NEW YORK, NY — Buying a first home has gotten harder for many Americans as prices stay near record levels, inventory remains tight in much of the country and mortgage costs hover at levels not seen in years. Freddie Mac said the average 30-year fixed rate reached 7.28% on Oct. 1, the highest weekly reading since 2023.
That backdrop has pushed many would-be buyers to rethink timing, savings goals and lender choices. Even so, the fall market can still help buyers in some places because listings tend to rise and competition can ease, giving sellers more reason to negotiate. The central lesson is simple: preparation matters more when rates are high.
Credit scores and savings habits can shape the rate you get
A borrower’s credit score remains one of the biggest levers in the mortgage process. Conventional loans generally require at least a 620 score, but buyers who get above 700 often qualify for better pricing, and scores above 740 usually unlock the strongest offers.
Even a small rate gap can matter. CNBC Select says a difference of just 0.50% can save hundreds of dollars a month on a median-priced home and tens of thousands over the life of the loan. Keeping credit card balances low, paying bills on time and reducing debt can all help. Some buyers also use services such as Experian Boost to add eligible on-time bills to a credit file.
Monitoring tools can help spot errors and track progress before applying. Lenders may also look more favorably on borrowers whose credit profiles are clean and whose debts are manageable.
Down payments are only part of the cash buyers need
The down payment is often the biggest hurdle, but it is not the only upfront cost. A conventional mortgage can require as little as 5% down, which would be $20,000 on a $400,000 home. Putting 20% down, or $80,000 on that same home, avoids private mortgage insurance, commonly known as PMI.
PMI usually costs between 0.40% and 1.50% of the mortgage balance each year, which can add hundreds of dollars to monthly housing costs. CNBC Select notes that buyers saving for an $80,000 down payment over five years would need to put aside about $1,333 a month. High-yield savings accounts, money market accounts and CDs can help that money grow faster than a traditional savings account.
Closing costs, moving bills and reserves can add up fast
Many first-time buyers underestimate the amount of cash needed after the down payment. Lender fees and closing costs can run from 2% to 6% of the home’s purchase price and may include application, origination, underwriting, appraisal, inspection, title and recording charges.
Moving costs can also be substantial. CNBC Select suggests budgeting $5,000 to $10,000, though the total can vary widely depending on distance and how much furniture and equipment needs to move. On top of that, experts recommend keeping six months of housing expenses in reserve so an emergency such as a job loss or medical issue does not immediately threaten homeownership.
For a household paying $3,000 a month for housing, that reserve target would be $18,000. Buyers who build in those costs early are less likely to be surprised when the closing table arrives.
Monthly housing budgets should include more than principal and interest
One of the most important planning tools is the 30% rule used by the U.S. Department of Housing and Urban Development. It says housing expenses, including mortgage payments, utilities and insurance, should not exceed 30% of gross household income.
To estimate a monthly ceiling, buyers can multiply annual household income by 0.30 and then divide by 12. A household earning $100,000 a year would land at $2,500 a month in total housing costs under that formula. That number is only a guideline, but it helps buyers avoid chasing homes that may look affordable on paper and feel tight in practice.
Utilities averaged $353.27 a month in August, according to the Bureau of Labor Statistics. Property taxes and homeowners insurance vary sharply by location, which is why the full monthly payment often looks much larger than the mortgage alone.
Loan type, lender choice and assistance programs can change the math
Different mortgage products fit different buyers. Conventional loans are the most common and usually require a 620 score, a 5% minimum down payment and a debt-to-income ratio around 43%. Jumbo loans, which exceed county conforming limits, generally ask for stronger credit and a 10% down payment.
Government-backed loans can be more flexible. FHA loans allow credit scores as low as 500 with a 10% down payment, or 580 with 3.5% down. VA loans for eligible service members and veterans require no down payment or mortgage insurance, and USDA loans can also allow 0% down in qualifying rural and suburban areas.
Some lenders also offer first-time buyer programs or grants, and Freddie Mac maintains a nationwide database of down payment assistance through DPA One. CNBC Select says borrowers should compare at least four quotes before choosing a lender.
Preapproval, rate buydowns and negotiations can trim total costs
Before house hunting, buyers are advised to seek several preapproval letters, which outline how much a lender may offer and for how long a rate can be locked. A preapproval also helps set a realistic search range and shows sellers the buyer is serious.
Once a home is found, there may still be room to negotiate. In higher-rate markets, sellers sometimes agree to price cuts, cover closing costs or add other concessions. Buyers can also ask about rate buydowns, where money is paid upfront to reduce the interest rate temporarily or permanently.
Temporary buydowns can lower payments for the first few years, but the payment can rise sharply once the lower-rate period ends. That makes them useful only when a buyer can handle the future reset.
More on what homes, rents and new builds are doing near you, on RHS Commoner.
