Down payment requirements vary by loan type, with options as low as 0-3.5%: FHA LOAN (most popular for first-timers): 3.5% down if credit score ≥580.

Example: $300,000 home = $10,500 down payment. 10% down if credit score 500-579 (rare approval).

CONVENTIONAL LOAN (Fannie Mae/Freddie Mac): 3% down for first-time buyers (HomeReady, Home Possible programs).

Example: $300,000 home = $9,000 down (lowest option). 5% down standard for conventional (no special program). 20% down avoids PMI ($60,000 for $300k home, saves $150-250/month PMI).

VA LOAN (military/veterans): 0% down, no PMI. $300,000 home = $0 down payment (only closing costs $6k-9k).

USDA LOAN (rural areas): 0% down for eligible properties.

Income limits apply (typically <115% area median income).

Down payment assistance (DPA) programs: Many states/cities offer $5,000-$25,000 grants or forgivable loans.

Example: California CalHFA offers up to $25,000 DPA.

Reduces effective down payment to 0-1% in some cases.

Total cash needed calculation: $300k home, 3.5% FHA: Down payment: $10,500.

Closing costs: $6,000-$9,000 (2-3%).

Earnest money: $3,000-$6,000 (1-2%, credited at closing).

Inspection/appraisal: $500-$1,000.

Moving/initial expenses: $2,000-$5,000.

Total: $22,000-$31,500 to close.

With $15k DPA grant: Reduces to $7,000-$16,500 out-of-pocket.

Bottom line: Minimum $9,000 down (3% conventional) + $6k-$9k closing costs = $15,000-$18,000 cash needed without assistance.

With DPA: As low as $3,000-$8,000 total cash.

Requirements by loan type (2025 standards): FHA LOAN: Credit score: 580+ for 3.5% down (500-579 requires 10% down, rare approval).

DTI (debt-to-income): Max 43% back-end (all debts including new mortgage), some lenders allow 50% with compensating factors.

Income: No specific minimum, but must qualify for monthly payment (typically need $50k+ for $250k home).

Example: $60k income, $500/month car+student loans, $1,500/month new mortgage = DTI 33% ($2,000 total debt ÷ $5,000 gross monthly income). ✅ Approved.

CONVENTIONAL LOAN: Credit score: 620+ minimum (most lenders), 680+ for best rates, 740+ for top-tier pricing (0.5-0.75% rate difference).

DTI: Max 45-50% (stricter than FHA for borderline cases).

Income: Same as FHA, no hard minimum but higher credit standards.

Example: $70k income, 700 credit score, $1,800/month mortgage + $400 debts = 38% DTI. ✅ Approved at mid-tier rate.

VA LOAN (veterans): Credit score: No official minimum, but most lenders require 580-620+.

DTI: Max 41% front-end (housing only), but can exceed with strong residual income.

Residual income test: Must have $1,000-$1,500/month left after all debts (family of 4, varies by region).

Example: $65k income, $1,600 mortgage + $300 debts = 35% DTI, $1,800 residual. ✅ Approved.

USDA LOAN: Credit score: 640+ recommended (some lenders 580+).

Income: Must be <115% area median income (AMI).

Example: Family of 4 in suburban area, AMI $80k → Max income $92k to qualify.

DTI: Max 41-45%.

First-time buyer tip: Improve approval odds: Pay down credit cards to <30% utilization (boosts score 20-40 points).

Save 6 months reserves ($10k-$15k beyond down payment/closing = stronger application).

Get pre-approved with 2-3 lenders (FHA, conventional, credit union) to compare.

If score <620: Work with FHA lender or consider 6-12 month credit repair (dispute errors, pay down cards, add authorized user tradeline).

Decision matrix based on your financial profile: CHOOSE FHA IF: (1) Credit score 580-680 (FHA more forgiving, conventional charges 1-2% higher rate below 680). (2) Down payment <5% and can't get DPA (FHA 3.5% vs conventional 5% without special program). (3) Higher DTI 45-50% (FHA allows, conventional caps at 45%). (4) Limited savings (FHA allows seller to pay 6% closing costs vs 3% conventional).

Example: 620 credit, 3.5% down, 48% DTI → FHA ONLY option (conventional denies).

Cost: $300k home, 6.5% rate, $10,500 down.

Monthly: $1,827 principal+interest + $228 PMI (MIP 0.55% + 1.75% upfront) + taxes/insurance.

Total: ~$2,400/month.

CHOOSE CONVENTIONAL IF: (1) Credit score 700+ (get better rate, 0.25-0.5% lower than FHA). (2) Down payment 5-10%+ available (avoid FHA upfront MIP 1.75% = $5,250 on $300k). (3) Can reach 20% down in 5-7 years (conventional PMI drops off at 20% equity, FHA MIP is lifetime below 10% down). (4) DTI <43% (cleaner approval, better pricing).

Example: 720 credit, 5% down, 38% DTI → Conventional. $300k home, 6.0% rate, $15,000 down.

Monthly: $1,709 principal+interest + $190 PMI (0.8% rate, cancels at 20% equity).

Total: ~$2,300/month, saves $100/month vs FHA.

Break-even analysis: FHA upfront MIP: $300k × 1.75% = $5,250 (financed into loan).

Conventional higher down payment: $15k - $10.5k FHA = $4,500 extra.

Monthly savings (conventional): $100/month × 60 months (5 years) = $6,000.

Conventional wins if: (1) Can afford 5%+ down, (2) Score 680+, (3) Plan to stay 5+ years or refinance.

FHA wins if: (1) Tight on cash (lower down payment), (2) Score <680, (3) Need flexible DTI.

Special case - VA/USDA: If eligible for VA (veterans) or USDA (rural), ALWAYS choose over FHA/conventional (0% down, no PMI, lower rates).

Federal, state, and local programs offering down payment assistance (DPA), tax credits, and grants: FEDERAL PROGRAMS: (1) FHA 203(b) Loan: 3.5% down, lenient credit (covered above). (2) Fannie Mae HomeReady / Freddie Mac Home Possible: 3% down conventional loans for low-to-moderate income (<80% AMI), includes $500-$2,500 homebuyer education credit. (3) Good Neighbor Next Door: HUD program for teachers, law enforcement, firefighters, EMTs. 50% discount on homes in revitalization areas (e.g., $200k home for $100k).

Must live in home 3 years. (4) First-Time Homebuyer Tax Credit (proposed 2025, not yet law): Up to $15,000 refundable tax credit (one-time).

Monitor Congress for passage.

STATE DPA PROGRAMS (examples, most states offer similar): California CalHFA: $25,000 DPA (forgivable over 3 years if primary residence).

MyHome Assistance: 3.5% of purchase price (up to $34,650 on $1M home).

Texas TSAHC: $15,000-$30,000 DPA (0% interest, deferred until sale/refinance).

Mortgage Credit Certificate (MCC): 20-50% of mortgage interest as annual tax credit (saves $1,500-$3,000/year).

New York SONYMA: $15,000 DPA + reduced rates (5.5-6.0% vs 6.5-7.0% market).

Florida FHC: $10,000 DPA + closing cost assistance $2,500.

Illinois IHDA: $10,000 DPA (forgivable over 10 years, 10%/year).

LOCAL/CITY PROGRAMS: Most cities with 100k+ population offer $5,000-$20,000 DPA for income-qualified buyers.

Example: Seattle: $90,000 DPA for households <80% AMI (forgiven over 40 years).

Austin: $15,000 DPA + $5,000 closing cost grant.

Chicago: $10,000 DPA + $1,500 education credit.

EMPLOYER PROGRAMS: Some large employers (hospitals, universities, tech companies) offer $5,000-$25,000 home-buying assistance for employees purchasing near workplace.

ELIGIBILITY TIPS: Income limits: Typically <80-115% AMI ($70k-$100k for family of 4 in median areas).

First-time definition: No home ownership in past 3 years (or single parent, displaced homemaker).

Home price caps: Often $350k-$500k (varies by county).

Homebuyer education: 4-8 hour course required ($50-$100, often reimbursed).

How to find programs: Visit HUD.gov local office lookup, state housing finance agency (HFA) website, or ask lender for DPA options.

Many buyers stack programs: Example: $300k home with $25k CalHFA DPA + 3% FHA loan = $10,500 FHA down - $25k grant = $0 down payment (grant covers down payment + $14,500 toward closing costs).

Total cash needed: ~$3,000-$5,000 out-of-pocket.

Use the 28/36 rule + modern adjustments for 2025 market: 28/36 RULE (conservative): Front-end ratio: Housing costs ≤28% gross monthly income (PITI = principal, interest, taxes, insurance, HOA).

Back-end ratio: Total debt ≤36% gross income (PITI + car, student loans, credit cards).

Example: $70,000 annual income = $5,833/month gross.

Max housing: $5,833 × 28% = $1,633/month PITI.

Max total debt: $5,833 × 36% = $2,100/month (housing + $467 other debts).

Affordable home price at 7% rate, 5% down: $1,633/month - $400 taxes/insurance = $1,233 available for principal+interest. $1,233 ÷ $6.65 per $1,000 financed (7% rate, 30-year) = $185,414 loan amount.

Add 5% down ($9,759) = $195,173 affordable home price (~$195k).

MODERN 40/45 RULE (2025 lender standards, less conservative): Front-end: 33-40% housing (lenders approve higher).

Back-end: 43-50% total debt (especially FHA/VA).

Same $70k income, 40% housing: Max housing: $5,833 × 40% = $2,333/month PITI. $2,333 - $400 taxes/insurance = $1,933 P&I. $1,933 ÷ $6.65 = $290,677 loan + $15,299 down (5%) = $305,976 affordable (~$306k).

Difference: 28% rule = $195k, 40% rule = $306k (57% more house, but tighter budget).

RECOMMENDED APPROACH (balance risk): Use 30-33% for housing if: (1) Unstable income (commission, freelance, new job), (2) High existing debts, (3) Low emergency fund (<6 months).

Use 35-40% if: (1) Stable W-2 income, 2+ years same employer, (2) Low other debts (<$500/month), (3) Strong savings (12+ months reserves), (4) Dual income (backup if one loses job).

INCOME-TO-PRICE QUICK ESTIMATES (2025, 7% rate, 5% down, 1.5% property tax, $100/month insurance): $50k income → $150k-$200k home (conservative-aggressive). $70k income → $210k-$280k home. $100k income → $300k-$400k home. $150k income → $450k-$600k home.

ADJUSTMENT FACTORS: High property tax states (NJ, IL, TX 2-3%): Reduce by 15-20%.

Low rate (5-6% if good credit): Increase by 10-15%.

High HOA ($300+/month): Reduce by $50k-$75k.

Student loans ($500+/month): Reduce by $75k-$100k.

Calculator use: Input your actual income, debts, down payment %, and local tax rate for personalized number.

Don't max out approval—leave 10-15% buffer for unexpected costs.

Top 10 costly mistakes and solutions: (1) MAXING OUT BUDGET (40% of first-timers): Mistake: Getting approved for $400k, buying $400k home with $2,800/month payment (50% income).

Result: House-poor, can't save, one emergency away from default.

Solution: Buy 10-15% below max approval.

If approved for $400k, target $340k-$360k (leaves $300-$500/month buffer). (2) SKIPPING INSPECTION ($500 saves $15k+ regrets): Mistake: Waiving inspection in competitive market to win bid.

Result: Discover $20k roof replacement, $8k foundation cracks after closing.

Solution: Never waive inspection (or get pre-inspection before offer).

Budget $400-$600 for professional inspection + $150-$300 for sewer scope (older homes). (3) IGNORING TOTAL MONTHLY COST (focus on purchase price only): Mistake: Comparing $300k home in low-tax area vs $300k in high-tax area as "same price." Reality: Low-tax: $300k × 0.8% tax + $100 insurance = $2,000/month total.

High-tax: $300k × 2.5% tax + $150 insurance = $2,475/month (+$475/month = $171k over 30 years).

Solution: Use "total monthly payment" calculator including PITI + HOA, not just purchase price. (4) DRAINING EMERGENCY FUND FOR LARGER DOWN PAYMENT: Mistake: Using $25k savings for 10% down vs 5% down, leaving $0 emergency fund.

Result: First HVAC repair ($5k) goes on 20% APR credit card.

Solution: Keep 3-6 months expenses liquid (separate from down payment).

Better to pay $100/month PMI than have no safety net. (5) NOT SHOPPING LENDERS (costs $5k-$15k): Mistake: Going with first pre-approval (realtor referral) at 7.25% rate, $8k closing costs.

Reality: Credit union offers 6.75% (saves $10k over 5 years), $5k closing costs.

Solution: Get quotes from 3+ lenders (bank, credit union, online lender) within 14-day window (counts as 1 credit pull).

Compare APR + fees, not just rate. (6) BUYING BEFORE CREDIT OPTIMIZATION (costs 0.5-1% rate = $50k-$100k): Mistake: Applying with 680 score, getting 7.0% rate.

Waiting 3 months to improve to 740 = 6.25% rate (saves $120/month, $43k over 30 years).

Solution: If score <720, delay 2-6 months to optimize: Pay credit cards to <10% utilization, dispute errors, add authorized user tradeline, wait for recent late payments to age. (7) IGNORING PROPERTY TAXES / HOA INCREASES: Mistake: Buying home with $200/month tax (assessed at $250k), but comps selling at $350k.

Reassessment after purchase = $280/month tax (+$80/month surprise).

Solution: Check recent assessment vs market value, ask about reassessment frequency.

Research HOA fee history (if increased 5%/year, budget for future). (8) WRONG LOAN TYPE FOR SITUATION: Mistake: Using FHA with 10% down ($30k) instead of conventional.

FHA: Lifetime MIP $220/month (never drops off <10% down).

Conventional: PMI $180/month, drops at 20% equity (5-7 years) = saves $13k-$18k.

Solution: If putting 5-10% down with 680+ score, conventional usually beats FHA long-term. (9) BUYING AT TOP OF MARKET WITH 3% DOWN (high risk): Mistake: $300k home, $9k down (3%), market drops 10% to $270k → underwater $21k (owe $291k on $270k home).

Can't sell/refinance without bringing cash.

Solution: In uncertain market, put 10-20% down OR rent another 1-2 years OR buy below budget to handle potential decline. (10) SKIPPING HOMEBUYER EDUCATION (misses $1k-$25k in DPA/credits): Mistake: Not taking 6-hour homebuyer course ($75-$100).

Misses: $15k DPA eligibility, $2,500 education credit, $1,500/year MCC tax credit.

Solution: Take HUD-approved course (online 6-8 hours, $75) → Unlocks state/federal programs worth $5k-$25k.