Buying the American Dream: The best tools, strategies and hacks for first-time house hunters

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Buying a home has long been considered the shining emblem of the American Dream.

That aspiration has become increasingly elusive to many Americans over the last decade as home prices remain near record highs and supply shortages plague much of the country. To top it off, mortgage rates have been higher over the past several years than in the decade before, making it even more expensive to own a home.

But you don’t have to stop dreaming. By understanding how to prepare, where to buy, how to budget and which lenders to consider, you can better position yourself to make homeownership possible.

Before you start: Get your finances in order

Before you start shopping, take some time to work on your credit score. Most conventional mortgages require a 620 credit score, but to get the best interest rates, you want a score well over 700.

While it may not seem like much, a rate difference of just 0.50% can save someone who buys a median-priced home hundreds of dollars a month and tens of thousands of dollars over the life of the loan.

You can raise your score by keeping your credit utilization — the amount of credit you’ve used versus the maximum you’re allowed to take out — below 10%, according to experts. Additionally, pay your bills on time and reduce your debt as much as possible.

There are also tools you can use to enhance your credit score overnight: *Experian Boost will pull any bills — such as rent, utilities and insurance — that you’ve paid on time onto your credit report. It only selects the payments that will have a positive effect on your score.

You can also track your score with credit monitoring tools such as Experian IdentityWorks to ensure everything is accurate and up to date, and to see how you’re improving over time. CNBC Select likes this tool because it’s affordable and easy to use.

Save for a down payment

You want to have a sizable amount saved for your down payment, which you’ll pay upfront.

Conventional mortgages, the most popular type of home loan, require at least 5% down, which would amount to $20,000 on a $400,000 house. But to avoid paying private mortgage insurance, or PMI — which insures the mortgage if the borrower fails to pay — you’ll need to put down 20%, which would be $80,000 on a $400,000 house. PMI is typically 0.40% to 1.50% of the mortgage total per year, which can add up to hundreds of dollars in monthly costs.

One way to build that nest egg is through strategic long-term saving. For example, if you are saving for an $80,000 down payment over five years, you’ll need to set aside about $1,333 per month.

A high-yield savings, money market or certificate of deposit account can help you get there faster. Unlike traditional savings accounts, which have an average annual return of 0.38%, these accounts had rates as high as 4% as of May, meaning whatever you put into the account will grow each year. And thanks to compounding interest, you’ll make money on that growth, too.

Be ready for other costs

In addition to your down payment, you want to have a significant amount of cash on hand for other costs that come with buying a home. Here’s how we’d budget:

1. For lender feesandclosing costs, set aside 2% to 6% of your total home price: Your lender will expect you to pay a slew of costs when you take out a mortgage, including an application fee, which could be as much as $500; an origination fee, typically 0.5% to 1.5% of the loan total; an underwriting fee of $300 to $750; an appraisal fee, which averages $314to$424; an inspection fee of between $200 and $500; attorneys fees; title fees; and a recording fee.
2. For moving costs, budget $5,000 to $10,000:Depending on the amount of belongings and how far you’re planning to move, your costs could range from a few hundred to tens of thousands of dollars, according to Moving.org.
3. Have six months of housing expenses in cash reserves: Make sure you have enough in the bank in case of a financial emergency, such as a layoff or a medical incident. A good goal is to have six months of expenses saved, so if you pay $3,000 a month in housing expenses, you should have $18,000 saved.

Figuring out how much you can afford

Using the 30% rule is key to understanding how much you can afford. It’s the guideline the U.S. Department of Housing and Urban Development uses to determine whether housing is “affordable” for a household. It says that a household’s housing expenses — which include rent or mortgage payments, utilities and insurance — should not exceed 30% of their gross income.

It’s important you do these calculations, as you could be approved for a mortgage with a monthly payment higher than what you can afford.

To get your 30% number, multiply your household’s gross income — your total income before taxes — by 0.30. After you get that number, divide it by 12. This is the maximum amount you should spend on housing expenses each month, per HUD. Keep in mind that some homeowners spend more than this, and that some lenders will approve mortgages with higher monthly payments.

• Monthly housing costs ≤ (Gross household income x 0.30) ÷ 12

For example, if you make $100,000 before taxes each year, you would multiply 100,000 by 0.30 and get 30,000, then divide that by 12 and get 2,500. That means someone who earns $100,000 should not spend more than $2,500 on housing expenses, including mortgage payments, utilities, property taxes and homeowner’s insurance.

Budgeting for utilities, property taxes and insurance

Here’s what you need to know about housing expenses beyond your monthly mortgage payment.

• What should you budget for utilities each month? Utilities typically include water, electricity, fuel, trash and sewage. These expenses can also include internet, television and phone bills, depending on how you budget. Americans paid an average of $347.96 monthly for utilities in April, the most recent data available, according to U.S. Bureau of Labor Statistics.
• What should you budget for property taxes each month? Property taxesare determined at the state and local levels, so your costs will vary depending on where you buy. However, the average amount ranges between 0.29% and 1.88% of a home’s value each year, according to the Tax Foundation. If you’re buying a home valued at $400,000, you could be required to pay between $1,160 and $7,520 annually or $96.67 and $626.67 monthly. The Tax Foundation offers a map with state and county tax information to help you estimate a budget based on where you’re buying. Some states have no property taxes at all or reduced property taxes for seniors.
• What should you budget for homeowner’s insurance each month? If you’re taking out a mortgage, chances are you’re required to have a homeowner’s insurance policy. As of 2026, the average policy costs $2,424 per year, or $202 per month, but in some places it can be more than $6,000 per year, or $500 or more per month. Research how much homeowner’s insurance will cost you by seeing the average in the area where you’re looking to buy, and shopping for policies to find the best one.
• Do you have to pay private mortgage insurance, and how much does it cost each month? If you take out a conventional mortgage and put less than 20% down, as the vast majority of first-time homebuyers do, you’ll have to pay forprivate mortgage insuranceuntil you hit the 20% equity mark. It can cost 0.5% to 1.5% of your mortgage total.

What is your expected mortgage rate?

Your mortgage rate is determined by the market at the time you’re buying, your personal financial history and your lender.

• The average rate: Get a sense of the average current rate by referring to our weekly mortgage snapshot.
• Your credit score: To understand which side of the average mortgage rate you’re likely to fall on, look at your credit score. Lenders view homebuyers with a credit score below 740 as riskier than those with scores above that threshold, and may charge higher interest rates accordingly. For example, as of May, those with a credit score of 620 had an average mortgage rate nearly 1 point higher than those with a 740 credit score, according to Experian.
• Your lender: Some mortgage lenders — such as Better and Navy Federal Credit Union — tend to have lower rates than others. Get at least four quotes from lenders so you can compare and choose the best option for you.

What is the size of your down payment?

A down payment is a huge factor in determining how much you can comfortably spend on a house. Here’s why:

1. The more you’ve saved up, the more house you can technically afford. That’s because the larger your upfront payment is, the less you’ll have to finance with a mortgage, meaning your monthly payments will be smaller for the same-priced property.
2. You can eliminate monthly PMI payments byputting 20% down. This means a larger portion of your cash will be invested directly in your home in the long run.

To determine the size of your down payment, you should divide your down payment total by the estimated home price, and multiply that number by 100. In equation format, it looks like this:

• Down payment as a percent of the whole = (Total down payment ÷ total home price) x 100

Calculate how much you can afford using CNBC Select’s mortgage calculator

All of the information above goes into figuring out how much home you can afford. Once you’ve determined these numbers, you can start including the listing prices of prospective homes to see if they fall within the monthly budget you’ve set.

Before you start applying for mortgages to get preapprovals, it’s important to have a sense of which lenders, loan types and terms are best for you.

Some loan types allow for lower credit scores or down payments, while others let you to take out a large sum.

If you think you will struggle to pull together a down payment or closing costs, you should also research down payment assistance during this phase.

We get into this below.

What kind of mortgage is best for me?

First, let’s look into which types of mortgages are available and how to determine the best one for you.

Conventional loans

Conventional loans are the most common type of mortgage.

While a conventional mortgage can technically be any type of loan not backed by the government, it most commonly refers to private loans that are conforming — meaning they meet certain standards outlined by the Federal Housing Finance Agency, or FHFA, including size limits.

This year, the conforming loan limit ranges from $832,750 in most areas to $1,249,125 in high-cost areas, according to the FHFA. You can find yours by hovering over your county on the map below.

Conventional loans are a great option for many different types of homeowners. Here are the requirements and terms for most conventional mortgages:

• Minimum credit score: 620
• Maximum debt-to-income ratio: 43%
• Minimum down payment: 5%
• Terms: Three to 30 years
• Rates: Adjustable and fixed-rate options

Most lenders offer conventional mortgages, but we like loanDepot in particular because it closes quickly and waives lender fees for existing borrowers who want to refinance, making it easier to get a better rate if the market shifts in the borrower’s favor. It also offers a $1,000 on-time closing guarantee.

Jumbo loans

Jumbo loans are mortgages that exceed the conforming loan limit. If the price of the home you’re buying will require you to borrow more than the conforming loan limit for your county, as shown in the map above, you’ll likely need to take out a jumbo loan.

Jumbo loans have higher down payment and credit score requirements than other types of mortgages.

Here are the requirements and terms for most jumbo mortgages:

• Minimum credit score: 680
• Maximum debt-to-income ratio: 43%
• Minimum down payment: 10%
• Terms: Three to 30 years
• Rates: Adjustable and fixed-rate options

Chase Bank is one of CNBC Select’s top picks, whether you’re taking out a loan in person or online. We like that Chase has more than 5,000 retail locations nationwide and will lend up to $9.5 million, making it a great option for almost any large home purchase.

FHA loans

These are mortgages backed by the Federal Housing Administration — and because of that, the baseline requirements issued by the FHA are more lenient than mortgages not backed by the government. The lender funding the mortgage may have stricter requirements.

FHA loans are great for homebuyers with less-than-perfect credit — borrowers with a score as low as 500 can apply. They also require a down payment that’s lower than most conventional loans.

Here are the requirements and terms for most FHA loans:

• Minimum credit score: 500 for a down payment of 10% or more; 580 for a down payment of 3.5% or more
• Maximum debt-to-income ratio: 43%
• Minimum down payment: 3.5% and up, depending on down payment size
• Terms: Three to 30 years
• Rates: Adjustable and fixed-rate options

At Select, we like Rocket Mortgage for FHA loans because it has a stellar customer service record, consistently ranking among the top lenders on J.D. Power’s customer satisfaction surveys. Additionally, it is one of the largest FHA lenders in the nation, meaning it has extensive experience closing on these deals.

VA loans

VA loans are backed by the Department of Veterans Affairs and are available to active-duty service members and veterans. No down payment or mortgage insurance is required, and interest rates are typically lower than conventional mortgage rates.

All this makes it ideal for any veteran purchasing a home at or under the conforming loan limit. Here are the requirements and terms for most VA loans:

• Minimum credit score: 620
• Minimum down payment: 0%
• Terms: Three to 30 years
• Rates: Adjustable and fixed-rate options
• Residency: Must be the borrowers’ primary residence
• Military service requirement: Must have served in the military

CNBC Select likes Navy Federal Credit Union for its affordable rates, which are often significantly lower than the competition.

USDA loans

Backed by the U.S. Department of Agriculture, USDA loans are available to those who buy certain properties in select rural and suburban ZIP codes.

As with VA loans, borrowers can put as little as 0% down. No mortgage insurance is required, but a guarantee fee — which is similar to mortgage insurance — may be required at origination or annually.

USDA loans are great for those buying in an eligible area who don’t have much saved for a down payment.

Here are the requirements and terms for most USDA loans:

• Minimum credit score: 620
• Minimum down payment: 0%
• Terms: Three to 30 years
• Rates: Adjustable and fixed-rate options
• Residency: Must be the borrowers’ primary residence
• Property requirement: Must be an eligible property as designated by the USDA.

CNBC Select likes Guild Mortgage, because it’s one of the few lenders that accept credit scores lower than 620. Those with credit scores of 540 or higher could be eligible.

Best mortgages for first-time homebuyers

CNBC Select likes Rocket Mortgage, Flagstar Bank and Chase Bank. Read more below to see what could be a right fit for you. (See our full methodology below.)

Rocket Mortgage

• Programs for first-time homebuyers: With ONE+ by Rocket Mortgage, the lender will give you 2% of the purchase price for a down payment if you put between 1% and 2.99% down. The program caps out at mortgages of $350,000, and you must make no more than 80% of the area median income, or AMI, to qualify.
• Why we like this lender: Rocket has excellent customer service, an A+ rating from the Better Business Bureau, and a high ranking on J.D. Power’s customer satisfaction surveys.
• Potential drawback: No in-person locations.

Flagstar Bank

• Programs for first-time homebuyers: First-time homebuyers in some Community Reinvestment Act (CRA) Assessment areas — locations that the government has determined as being at risk for redlining practices — can receive grants up to 3% of the price of their home, up to $7,500 or $15,000 in high-cost areas, with the Flagstar Bank Gift Program. Additionally, first-time homebuyers in some census tracts can get up to $8,000 with the Flagstar Power-Up program.
• Why we like this lender: Flagstar offers multiple products geared toward first-time homebuyers and can close your mortgage in as little as 15 days, which is shorter than many competitors.

• Potential drawback: Higher-than-average rates.

Chase Bank

• Programs for first-time homebuyers: Chase’s DreaMaker mortgage provides first-time homebuyers who earn at or below 80% of the AMI with a 3% down payment mortgage. The bank’s homebuyer grant also gives borrowers living in select ZIP codes up to $5,000 to put toward closing costs and down payments.
• Why we like this lender: Chase has an excellent customer service record, an A+ from the Better Business Bureau and more than 5,000 retail locations for those who like to do their borrowing in person.
• Potential drawback: Does not have USDA loans.

How to get down payment assistance

If you can’t find a lender that can offer you assistance with a down payment and you still need help, look into local, state and national program offerings.

Freddie Mac maintains a database of thousands of down payment assistance programs across the country, called DPA One. You can browse options by entering your information.

Before you start your home shopping journey, you’ll need to apply to several mortgage lenders and get a preapproval letter, according to the Consumer Finance Protection Bureau.

This letter will include the amount the bank will lend you and a preliminary outline of your rate and terms. Many lenders will let you lock in your rate for between 60 and 90 days at this point.

We suggest aiming for three to five preapproval letters, then compare the terms to determine which is best for you. After selecting your lender, you get to start the house hunt. Once you bid on a home and your offer gets accepted, you’ll inform the lender, and it will start the formal loan application and the underwriting process.

Documents you need to apply for a mortgage

Here’s what you’ll need handy when you go to apply for a mortgage.

• Your name, date of birth and Social Security number
• Address and employers for the previous two years
• Current lease, if applicable
• Government-issued identification
• Gift letter, if applicable
• Business license, if applicable
• Pay stubs
• Tax returns for the previous two years
• W2s for the previous two years, for W2 employees only
• Profit and loss statements for the previous two years, for business owners only
• 1099 forms for the previous two years, if applicable
• Statements for savings, checking and other deposit accounts as well as investment and retirement accounts
• Other documents that the lender requests

What does the mortgage application process look like?

Here’s what you can expect from a typical mortgage application process:

Step 1: Apply for preapproval

Depending on the lender, this will be done online, in person or over the phone. Be prepared with all of the documents above, plus any other documentation the lender may request.

During preapproval, the lender typically does a hard credit check — but don’t worry about your credit taking a significant hit. Normally, credit bureaus tally any credit checks within a 45-day period as one credit check, and your credit score shouldn’t go down more than several points when applying to multiple lenders.

Step 2: Shop for your house

Now comes the fun part!

With your best preapproval in hand, go out and look for the home you want to buy. Working with a real estate agent here is usually the best way to go, especially in a tight market. Real estate agents know the local market better than anyone and can advocate for the best deal.

Once you find the home you want to buy, you’ll put in an offer.

Step 3: Inform the lender you want to move forward

Write a letter of intent to the lender you choose as soon as possible. By this time, the seller would have accepted your offer. Again, most lenders will stick with the preapproval offer for 30 to 90 days.

Step 4: Underwriting

To make sure you are who you say you are, that you can afford to make the mortgage payments on time and that the property is worth what you’re paying, lenders will scrutinize your credit history, income and debt, as well as the property.

They will hire an appraiser to determine what the home is worth, a title search company to make sure there are no other claims to the property, and an inspector to make sure there are no code violations or prospects for disasters. These services are the borrower’s responsibility and will be added to the closing costs.

This will also be the time to secure homeowner’s insurance and mortgage insurance, if needed.

Step 5: Choosing homeowners insurance

This step is typically done in tandem with the underwriting process. To do this, compare at least three quotes from different insurers. Here’s what to consider, according to CNBC Select insurance expert Liz Knueven:

• Coverage options: Make sure the insurer has the coverage and any riders, or add-ons, that you may need. Additionally, check that you’re comfortable with the deductible you’re quoted. If you live in an area where extreme natural disasters are common, you may need extra coverage.
• Discounts: Consider whether any of the lenders you applied with or will apply with have rate, bundling or other discounts.
• Customer service: Check how customers have felt about the insurer on third-party rating websites such as the Better Business Bureau or reliable customer review sites like Trustpilot.
• Financial strength: Look at A.M. Best ratings of the company you’re considering. If they have an A or higher, they can likely pay out your claim if needed.

Step 6: Closing time

This is the moment you’ve been waiting for — the day you’ll get the keys to your new abode.

Most lenders will require you to come in person, even if the rest of the process was online. In some states, digital closings are illegal.

If everything looks good, you’ll get your keys and sign your new mortgage agreement and the deed to your house. You’ll also need to cover the closing costs.

Next step, pop some bubbly — it’s time to celebrate. You’ve completed the process and can move into your new home.

Below are CNBC Select’s methodologies for choosing and ranking our best mortgages for first-time homebuyers and our mortgage reviews.

Best mortgage lenders for first-time homebuyers methodology

To determine which mortgage lenders are the best for first-time homebuyers,CNBC Selectanalyzed dozens of U.S. mortgage lenders. We focused on the following features:

Loan types:We weighed lenders more heavily if they offered government-backed FHA, VA and USDA loans, jumbo mortgages, and specialty loans for low-income borrowers.

Minimum down payment:We noted which lenders offered loans with lower minimum down payment requirements or down payment assistance.

Credit scores: We gave lenders more weight if they offered loan options to borrowers with lower credit scores or no credit history.

Fees:The mortgage process includes origination, application and underwriting fees, as well as charges for appraisals, title insurance, attorneys and other closing costs. We noted if a lender had lower fees or discounts or waived certain fees.

Application process:We evaluated whether lenders offered an online preapproval and application process, as well as whether they had physical branches for an in-person experience.

Customer service:Lenders ranked highly on J.D. Power’s mortgage origination and servicing surveys were given greater weight. We noted whether a lender had extended customer service phone hours and a website with an online chat feature and educational resources.

We also considered CNBC Select audience data, such as general demographics and engagement with our content and tools, whenavailable.

Mortgage review methodology

CNBC Select reviewed the above mortgage products using a variety of criteria, including average rates, terms, availability, fees, types of loans offered, online experience and customer satisfaction.

Additionally, we incorporated findings from independent sources, including lender scores from the J.D. Power mortgage origination and servicing surveys and Better Business Bureau ratings.

We reviewed rates, repayment terms, the amount of equity required, and the minimum and maximum loan amounts available.

We also considered requirements for credit scores, debt-to-income ratios and combined loan-to-value ratios.

Catch up on CNBC Select’s in-depth coverage ofcredit cards,bankingandmoney and follow us onTikTok,Facebook,InstagramandTwitterto stay up to date.

*Results may vary. Some may not see improved scores or approval odds. Not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost.