In this guide
- Start with what you can afford — not what you’re approved for
- The down payment decision
- Understand the full payment: PITI
- Rates: fixed vs adjustable, and what a point buys
- Closing costs and cash to close
- Amortization: why early extra payments punch above their weight
- Refinancing: the break-even test
- Government-backed options
Start with what you can afford — not what you’re approved for
Lenders approve up to roughly 43% debt-to-income; comfortable budgets usually sit far lower. The classic 28/36 rule caps housing at 28% of gross income and all debt at 36%. Run the affordability calculator first, then check your debt-to-income ratio — the gap between “approved” and “comfortable” is where house-poor happens.
The down payment decision
Twenty percent down avoids PMI, but waiting years to save it has costs too — rent paid and appreciation missed. FHA allows 3.5% down, VA and USDA 0% for those eligible. Compare scenarios with the down payment calculator and price the insurance with the PMI calculator; PMI drops automatically at 78% LTV.
Understand the full payment: PITI
Your real monthly cost is principal, interest, taxes, and insurance — plus HOA where applicable. Taxes and insurance routinely add 20–30% on top of principal and interest. The mortgage calculator shows the complete payment with a breakdown chart, so the escrow line never surprises you.
Rates: fixed vs adjustable, and what a point buys
A 30-year fixed is certainty; an ARM trades certainty for a discount that lasts only through the fixed period — sensible mainly when you’ll sell or refinance before it adjusts (see the fixed vs variable comparison). Each 1% of rate changes payments roughly 10–12%. Model an ARM honestly with the ARM calculator, including the post-adjustment payment.
Closing costs and cash to close
Budget 2–5% of the price beyond the down payment: lender fees, title, escrow, and prepaid taxes and insurance. The closing cost calculator estimates the total. Shop at least three Loan Estimates — origination and title fees vary more than rates do.
Amortization: why early extra payments punch above their weight
Early payments are mostly interest — that’s amortization. Extra principal in the early years erases interest that would have compounded for decades: see the exact effect with the extra payment calculator or the biweekly strategy, which sneaks in one extra payment a year and typically removes 4–6 years from a 30-year loan.
Refinancing: the break-even test
Refinance when monthly savings repay the closing costs before you’ll sell — the break-even test in the refinance calculator. Beware the term reset: dropping your rate but restarting a fresh 30 years can raise lifetime interest even as the payment falls. Compare total cost, not just the monthly.
Government-backed options
FHA (3.5% down, permanent MIP at today’s rules), VA (0% down, no monthly insurance, funding fee), USDA (0% down, rural areas). Each has its own math — run FHA, VA, or USDA against a conventional quote before assuming which wins.
Reviewed July 2026 · Formulas and 2025 tax figures per the methodology page. Educational content, not financial advice.