A first home is affordable when the payment fits your budget with your emergency fund and retirement saving still intact, which is usually less than a lender will approve. At 7.24%, Freddie Mac’s average 30-year rate for the week of October 29, 2026, a $400,000 home with 10% down costs about $2,453 a month in principal and interest alone. Property tax, insurance and any mortgage insurance come on top.
The numbers that set your budget
The rate. A year earlier the 30-year average was 6.17%. The 15-year average on October 29, 2026 was 6.60%, with a much higher monthly payment. Your rate depends on your credit, down payment and loan type, so get real quotes.
The down payment. FHA loans allow as little as 3.5% down, according to HUD. On a conventional loan, putting down less than 20% usually means private mortgage insurance. The CFPB explains that you can ask your servicer to cancel it once your balance is scheduled to reach 80% of the home’s original value, and it ends automatically at 78% if you’re current on payments.
The loan size. For 2026, the conforming loan limit is $832,750 in most of the country and up to $1,249,125 in high-cost areas, according to the FHFA. A loan above the limit is a jumbo loan, with its own pricing and rules.
The closing. The CFPB suggests requesting Loan Estimates from several lenders so you can compare them. Your lender must give you the Closing Disclosure three business days before closing. Compare it line by line with the Loan Estimate you accepted.
Where the down payment comes from
Cash you’ve saved is the simplest source. If it falls short, the options all have a cost:
- An IRA. You can take up to $10,000 over your lifetime from an IRA for a first home without the 10% early-withdrawal penalty. You must use it within 120 days, and you count as a first-time buyer if you haven’t owned a main home in the past two years. A traditional IRA withdrawal is still taxed as income. From a Roth IRA, your contributions come out first, tax-free and penalty-free.
- A 401(k) loan. Plans that allow loans can lend you up to half your vested balance, or $10,000 if that’s more, with a cap of $50,000. Most must be repaid within five years, but a loan to buy your main home can run longer. Ask your plan what happens to the loan if you leave your job.
- Family gifts. Common and allowed, but lenders want them documented. Ask your lender early what paperwork they need.
Money taken out of retirement accounts stops growing for retirement. That cost is real even when there’s no penalty. In Canada, the First Home Savings Account and the Home Buyers’ Plan play this role, with their own limits.
What the tax break is really worth
You can deduct mortgage interest on the first $750,000 of home debt, but only if you itemize. For 2026 the standard deduction is $16,100 for a single filer and $32,200 for a married couple filing jointly. Your mortgage interest, state and local taxes (capped at $40,400 for 2026, and lower once income passes $505,000) and charitable gifts have to add up to more than that before the mortgage saves you anything. Many first-time buyers never get there, so leave the deduction out of your budget unless your own numbers show you’ll itemize.
Common mistakes
- Budgeting to the approval. A lender approves what you can repay, not what leaves room for saving, children or a job change.
- Emptying the emergency fund. The first years bring repairs nobody planned for. Keep several months of expenses in cash after closing.
- Stopping the 401(k) match to save faster. A match is part of your pay. Giving it up to reach a down payment sooner is an expensive trade.
- Forgetting the costs beyond the mortgage. Property tax, insurance, HOA fees, utilities and upkeep belong in the monthly number.
- Taking advice only from people paid when you buy. Agents and loan officers can be very helpful, but they’re paid when a sale or loan closes.
Questions to ask before you commit
| Ask | Why it matters |
|---|---|
| What’s my full monthly cost, including tax, insurance and HOA? | Principal and interest are only part of it |
| How many months of expenses will I have in cash after closing? | Repairs and job changes don’t wait |
| Should I put more down, or keep more invested? | It turns on your rate, your other debts and your timeline |
| Is touching my IRA or 401(k) worth it here? | Lost growth is a cost even without a penalty |
| How long do I expect to stay? | Buying and selling costs need time to spread out |
When a fee-only planner is worth it, and what it costs
You don’t need a planner to buy a home. A HUD-approved housing counselor helps first-time buyers free or at low cost; our guide to affordable financial advice shows how to find one. A planner earns the fee when the purchase touches the rest of your finances: using retirement money, juggling student loans, equity pay that could fund the down payment, or buying with a partner you’re not married to.
For a one-off decision like this, most people pay by the hour or for a one-time plan rather than an ongoing fee:
- Hourly: a median $300 an hour among fee-only firms that publish prices, with the middle half between $250 and $350. See what an hourly planner costs.
- A one-time plan: a median $2,000, with the middle half between $845 and $3,600. See what a one-time plan costs.
A fee-only planner is paid only by you, so the advice is the same whether you buy this house, a cheaper one, or keep renting. Of 781 US fee-only firms whose websites state an asset minimum, 50% say they have none, so a modest balance isn’t a barrier.
How to find one
Start with advisors for early-career professionals or the list of advisors for early-career professionals in the public graph. If you earn well but are still building savings, try advisors for HENRYs. Flat-fee advisors and the student loans specialty cover the other common pieces. If the home will become a rental one day, read becoming a landlord before you choose the loan.