Key takeaways:

• Home prices have surged about 50% since 2020, raising the bar for first-time buyers.
• That’s led to higher down payments and other upfront costs needed to purchase homes.
• Saving and budgeting, debt management, and knowing all the options are key factors in affordability.

Saving for and purchasing a first home can be an exciting life milestone. It can also feel like a challenge in today’s real estate market where high prices, elevated mortgage rates, and other conditions can make it hard to enter.¹

First-time homebuyers accounted for just 21% of home purchases in 2025, according to new data from the National Association of Realtors. It’s the lowest percentage since the group began tracking the data in 1981.²

First-timers had a 32% share of home purchases just two years ago and averaged about 40% prior to 2008 — even during periods when mortgage rates were higher than the low- to mid-6% range that 30-year fixed home loans have been priced at in the past year.^3,4,5

While higher rates are playing a role, many economists see high home prices as a leading factor behind the trend among first-time homebuyers. U.S. home values have surged about 50% since 2020.⁶ The median existing home price was $408,800 in March 2026, marking the 33rd consecutive month of year-over-year gains^.7

Meeting the challenge

As prices rise, so does the upfront cash needed to buy, especially down payments. The median down payment across all buyers was 19% in 2025 — about $81,760 at current median prices. First-time buyers often put down less, but their median of 10%, the highest level since 1989, also translates into a sizeable down payment.⁸

New buyers face additional upfront expenses, including closing costs and prepaid taxes and insurance, which add to the total cash required when buying a home.

That doesn’t mean first-time buyers aren’t breaking into the market. Many are finding ways to move forward despite higher costs, whether by setting clear expectations on what they can afford, tapping low down-payment mortgages or assistance programs, or being more disciplined with savings.

Some are moving forward with home purchases on their own terms. Although a small share of the overall market, about 35% of Gen Z homebuyers are single women — the highest percentage of any generation — while another 17% are unmarried couples, also a high.⁹

Get intentional

Buying your first home requires a clear plan for savings, debt, and affordability. Here are ten things to keep in mind as you save for your first home.

Clear picture: A good place to start is taking a picture of your financial health around some of the key factors that mortgage lenders examine, including income, debt levels, assets and savings, and credit scores.

From there, you can identify areas to improve — such as reducing debt, increasing savings or building credit — to better position yourself for approval and favorable loan terms.

Affordability check: Getting preapproved for a mortgage early can help set expectations by showing how much a lender may be willing to offer — but that figure does not necessarily reflect what a borrower should spend.¹⁰

Some buyers use the 28/36 rule as a guideline, aiming to keep housing costs below 28% of gross monthly income and total debt payments below 36%.¹¹ Many mortgage calculators are available online such as Freddie Mac’s free Homebuying Budget Calculator.¹²

Down payments: Clear goals are important for down payments. While some buyers aim to put 20% down to avoid paying mortgage insurance, many federal loan programs allow for less — including 3.5% for Federal Housing Administration loans and even less for some Department of Veterans Affairs (VA) and U.S. Department of Agriculture (USDA) loans.

Many borrowers who get conventional loans — mortgages not insured by the federal government — also can put down less than 20%, though around 10% is often typical.

Upfront costs: Putting down less than 20% requires mortgage insurance, which can boost upfront and overall borrowing costs. FHA loans, for example, can require an upfront premium of 1.75% of the loan amount, separate from monthly premiums.¹³

Closing costs can typically add 2% to 5% of the home purchase price to upfront costs, and buyers may need to prepay property taxes and homeowners insurance.

First-time buyer programs: While gauging those costs, first-time buyers can also explore state and local homebuyer assistance programs, some of which may offer grants or loans to cover down payments and other upfront expenses.¹⁴ When combined with low down-payment loan options, such programs can accelerate progress toward savings goals.¹⁵

Savings strategy: With a clear target in mind, first-time buyers can consider setting up a dedicated account for a down payment and other potential upfront costs. Automating contributions in an interest-bearing account can steadily build savings over time and potentially take advantage of compounding.¹⁶

Keeping the down payment savings in a separate account can reduce the temptation to spend it for non-essential purposes.¹⁷ It could also be a good idea to keep a separate fund for emergency expenses that might arise.

Read more: Saving money for long-term vs. short-term financial goals

Debt and Income: What buyers need to know

Debt focus: Paying down high-interest debt, especially credit cards, can improve your position as a buyer and how much of a mortgage you can afford. Lenders closely evaluate your debt-to-income ratio (DTI), which measures your monthly debt payments against your gross monthly income.¹⁸

To calculate DTI, divide your total monthly debt payments by your gross monthly income. For example, if you expect to spend $1,500 a month on a mortgage, have a $400 car payment and pay $500 toward other debts, your total monthly debt is $2,400. With a gross monthly income of $6,000, your DTI would be 40%.¹⁹

Why DTI matters: Your debt-to-income ratio plays a key role in loan approval, as well as the amount you can borrow and the rates and terms you receive.²⁰ Higher DTIs can lead to higher borrowing costs, though lenders also consider factors such as credit scores, assets, down payment size, employment history, and the loan-to-value ratio with the property.

A DTI of 36% or lower is generally considered strong, though lenders may allow higher ratios — sometimes 50% — depending on the buyer’s overall financial profile.²¹ Fannie Mae and Freddie Mac allow DTIs up to 45% for borrowers with larger down payments and stronger credit scores.

Credit profile: Reducing credit card balances and other types of debt like student loans has the double benefit of reducing your DTI ratio and possibly improving your credit score. It’s also important to avoid taking on unnecessary debt obligations while saving to buy.²²

There’s no single credit score that guarantees mortgage approval, but higher scores generally improve your chances. Most conventional loans require a minimum score of 620, while FHA, VA, and USDA programs may offer options for borrowers with lower scores.²³

Income focus: The other side of the DTI equation is income. Increasing earnings — through negotiating a raise, getting a different job, or pursuing a side hustle or passive income — can improve your DTI, though lenders require tax returns and other documentation to verify that the income is stable.

Read more: What is the average credit score? See how you compare

Stay focused

While today’s housing market presents real challenges, first-time buyers are still finding ways to move forward by focusing on what they can control.

Understanding the full financial picture and knowing what you can afford to pay — from upfront costs to monthly payments — is a great way to start. Saving consistently, managing debt and knowing all of your loan options can help put a first home within reach.

Read more: The homebuying process: A step-by-step guide