First-Time Homebuyer Guide: Save on Your Mortgage

Buying your first home is one of the most significant financial decisions you'll make. It's exciting, but it can also be overwhelming — especially when it comes to mortgages, down payments, and closing costs. This guide covers what you need to know to navigate the process and save as much as possible along the way.

How Much Home Can You Afford?

A common guideline is that your total monthly housing payment (mortgage principal, interest, taxes, and insurance — often called PITI) should not exceed 28% of your gross monthly income. Your total debt payments (housing plus car loans, student loans, credit cards) should stay below 36%.

However, what you qualify for and what you can comfortably afford are often different numbers. Use the lower figure and leave room in your budget for maintenance, repairs, and the unexpected costs of homeownership.

Saving for a Down Payment

While 20% down is the traditional target (and avoids private mortgage insurance, or PMI), many programs allow much less:

• Conventional loans: As low as 3% down for first-time buyers
• FHA loans: 3.5% down with a credit score of 580 or higher
• VA loans: 0% down for eligible veterans and active-duty service members
• USDA loans: 0% down for eligible rural and suburban homebuyers

Putting less than 20% down usually means paying PMI, which typically costs 0.5–1% of the loan amount annually. Factor this into your monthly payment calculation.

Park your down payment savings in a high-yield savings account where it earns interest while remaining liquid and safe.

Understanding Mortgage Types

Fixed-Rate Mortgages

Your interest rate stays the same for the entire loan term (usually 15 or 30 years). Monthly payments are predictable, making budgeting easier. This is the most popular choice for first-time buyers.

Adjustable-Rate Mortgages (ARMs)

ARMs offer a lower initial rate that adjusts after a set period (e.g., 5/1 ARM means a fixed rate for five years, then annual adjustments). ARMs can make sense if you plan to sell or refinance within the initial fixed period, but they carry risk if rates rise.

Getting Pre-Approved

Before house hunting, get pre-approved for a mortgage. This involves a lender reviewing your income, assets, debts, and credit to tell you how much they'll lend. Pre-approval strengthens your offers and helps you shop within your true budget.

Get pre-approved by at least two to three lenders to compare rates and terms. Even a small difference in interest rate can save thousands over the life of a 30-year mortgage.

Don't Forget Closing Costs

Closing costs typically range from 2–5% of the home's purchase price and include appraisal fees, title insurance, attorney fees, origination fees, and prepaid expenses (taxes, insurance). On a $300,000 home, expect $6,000–$15,000 in closing costs.

Some of these costs are negotiable. You can also ask the seller to contribute toward closing costs as part of your offer — this is more common in buyer's markets.

First-Time Buyer Programs and Assistance

Many states and local governments offer programs for first-time homebuyers, including:

• Down payment assistance grants or low-interest loans
• Tax credits (like the Mortgage Credit Certificate)
• Reduced interest rate programs

Check with your state's housing finance authority for available programs. These can save you thousands and are often underutilized.

Tips to Save on Your Mortgage

• Improve your credit score before applying. Even a modest improvement can qualify you for a lower rate.
• Choose a 15-year mortgage if affordable. You'll pay a lower rate and dramatically less total interest.
• Make one extra payment per year. This alone can shave years off a 30-year mortgage.
• Avoid making large purchases before closing. New debt can affect your debt-to-income ratio and jeopardize your approval.
• Build your emergency fund before and after buying. Homeownership comes with unexpected expenses.

Buying your first home is a marathon, not a sprint. Take your time, do your research, and make sure the numbers work within your budget. If you're also carrying student debt, see our guide on paying off student loans faster for tips on balancing both financial goals.