First-Time Home Buyer Resources
Explore our collection of articles, tools, and videos designed to guide you through every step of the home-buying journey.
Buying Your First Home: Start Here
Buying your first home can feel overwhelming — but it doesn't have to be. Start here: these guides walk you through the fundamentals, from saving for a down payment and getting pre-approved to making an offer and closing, so you can buy with confidence.
Featured Content
How to Buy a House: First-Time Home Buyer’s Guide
Looking to buy a house? Navigate the home-buying process with confidence by checking out this essential guide for first-time buyers.
Article
How Much House Can I Afford?
Looking to buy a new home but not sure how to figure out what you can afford? We’ll help you calculate mortgage affordability before you buy.
Article
Mortgage Preapprovals: What You Should Know
If you’re ready to tackle homeownership, the first step is to seek out a preapproval letter that documents exactly how much money you’re qualified to borrow.
Article
Most Common First-Time Home Buyer Mistakes
Buying your first home is certainly an exciting adventure, though the process is known for some unexpected challenges. In this video, we’ll uncover the top missteps new homebuyers make ranging from overlooking hidden costs to neglecting important inspections.
Mortgage Calculators
Run the numbers with our free mortgage calculators to estimate your monthly payment, see how much home you can afford, and gauge how rates and down payments change the total.
Mortgage Payment Calculator
This tool will help you determine your estimated monthly mortgage payment and total interest owed.
How Much House Can I Afford? Calculator
Want more clarity regarding your budget? Enter some basic info, and our calculator will do the rest.
Early Mortgage Payoff Calculator
Learn how making extra payments can help you pay off your loan faster and therefore save on interest.
How Mortgages Work
From fixed vs. adjustable rates to points, PMI, and refinancing, these articles break down how mortgages actually work — so you can compare your options and know exactly what you're signing up for.
The Most Common Types of Mortgage Loans for Homebuyers
In the market for a home? Refer to this handy guide to familiarize yourself with various types of mortgage loans.
From Home Appraisal to Home Inspection: Master the Essentials
From appraisals and inspections to closing costs, escrow, and title, these articles walk you through each step of the buying process — so you know what's coming and can avoid costly surprises.
Need personalized home-buying and investing advice? Consider signing up for our Advice Membership to receive ongoing access to a CFP® professional.
Home Buying and Mortgage Terms to Know
You'll be so well-prepared that your real estate agent, mortgage rep, or closing attorney will think you read their mind! Our glossary defines the home-buying and mortgage terms you'll run into — click any term for a quick definition.
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Adjustable-rate mortgages (ARMs) are typically 30-year loans that come with variable interest rates and often feature an introductory rate fixed for an initial period ranging from 1 to 10 years—generally lower than that of a fixed-rate mortgage. The interest rate can fluctuate based on market conditions after the introductory period, meaning monthly payments may increase or decrease accordingly.
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An adjustable-rate mortgage adjustment period reflects the time after your initial fixed-rate period ends. Your introductory rate is fixed for a period of 5 years in a 5/1 ARM, for example, meaning you enter the "adjustment period" after this timeframe comes to a close.
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Mortgage amortization refers to the process of gradually paying off a home loan—both principal and interest—over time via scheduled, regular payments.
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A mortgage amortization schedule is a detailed table outlining each payment you’ll make over the life of a home loan, breaking down each payment into two main components: the portion that goes toward paying off the principal (the amount borrowed) and the portion that goes toward interest.
In the early years, you'll notice most of each payment is allocated to interest with only a small amount going toward the principal. This ratio gradually changes as time goes on, however, eventually flipping so that a larger portion goes toward paying off the principal with a smaller amount allocated to interest further on down the road.
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The annual percentage rate (APR) on your home loan is a broad measure of your mortgage cost and—in addition to interest—often includes fees and other charges you’ll pay to secure the loan (e.g., mortgage insurance, most closing costs, discount points, and loan origination fees). This number therefore almost always eclipses the mortgage rate.
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A home appraisal is an independent, professional assessment of a property's fair market value and a popular loan-approval prerequisite. Conducted by a licensed or certified appraiser, this process helps ensure the home is worth what the buyer has agreed to pay and prevents the lender from financing more than the property’s value.
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For the buyer, closing day is the last step in the home-buying process and when you officially take ownership of the home (and often receive the keys!). For the seller, it means receiving payment and handing over possession.
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Closing costs are fees tacked onto title insurance, appraisal costs, loan fees, and taxes paid to finalize your home purchase. They usually range from 2% to 5% of the home’s purchase price, and lenders provide a loan estimate early on in the process as well as a closing disclosure prior to closing with the final numbers.
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A closing disclosure, which you'll receive at least three days prior to closing, is a document containing final mortgage loan and closing cost details. Review it carefully, comparing it to your loan estimate to ensure the numbers match, and quickly flag any errors.
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Lenders use the debt-to-income ratio (DTI) to assess whether you’re a good candidate for a loan or mortgage. Divide your total monthly debt by your gross monthly income to determine this number; the lower your DTI, the better. A “good” DTI likely falls under 35%, but lenders will be more likely to lend to you if you can push it even lower.
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A deed is a legal document containing a description of the property and granting ownership (via a title). Sellers sign this to specify property details and name the buyer as the new owner.
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Earnest money is a deposit you make when submitting an offer on a home, signaling to the seller that you’re serious about buying and willing to put money on the line to back up your offer. A typical earnest money deposit is 1%–3% of the home’s purchase price (but can go as high as 5%–10% in competitive markets).
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An escrow account is a financial arrangement whereby a neutral third party holds funds or assets on behalf of parties involved in a transaction. During the home-buying process, these accounts hold earnest money deposits, deeds, and other essential documents until the transaction is complete: safeguarding the interests of both buyers and sellers while ensuring transparency and accountability throughout the process.
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Just as the name implies, a fixed-rate mortgage is a type of home loan whereby interest rates stay the same throughout the life of a loan—meaning the amount you pay on Month 1 of your mortgage is the same you’ll pay on Month 100 (and beyond). The most common fixed-rate terms come with 15, 20, or 30-year payback periods.
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Gross monthly income refers to the total money earned from all sources in a month before any taxes or deductions are applied. For example, if you earn a monthly salary of $3,000, receive $500 in bonuses, and make $200 from freelance work, your gross monthly income is $3,700.
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A home inspection is a detailed visual examination of a property's structure and major systems and typically performed by a certified home inspector after your offer is accepted but prior to closing. The goal? To uncover any issues (large or small) that could impact your purchase decision and/or wallet.
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Homeowner's insurance is a type of insurance policy that provides financial protection to homeowners against property losses/damages and is typically mandatory for those with a mortgage.
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The interest rate on your mortgage is simply the amount you’ll pay a lender beyond the principal (the amount of money you originally agreed to repay); it does not reflect any fees or other charges you may incur to obtain the loan. Various factors help determine this number including prevailing rates, your credit score, loan-to-value ratio, property type, and loan type (fixed vs. adjustable, etc.).
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A lien is a legal claim or right against a property to secure the payment of a debt. If a homeowner takes out a mortgage loan to purchase a home, for example, the lender will place a lien on the property; if the homeowner fails to make mortgage payments, the lender has the legal right to take possession of the home via foreclosure in order to recover the outstanding debt.
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A loan estimate is a three-page form you receive from your lender after applying for a mortgage and includes key loan details such as the estimated interest rate, monthly payment, and total closing costs. It also provides information about estimated tax and insurance costs and how the interest rate and payments may change in the future.
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Loan origination fees are mandatory mortgage lender charges—generally paid at closing—for loan underwriting and processing. These vary by lender and often cost anywhere from half a percent to one percent of your mortgage. While these increase your costs, they don’t affect your mortgage interest rate.
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Expressed as a percentage, your loan-to-value ratio (LTV) is the size of your loan compared to the value of the asset you’re borrowing against (your home, in this case). Lenders use this ratio to determine loan risk; the higher the LTV, the more risk a lender assumes (often meaning higher costs for you as the borrower, assuming you qualify).
To calculate LTV, divide your mortgage balance by your home’s appraised value (e.g., if your home is appraised at $400,000 and your mortgage balance is $200,000, your LTV is 50%).
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A mortgage is a type of loan and an agreement between you and a lender that gives the lender the right to take your property if you don’t repay the money borrowed plus interest.
Check out our article on the most common types of mortgage loans.
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A mortgage rate lock is a feature dictating your interest rate won't change while you're in the process of buying a home, protecting you from potential increases by the time you close. You can typically lock in a rate for 30 to 60 days, though this service sometimes involves extra fees.
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Net monthly income refers to the total amount of money earned from all sources in a month after any taxes or deductions are applied. For example, if you earn a salary of $3,000, make $200 from freelance work, and pay $350 in taxes, your net monthly income is $2,850.
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PITI is an acronym representing the four main components of a monthly mortgage payment: principal, interest, taxes, and insurance. Understanding PITI can help you estimate how much of a mortgage you can afford.
The 28/36 PITI rule suggests you should spend no more than 28% of your gross household income on housing-related expenses including your mortgage payment, property taxes, homeowners’ insurance, and homeowners' association (HOA) fees. The second number (36) indicates your total monthly debt payments shouldn’t exceed 36% of your monthly income (a total including not only your monthly mortgage payments but also other debts such as credit cards, car loans, student loans, and business loans).
The lower your PITI, the less risky it is for lenders to issue you a loan.
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Mortgage points (also known as "discount points") are a one-time fee paid directly to the lender in exchange for a reduced mortgage interest rate, an exercise also known as “buying down the rate” or a “buydown.”
A single “point” generally lowers your interest rate anywhere from one-eighth (0.125) to one-fourth (0.25) percent and costs 1% of your total mortgage. If you borrow $500,000, for example, one mortgage point will cost $5,000.
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A mortgage pre-approval letter is a conditional commitment from your lender outlining how much you can borrow and alerting you to any potential issues that can prevent you from obtaining a mortgage down the road. This letter also shows sellers you’re a serious buyer since you can back up the offer you make.
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A pre-qualification letter estimates how much of a loan you’re likely to qualify for but involves a simpler process than what it takes to obtain a pre-approval letter as it relies on self-reported income rather than a thorough credit inquiry.
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The loan principal refers to the original amount borrowed, excluding any interest. If you take out a home loan of $300,000, for example, the principal is $300,000.
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Private mortgage insurance is a policy protecting the lender should you stop making mortgage payments: reimbursing the lender for a portion of the loan balance as what’s essentially a risk-management tool for mortgage companies when borrowers don’t put down at least 20%.
For example, let's say you want to buy a home priced at $300,000 but can only afford to put down 10% ($30,000). Since your down payment is less than 20%, your lender will likely require you to pay for PMI.
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A mortgage rate cap limits how much the interest rate can increase during a specific period or over the life of the loan, a feature commonly associated with adjustable-rate mortgages (ARMs) whereby the interest rate can change based on market conditions. Three common types include:
Initial Rate Cap: Limits how much the interest rate can increase after the initial fixed period
Periodic Rate Cap: Limits how much the interest rate can increase from one adjustment period to the next
Lifetime Rate Cap: Sets a maximum limit on how much the interest rate can increase over the entire term of the loan
Rate caps give borrowers some protection against significant monthly payment increases due to rising interest rates.
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Refinancing is the process of paying off an existing mortgage loan with a new one. Generally speaking, if refinancing can save you money and help you build equity and pay off your mortgage more quickly, it’s a wise financial decision.
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A title provides proof of your rights to a property—your ability to own, control, and use it—and includes all previous ownership and property uses. When you buy a property, a title company or attorney will look up public records to check (via a "title search") for any title issues such as mistakes in the deed or unpaid taxes from past owners: identifying any ownership concerns, ensuring the seller has a right to sell the property, and checking for any claims against it.
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Title insurance is a type of policy that protects real estate buyers and lenders against potential losses due to property title defects (e.g., liens, encumbrances, or other legal claims that arise after a property sale). Title insurance generally covers any legal costs associated with disputes over ownership or title defects not discovered during the title search pre-sale. Your mortgage lender will typically require you to purchase a title policy when you're buying a home and, in some cases, refinancing a mortgage.
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Mortgage underwriting is the process a lender uses to decide if they will approve a loan for a home buyer based on criteria such as credit history, income, property value, loan details, and debt.
Home-Buying Articles
Browse the latest posts from our home-buying blog — new articles added regularly.
Home Buying Questions People Also Ask
Find answers to the most common questions.
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When determining how much home you can afford, several factors come into play including your monthly income, expenses, and the level of debt your lender believes you can manage.
Consider the 28/36 rule, a helpful guideline suggesting you spend no more than 28% of your gross monthly income on home-related expenses (mortgage payments, property taxes, homeowners’ insurance, and homeowner’s association (HOA) fees). The second portion (36%) indicates your total monthly debt payments shouldn’t exceed 36% of your gross income—a number including not only monthly mortgage payments but all monthly debts including credit cards, car payments, student loans, business loans, and more.
Heed both numbers simultaneously; if your mortgage is technically less than 28% of your monthly income but your total monthly debts exceed 36% of the same, you might consider pushing off your purchase until you can pay down additional debt or find a less expensive property so home finances don’t adversely impact your lifestyle.
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The cost of your premium will depend on various factors including location, home value, coverage limits, and your deductible. Some areas also require additional policies such as flood or earthquake insurance that aren’t always included in standard coverage. Per Bankrate.com, the average cost of homeowners' insurance in the U.S. is currently $2,408 per year for $300,000 in dwelling coverage. It’s a good idea to shop around and compare quotes from several providers, knowing many buyers bundle home and auto insurance to receive a discount.
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A standard guideline is to set aside 1–3% of your home's value each year for maintenance and repairs. If your home is worth $500,000, for example, you should save between $5,000 and $15,000 annually. While this may seem like a significant amount, costs can escalate quickly when issues such as a broken furnace, leaky roof, or faulty appliance pop up.
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At the end of the day, lenders want to reduce any potential risk they might incur by taking you on as a loan holder. Credit scores, in turn, help creditors not only predict an individual’s level of financial wherewithal but also help hold individuals accountable if and when they fail to make payments on time.
A poor credit score may result in a loan-application denial, which can also occur if other eligibility requirements aren’t met; while you can still receive a loan with a less-than-excellent score, this will likely trigger a higher interest rate to make monthly payments significantly more expensive.
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While you can use funds from your 401(k) or IRA as a down payment for a home, it isn't recommended since doing so means mortgaging your financial future. Significant drawbacks include the potential for incurring an early-distribution penalty, paying taxes on the amount withdrawn (though exceptions do exist), and missing out on investment growth—especially during a bull market. If you take out a loan from your 401(k), specifically, you may contribute less toward your retirement savings overall—and if you change employers with the loan still outstanding, you'll generally need to repay or roll over the balance by your federal tax-return deadline (including extensions) for that year, or it's treated as a taxable distribution.
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Closing costs usually range from 2% to 5% of the home’s purchase price and include loan fees, title insurance, appraisal costs, and taxes. Lenders provide a loan estimate early on in the process and a closing disclosure prior to closing with the final numbers.
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An adjustable-rate mortgage may make sense if:
You plan on moving
If you’re buying a “starter” home and want to sock away extra cash for a one-day “forever” home, an ARM may better support your goals given lower initial payments.
Interest rates are rising (or higher than normal)
It’s not uncommon for adjustable-rate mortgages to grow in popularity in high(er)-rate environments as you won’t get locked into a higher-than-average interest rate for the duration of the loan. When rates drop following your introductory period, monthly payments will as well.
You want to build equity more quickly
Saving money on interest payments may add some flexibility to your budgeting, allowing you to pay down the principal balance more quickly.
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With job loss ranking among the most common factors driving home foreclosures, an emergency savings cushion—a minimum of 3 to 6 months' worth of expenses, ideally up to 12 months' worth—can help cover monthly payments and necessary repairs in case you or your spouse find yourself in this boat.
Wondering how it fits with saving for retirement, paying down debt, balancing equity comp, or your other goals? A CFP® professional can give you an outside read — by the hour, as part of an ongoing membership, or as a full financial plan. There’s no minimum to get started.
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