest loan, or even a deferred loan that doesn’t have to be repaid until you sell the home.
Check with your local housing agency or a HUD-approved housing counseling service to find out what’s available in your state or city. Each program has its own eligibility requirements, so you’ll want to find one that matches your situation.
Some payment assistance programs are designed specifically for people in certain professions, like teachers, firefighters, or veterans. Others are based on income limits or are only for homes in certain areas.
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Many payment assistance programs are based on your income level. A common rule is that your income must fall below a certain percentage of the area median income, or AMI. This is the average income level in your region and is updated yearly by HUD.
For example, if the AMI in your city is $70,000, a program may require your household income to be below 80% of that—so $56,000 or less. This helps make sure that the help goes to people who need it most.
You can check your eligibility using HUD’s AMI lookup tool online or ask your local housing agency to guide you. Programs may also consider income limits, which vary based on family size and location.
If you’re struggling to come up with enough for a down payment, you might consider using gift funds. These are funds given to you by a family member, friend, or even your employer. They don’t have to be paid back, and they can be used toward your payment or closing costs.
Lenders will usually require a letter from the person giving the gift, confirming that it’s not a loan and doesn’t have to be repaid. Some loan programs, like FHA, allow all of your down payment to come from gift funds, while others have limits.
Each payment assistance program or loan option comes with its own requirements. These can include:
Some programs require you to attend a homebuyer education class. These are often free or low-cost and can help you better understand your mortgage, closing costs, and the responsibilities of homeownership.
Make sure you read the fine print before applying for assistance. Talk to a housing counselor or your real estate agent if you have questions about qualifying.
The good news is that many special programs exist just for first time homebuyers. You don’t have to be completely new to owning a home—often, you qualify as a “first-timer” if you haven’t owned a home in the last three years.
These programs often offer:
Even if your dream home feels out of reach now, there’s a strong chance you qualify for help. From gift funds to payment assistance, from understanding your area median income to meeting basic eligibility, the tools are out there to help you succeed.
Wherever you are, buying your first home can be tough to navigate. Fortunately, there is a lot of expert help available. You can get homebuyer education and personal pre-purchase counseling that will help answer all of your questions, even those specific to your city and state. Get help today to create a plan to have a home of your own.
