The First Home Purchase

The mortgage industry profits from your confusion. Five numbers, three loan types, and one myth — and you can walk into the biggest purchase of your life knowing the game.

The 20% Myth

You do not need 20% down. You almost certainly will not put 20% down, and neither does anybody else: the median first-time buyer in the most recent national survey put down 10%, and even repeat buyers — who are usually rolling equity out of a house they already own — only managed a median of 23%.⁠[1]

The floors are lower still. Conventional loans start at 3–5% down, FHA at 3.5%, and VA loans at zero for those who served (the full VA stack is in Military Money).⁠[2] Below 20% on a conventional loan you pay PMI — typically 0.3–1.5% of the loan yearly — but PMI is temporary and comes off on a schedule you can look up in advance. Years spent saving toward a myth, in a market that keeps moving, can cost far more than the insurance would have.

Mortgage Terms, Defined

Every page on this site that touches real estate uses these words, so they get defined once, here, and linked from everywhere else. None of them are complicated; they are just jargon, and jargon is how a room full of professionals keeps a first-time buyer quiet.

What Actually Gets Inspected — and What Does Not

“Inspect the home ruthlessly” is the step most buyers do least well, because most buyers do only what is required — and almost nothing is required. The lender orders an appraisal, which values the house and, on an FHA or VA loan, checks it against minimum property standards. That is not an inspection and it is not for your benefit. A general home inspection is a visual, non-invasive walkthrough by a generalist. It is the right starting point and it is not the whole picture.

These are the systems a general inspection routinely excludes, each of which has to be ordered separately and each of which regularly costs more to fix than the whole inspection budget:

• Sewer lateral — a camera scope of the line from the house to the main. Roots and collapsed clay on an older lot are a five-figure repair the buyer inherits.
• Chimney and flue — a Level 2 inspection puts a camera inside the liner. A generalist looks at the outside of the stack and stops there.
• Roof — inspectors often will not walk a steep or high roof, and report from the ground or a drone. On a roof near the end of its life, get a roofer.
• HVAC — the general inspection confirms it turns on. A service technician tells you what is left of it.
• Structural — any crack, slope or stuck door the inspector flags is a referral, not a diagnosis. That referral is to a structural engineer.
• Well and septic — flow rate, water quality, tank and drain field. Mandatory in some states, ordered by nobody in others.
• Radon, termite and other wood-destroying organisms, mold and moisture — separate tests, all of them cheap relative to what they find.
• Pre-1978 lead paint, and asbestos in mid-century flooring, insulation and duct wrap.
• Known-defect items in the panel and the plumbing — Federal Pacific and Zinsco electrical panels, aluminum branch wiring, polybutylene and galvanized supply lines, and buried heating-oil tanks. Any one of these can also make the house harder to insure.
• Pool, spa, seawall, dock, outbuildings — outside the scope of a standard report.

The working rule: decide which of these apply to this house — its age, its lot, its systems — and order them inside the inspection contingency window. They run roughly $100 to $800 each. That is the cheapest information you will ever buy about the largest purchase you will ever make, and the inspection contingency is the only period in which the answers are still free to act on.

The Five Numbers That Are the Mortgage

1. Rate & APR: the rate prices the loan; APR folds in fees — compare APRs across at least three lenders on the same day. Rate-shopping saves thousands, and most buyers never do it.⁠[3] Credit-scoring models treat multiple mortgage inquiries inside a short window as one, so the shopping itself is not what hurts you.
   
   Ask each lender whether it offers a float-down — the right to re-lock at a lower rate if rates fall between your lock and your closing. Closing takes 30–60 days, which is long enough for the market to move. When we financed our own home, the lender allowed two rate changes during that window, and taking the second one got us the lowest rate available across the whole period. Not every lender offers it, and some charge for it, so ask before you lock rather than after.
2. The full PITI payment (see the glossary above). Lenders approve up to roughly 43–50% debt-to-income. A payment near 28% of gross income is a much safer planning number: it is the level that still leaves room for retirement contributions, an emergency fund, and the rest of a life that does not revolve around the house. Treat 28% as the target and anything above it as a decision you are making deliberately, not a number the lender handed you.
3. Closing costs: 2–5% of the loan, on top of the down payment — the number that ambushes first-timers. Your Loan Estimate lists every line; the ones you can actually negotiate are the lender’s own fees and the title company you use. You can also ask the seller to cover some of them — a seller credit toward closing costs is a normal part of the negotiation, and part or all of the agent commission and the inspection fees are the usual candidates.
4. Loan term: the 30-year is the flexible default; a 15-year trades a larger payment for enormous interest savings. Taking the 30 and prepaying when able gets most of the benefit without locking you into the bigger payment during a bad year — a real advantage for a first home.
5. Cash reserves after closing: an empty emergency fund plus a new roof is how first homes go wrong. Keep the emergency fund intact through closing, and treat anything the inspection flagged as a bill with a date on it rather than a surprise.

When Can I Get Rid of PMI?

PMI is temporary, but “temporary” is doing a lot of work in that sentence. There are three primary ways it ends, and only two of them happen without you asking.

1. You ask, at 80% LTV. Once the balance is scheduled to reach 80% of the home’s original value, you can request cancellation in writing. The servicer is legally required to grant it if you are current, have a good payment history, carry no junior liens, and the property has not lost value.⁠[4]
2. It cancels itself, at 78% LTV. The servicer must terminate PMI automatically on the date the balance is scheduled to hit 78% of original value, as long as you are current. Note the word scheduled — this runs off the amortization table you signed, not off what the house is worth today.⁠[4]
3. The backstop, at the midpoint. If neither of the above has fired, PMI ends the month after the midpoint of the loan’s amortization schedule — year 15 of a 30-year loan — regardless of balance.⁠[4]

All three run off the price you paid. Appreciation is a fourth route, and it is the one nobody tells you about:

4. Appreciation requires you to request it and to pay for a new appraisal, and on a Fannie Mae–backed loan the bar is higher than 80% — you need 75% LTV if the loan is two to five years old, and 80% only after five years. The servicer is explicitly forbidden from suggesting it to you.⁠[5]

What that looks like in a strong market

Take a $224,000 house bought in January 2015 with 4% down at 3.85% — close to the national picture at the time.⁠[6] On amortization alone, the balance does not reach 80% of the purchase price until month 97 — a little over eight years. But the S&P Case-Shiller national index rose from 166.2 in January 2015 to 326.7 in January 2026, so the house was appreciating underneath the loan:⁠[7]

By January 2019 — year four — that buyer was under the 75% threshold and could have paid for an appraisal and asked. Appreciation cut the PMI clock roughly in half. It also did nothing at all for the buyer who never asked, and most people never asked.

What that looks like in this market

Now run the same house at 2026 prices. A $434,900 home — the national median existing single-family price in the second quarter of 2026 — with 4% down at 6.65% leaves a $417,504 loan and a payment of about $2,680 before taxes and insurance.⁠[8]⁠[9] Prices are still rising, but at 1.5% year over year rather than the 6–9% of the late 2010s, and one market in five is actually declining.⁠[8]

The flat row is the one to plan around, because it is the only row that does not require a forecast: on scheduled amortization alone, at today’s rates, a 4%-down buyer reaches 80% of the original price at ten years and eleven months and gets the automatic 78% cancellation at eleven years and ten months. Ten percent down pulls that in to about eight years. Rates matter here as much as prices do — a 6.65% loan builds equity more slowly in its early years than a 3.85% loan does, because more of each payment is interest.

Do you have to refinance to get rid of it?

On a conventional loan, no. Cancellation at 80% and automatic termination at 78% happen inside the existing loan — a form and a phone call, not a new mortgage. Refinancing to escape PMI on a conventional loan usually only makes sense if you were going to refinance anyway for the rate.

On an FHA loan, usually yes. FHA’s MIP follows different rules: on a 30-year loan endorsed since June 2013 with less than 10% down, the annual premium lasts the life of the loan. Put 10% or more down and it drops off after 11 years. For the 3.5%-down buyer — which is most FHA buyers — the only exit is refinancing into a conventional loan once there is 20% equity. That refinance is a real cost, and it is worth pricing before you choose FHA over a 5%-down conventional loan in the first place.⁠[2]

The Three Loan Types, Side by Side

The comparison that matters is not which loan has the lowest down payment. It is the total cost over the years you actually expect to own the house — and for a buyer with decent credit, a 5%-down conventional loan with cancellable PMI frequently beats a 3.5%-down FHA loan carrying MIP forever, even though the FHA loan looks cheaper on day one.

Start the Record on Closing Day

This is the part almost nobody tells a first-time buyer, and it costs real money at the other end. When you eventually sell, your taxable gain is the sale price minus your adjusted cost basis — and what you spent improving the house over the years you owned it adds to that basis. A higher basis is a smaller gain. Money you can prove you put into the house is money that comes back out of the sale untaxed.⁠[10]

The distinction that matters is improvement versus repair, and it is not a small one. The IRS counts work that adds to the home’s value, prolongs its useful life, or adapts it to a new use. A new roof, replacement windows, a rebuilt deck, central air, a finished basement, built-in appliances, a new electrical panel: all basis. Painting a room, patching drywall, fixing a leaking faucet, replacing a broken latch — necessary, but they keep the house in the condition it was already in, so they add nothing.⁠[10] One more trap: an improvement you later tore out does not count either, so the carpet you installed in year two and replaced in year nine leaves the record when it leaves the house.

Whether it ever matters to you depends on the size of the gain. The primary-residence exclusion shelters $250,000 of gain filing single and $500,000 filing jointly, provided the house was your main home for two of the five years before the sale, and that swallows the whole gain for most sellers.⁠[10] The basis record is what saves you when it does not: a long hold in an appreciating market, a house that was ever rented out, a sale that misses the two-year test, or a marriage that became a single filer. You cannot know on closing day which of those you will be in twenty years, which is exactly why the record starts on closing day rather than when you list.

What to keep, from the first day: the closing disclosure from the purchase (the title and recording fees on it add to basis; prepaid interest, insurance and escrow deposits do not), then every contractor invoice, permit and receipt, filed as you go. Reconstructing this from memory and a bank statement a decade later does not work, and the burden of proof is yours.