🏡 Buying a home

First-home true-affordability check

Works out what a first home really costs each month, including taxes, insurance, PMI, HOA and upkeep, before you trust the lender's approval amount.

Life event: buying a first home

Problem

A first-time buyer (31% of September 2026 existing-home sales) is told they are “approved” for a payment the lender will book, then finds PITIA plus repairs eating most of take-home pay. NAR’s September 2026 median existing home is $417,500. On that price with 5% down at the week-of-October-29-2026 Freddie Mac PMMS 30-year rate of 7.24%, modeled PITIA is about $3,390 a month before maintenance — 40.7% of a $100,000 gross income, above the CFPB Home Loan Toolkit’s 28% housing rule of thumb.

Intake

  • Gross monthly income of every occupant on the loan (W-2, 1099, two years of returns if self-employed).
  • Recurring debts the lender counts: auto, student-loan payment on the credit report (or 0.5%/1% of balance if deferred), card minimums, child support, alimony, personal loans. Groceries, utilities, and current rent are not counted debts.
  • Cash after closing: down payment + closing costs + 2–6 months of full PITIA as a reserve. Gift funds listed separately (donor, relationship, “no repayment” letter).
  • Target county/ZIP, occupancy, HOA/condo name. Credit scores (Classic FICO if known), first-time status, VA eligibility, 80% AMI test for HomeReady/Home Possible.
  • Bindable homeowners-insurance quote for this address. County millage / last year’s tax bill on comparables.
  • Draft pre-approval (amount, product, rate, expiration) and any Loan Estimates already issued.

Playbook

  1. Treat the pre-approval as a credit ceiling, not a budget. CFPB Ask CFPB en-118: focus on a mortgage that is affordable given other priorities, not how much the lender will qualify. Ask for the DTI used (front-end vs back-end) and the product (DU conventional, FHA, VA, USDA). Write the user’s ceiling first with the CFPB toolkit 28% housing test, then compare it to program DTI caps.

  2. Build true monthly housing cost as PITIA + maintenance, not P&I. PITIA = principal + interest + property taxes + homeowners insurance (and flood if required) + mortgage insurance (PMI/MIP/annual USDA guarantee) + HOA/condo dues (including special assessments). Add a maintenance reserve. The CFPB toolkit (August 2026 print) requires budgeting repairs and utilities; Fannie DTI does not count maintenance.

  3. Price P&I from a locked or PMMS rate. (M = P \cdot \frac{r(1+r)^{n}}{(1+r)^{n}-1}) where (r) = annual rate/12 and (n) = 360. PMMS week of October 29, 2026: 30-year 7.24%, 15-year 6.60%, for 20% down and excellent credit. A 5%-down 700-FICO buyer pays more after LLPAs and PMI; use the LE’s note rate when one exists.

  4. Taxes from the county, insurance from a bindable quote. ACS effective property-tax rates cluster near 0.9% of value; use that only until county millage is on the file. ICE Mortgage Monitor (September 2026, Q2): average mortgaged single-family insurance $209/month (~$2,508/year). Florida, Louisiana, and wildfire metros run far above that. A house the insurer will not bind is not affordable.

  5. Add PMI/MIP honestly. Conventional PMI continues until HPA cancellation. FHA annual MIP on >95% LTV loans ≤$726,200 is 0.55% of base loan for the life of the loan (ML 2023-05). VA has no monthly MI (funding fee instead). USDA FY 2027 annual guarantee is 0.35%. Lender-paid MI is baked into the rate and is not cancellable under HPA — the exit is a refinance.

  6. Run front-end and back-end DTI on the same income. Front-end = PITIA / gross monthly income. Back-end = (PITIA + counted debts) / gross monthly income. Program caps: Fannie B3-6-02 (04/02/2025): manual 36%, up to 45% with Eligibility Matrix score/reserves, DU 50%. FHA manual 31/43, up to 40/50 with two compensating factors. VA 41% plus residual income (38 CFR 36.4340 / VA Pamphlet 26-7 Ch. 4). USDA typical 29/41. Qualified Mortgage ATR is price-based, not a 43% DTI cap (mandatory October 1, 2022). A DU Approve at 48% DTI is legal and still a budget failure if take-home cannot cover food, childcare, and a water heater.

  7. Keep cash after closing. Model cash-to-close from a Loan Estimate, then require a post-closing reserve of at least three months of full PITIA (six months if pre-1978, roof >15 years, or self-employed). CFPB’s “Ready to buy” page lists repairs, furniture, and utilities as costs lenders do not underwrite.

  8. Shop below the median if 28% does not clear. On the September 2026 median $417,500 with 5% down, 7.24%, 0.9% tax, $209 insurance, and 0.50% illustrative PMI, PITIA is $3,390. That requires $145,300 gross income at 28% housing. A buyer at $100,000 gross must cut price, raise down payment, or both.

  9. Plan the PMI exit the day the loan closes. HPA, 12 U.S.C. §§ 4901–4902: borrower may request cancellation at 80% of original value (lesser of sale price or appraisal), with good history and current status; servicer must automatically terminate at 78% of original value on the amortization schedule if current; midpoint is the backstop. Unearned premiums returned within 45 days. FHA/VA/USDA insurance is not HPA PMI. Fannie B-8.1-04 current-value path (one-unit primary/second home): 75% LTV after 2–5 years, 80% after 5 years, borrower-initiated (BPO $190 or restricted appraisal $450 per Fannie F-1-02).

  10. Compare four loan stacks on the same house. FHA 3.5% MRI + 1.75% UFMIP + life-of-loan 0.55% MIP vs HomeReady/Home Possible 3% down with cancellable MI and LLPA waiver at ≤80% AMI vs Fannie 97% LTV (one first-time buyer, no income cap) vs VA 0% / USDA 0%. 2026 conforming 1-unit $832,750 / high-cost $1,249,125; FHA floor $541,287 / ceiling $1,249,125. FHA MIP breakpoint $726,200. No federal first-time purchase tax credit (26 U.S.C. § 36 ended 2010). MCCs (IRC § 25) still exist via some HFAs.

  11. Visit at commute times before the offer. Weekend-only showings hide traffic, school pickup, and noise. Add parking, transit, and HOA rental/parking fees to the monthly model.

  12. Decision rule. If modeled PITIA+maintenance > 28% of gross or post-closing cash < 3 months PITIA or the insurer will not bind, cut the price or raise cash. A DU Approve at 48% DTI is a lender fact, not a yes.

Checklists

First-home true-affordability check

  • Pre-approval amount written down as a ceiling, with product and DTI disclosed
  • Official LE in hand (not a worksheet); rate-lock Yes/No read on page 1
  • PITIA built from P&I + county tax + bindable HOI + PMI/MIP + HOA
  • Maintenance reserve added (planning 1% of price per year, or a local bid)
  • Front-end vs CFPB 28% and back-end vs program DTI both computed
  • Three months (preferably six) of PITIA left after cash-to-close
  • Insurance bindability confirmed before the inspection deadline
  • FHA vs HomeReady vs VA vs USDA stack compared including MIP/funding fee
  • PMI cancellation date estimated (HPA 80/78 and Fannie current-value 75/80)
  • Gift letter: amount, relationship, no repayment, donor not an interested party
  • Commute-hour visit completed
  • Hard credit pulls clustered inside 14 days across lenders

Questions to ask

  • “What front-end and back-end DTI did you use on this pre-approval, and is this a DU, LPA, TOTAL, or manual file?”
  • “Please issue an official Loan Estimate from the six application items only. What note rate, PMI/MIP line, and cash-to-close did you use?”
  • “What annual PMI rate is on this LE, when does HPA 80%/78% fall on the amortization schedule, and is this borrower-paid or lender-paid MI?”
  • “What homeowners-insurance premium can you bind at this address, roof age, and panel type — in writing, not an estimate?”
  • “What is last year’s tax bill, the millage, and whether this sale will trigger a reassessment that raises year-2 escrow?”
  • “If I put 5% vs 10% vs 20% down, show three LEs so I can see PMI, MIP duration, and cash-to-close side by side.”
  • “Does my income clear Fannie 80% AMI for HomeReady at this address (ami-lookup-tool.fanniemae.com), and are LLPAs waived?”
  • “What post-closing reserve are you requiring, and what cash will I actually have the day after recording?”

Red flags

  • “You’re approved for $X” with no PITIA, no insurance quote, and no DTI disclosed
  • Draining every dollar of savings to close
  • FHA 3.5% down sold as “cheaper monthly” without life-of-loan MIP math
  • LPMI described as “no PMI” (it is in the rate)
  • Insurance quote far below a local bindable figure
  • HOA dues omitted from the pre-approval
  • Pressure to waive inspection to “win” a house the buyer cannot repair
  • Weekend-only showing as the only visit

Scripts

Email to lender (true-cost LE, send to at least three)
Application for a Loan Estimate under 12 CFR 1026.2(a)(3)(ii). Name [name], SSN [ssn], income $[monthly], property [address or county], estimated value $[price], loan amount sought $[loan], occupancy primary, 30-year fixed. Please issue official Loan Estimates — not worksheets — at (1) 5% down, (2) 10% down, (3) 20% down, each at 0 points. Disclose the PMI or MIP annual rate, cash to close, and the month the principal is scheduled to hit 80% and 78% of original value. Do not require a purchase contract. The only fee I authorize before intent to proceed is a bona fide credit-report fee.
Email to insurance agent (bindability, before the offer)
I am shopping [address], year built [year], roof [age if known], electrical panel [type if known]. Please quote HO-3 (or HO-6 if condo) dwelling coverage at replacement cost, deductible options, and whether you will bind with this roof/panel/plumbing. I need the annual premium in writing for the lender’s escrow and my affordability model.
Phone to listing agent / seller (after a too-high pre-approval)
My lender pre-approved $[amount]. My budget for PITIA plus a repair reserve is $[lower]. I will write at a price that keeps housing at or under 28% of gross income. If the list price requires stretching past that, I will pass.

Formulas & rules

  • P&I: (M = P \cdot r(1+r)^{n}/((1+r)^{n}-1)). 30-year 7.24%, $417,500 × 5% down → loan $396,625, P&I $2,702.99. 20% down → loan $334,000, P&I $2,276.20.
  • PITIA illustration (5% down, median): tax 0.9% = $313.13/mo (replace with millage) + ICE insurance $209 + illustrative PMI 0.50% × $396,625 / 12 = $165.26 → PITIA $3,390.38. Plus 1% maintenance $3,738.30.
  • Front-end on $100,000: $3,390.38 / $8,333.33 = 40.7%. CFPB 28% allows $2,333 housing. Income needed at 28%: $145,300/year. Back-end with $500 other debts = 46.7% — clears DU 50%, fails CFPB 28% comfort. Decision: do not buy at this price on this income.
  • FHA MIP on median: 3.5% down; base $402,887.50; UFMIP 1.75% = $7,050.53; annual 0.55% = $184.66/month for life.
  • HPA 80/78 on $400,000 loan / $421,053 original value: 80% = $336,842; 78% = $328,421. At 7.24%, five years retire only ~$22,524 of principal. Fannie current-value year 3 remaining ~$387,470 needs value ≥ $516,627 (75% LTV); year 5 remaining ~$377,476 needs value ≥ $471,845 (80%).
  • CFPB toolkit (August 2026): total monthly home payment at or below 28% of gross monthly income. Six-item application triggers LE within 3 business days (12 CFR 1026.19(e)).

Tools to implement

  1. True-PITIA affordability calculator. Inputs: price, down %, rate, term, tax, HOI, PMI/MIP %, HOA, other debts, gross income, cash, closing-cost estimate. Logic: amortize P&I; PITIA = P&I+T+I+MI+HOA; flag front > 28%, back > program cap, or reserves < 3 months PITIA. Outputs: PITIA, both DTIs, months of reserve, max price at 28%. Data: Freddie PMMS (https://www.freddiemac.com/pmms); CFPB toolkit (https://files.consumerfinance.gov/f/documents/cfpb_your-home-loan-toolkit_print_2026-08.pdf).
  2. PMI-exit date estimator. Inputs: original value/loan, rate, extra principal, current UPB and value, seasoning. Logic: HPA request at UPB ≤ 0.80 × original value; auto at scheduled UPB ≤ 0.78 × original value; Fannie current-value 75% after 2–5 years or 80% after 5. Data: 12 U.S.C. § 4902 (https://www.law.cornell.edu/uscode/text/12/4902); Fannie B-8.1-04 (https://servicing-guide.fanniemae.com/svc/b-8.1-04/termination-conventional-mortgage-insurance).
  3. Program-stack limiter. Inputs: county FIPS, income, first-time flag, veteran flag. Logic: look up FHFA CLL, FHA county limit, Fannie 80% AMI, USDA rural eligibility; emit max loan and monthly MI/MIP/funding-fee. Data: FHFA CLL (https://www.fhfa.gov/data/conforming-loan-limit); HUD FHA limits (https://entp.hud.gov/idapp/html/hicostlook.cfm); Fannie AMI tool (https://ami-lookup-tool.fanniemae.com/amilookuptool/).

State variation & 2025–2026 changes

  • Rates: PMMS 30-year 7.24% as of October 29, 2026 (prior week 7.32%; year-ago 6.17%). FHFA 2026 CLL $832,750 (Nov. 25, 2025). FHA floor $541,287 / ceiling $1,249,125; MIP still ML 2023-05 ($726,200 breakpoint).
  • QM: General QM is price-based (APR vs APOR), not a 43% DTI rule (12 CFR 1026.43). HPA unchanged. Fannie LL-2026-07 lets servicers outreach on current-value PMI; eligibility is still B-8.1-04.
  • Texas: TREC 20-19 ¶5 effective July 1, 2026 — 3 days to deliver option fee/earnest money. Massachusetts: 760 CMR 74.00 (Oct. 15, 2025) bars conditioning acceptance on an inspection waiver. No 2025–2026 federal first-time purchase tax credit.

Community tactics — verified status

  • Shop below the pre-approval — Verified. CFPB en-118: qualification ≠ affordability; toolkit 28% is the Bureau’s published rule of thumb.
  • Keep cash after closing because repairs start immediately — Verified as planning advice. CFPB toolkit requires budgeting repairs; three months of PITIA is this skill’s operating rule, not a statute.
  • Visit at commute times — Partly verified. Sound diligence; no statute.
  • “Once you pay 20% you can call and cancel PMI” — Partly verified. HPA request is 80% of original value; automatic is 78% scheduled. FHA MIP is not HPA PMI.
  • “2/3 of budget is mortgage” — Verified as community pain, not a legal limit.

Fact-check notes

  • CFPB Ask CFPB en-118 — works (reviewed June 27, 2024); qualification ≠ affordability.
  • CFPB toolkit PDF — works; August 2026; 28% rule of thumb.
  • Freddie Mac PMMS — works; 7.24% / 6.60% week of October 29, 2026.
  • NAR September 2026 EHS — works (released October 13, 2026); median $417,500, FTB 31%.
  • 12 U.S.C. § 4902 — works; 80% request / 78% automatic / 45-day refund.
  • Fannie B3-6-02 — works (04/02/2025); manual 36/45, DU 50%. Fannie B-8.1-04 — works; current-value 75/80.
  • ICE $209/month — works via ICE September 10, 2026 Mortgage Monitor.
  • Enact 0.38% PMI card — dropped as unverified; 0.50% used only as illustration.
  • $52,883 broken-arm bill — not used (wrong skill; unverified).
  • NBC, ProPublica, Pennsylvania Insurance Department — not cited in r2 §3.

Demand evidence: r2 F5×P4×S5 = 100; r1 “2/3 of regular spending budget is mortgage” (r/personalfinance)

Sources

  1. Your Home Loan Toolkit (print PDF) files.consumerfinance.gov — CFPB, August 2026
  2. How can I figure out if I can afford to buy a home? www.consumerfinance.gov — CFPB, last reviewed June 27, 2024
  3. Primary Mortgage Market Survey www.freddiemac.com — Freddie Mac, week of October 29, 2026
  4. Existing-Home Sales Increased 1.5% in September www.nar.realtor — NAR, October 13, 2026
  5. 12 U.S.C. § 4902 www.law.cornell.edu — Homeowners Protection Act cancellation/termination
  6. Fannie Mae B3-6-02, Debt-to-Income Ratios selling-guide.fanniemae.com — Fannie Mae, topic 04/02/2025
  7. Fannie Mae B-8.1-04, Termination of Conventional Mortgage Insurance servicing-guide.fanniemae.com — Fannie Mae Servicing Guide
  8. ICE Mortgage Monitor: property insurance $209/month mortgagetech.ice.com — ICE, September 10, 2026
  9. FHFA Announces Conforming Loan Limit Values for 2026 www.fhfa.gov — FHFA, November 25, 2025

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