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Category: Home Buying

  • What Is Earnest Money? How It Works When Buying a Home in 2026

    What Is Earnest Money? How It Works When Buying a Home in 2026

    Earnest money is a deposit you make when you submit an offer to buy a home. It shows the seller that you’re serious — “earnest” — about the purchase. Typically 1% to 3% of the home’s purchase price, it gets held in escrow and eventually applied toward your down payment or closing costs. If the deal falls through, whether you get it back depends on why.

    How Earnest Money Works

    When your offer is accepted, you deposit earnest money — usually within 1 to 3 business days — into an escrow account held by the title company, escrow company, or the seller’s real estate broker. It sits there until closing, when it gets credited toward your purchase.

    The earnest money amount is negotiable and varies by market. In competitive markets, buyers often offer 2% to 3% to stand out. In slower markets, 1% may be standard. On a $400,000 home, that’s $4,000 to $12,000.

    How Much Earnest Money Is Standard?

    • 1% of purchase price: Minimum in most markets; may not be competitive in hot markets
    • 2% to 3%: Standard in competitive markets; signals serious intent
    • 5% or more: Used in highly competitive bidding situations to strengthen an offer

    Your real estate agent can advise on local norms. In some markets, a larger earnest money deposit can substitute for (or supplement) other offer strengths.

    When You Get Earnest Money Back

    Your purchase contract will contain contingencies — conditions that must be met for the sale to proceed. If the deal falls through due to a failed contingency, you typically get your earnest money back. Common contingencies include:

    • Financing contingency: If your mortgage is denied, you can exit and recover your deposit
    • Inspection contingency: If the home inspection reveals major issues and you can’t reach an agreement with the seller, you can back out
    • Appraisal contingency: If the home appraises below the purchase price and you don’t want to pay the difference, you can exit
    • Home sale contingency: If you need to sell your current home first and can’t, you can exit

    When You Lose Earnest Money

    If you back out of a purchase for reasons not covered by a contingency, you typically forfeit the earnest money. Scenarios that can cost you the deposit:

    • Backing out after waiving your inspection contingency because you changed your mind
    • Missing the closing date without a valid reason or extension
    • Failing to secure financing when you waived the financing contingency
    • Simply deciding you don’t want the home after the contingency period has passed

    This is why it’s critical to understand every contingency in your contract and its deadlines before signing.

    Earnest Money vs. Down Payment

    These are related but different. Earnest money is paid upfront when you make an offer — it’s at risk if you back out without a valid contingency. The down payment is the larger amount paid at closing. Earnest money is typically credited toward the down payment, so it’s not an extra cost — it’s a portion of your down payment paid early.

    How to Protect Your Earnest Money

    1. Never make the check out to the seller: Earnest money should go to an escrow account held by a neutral third party — not directly to the seller or their agent
    2. Get everything in writing: All contingencies and their deadlines should be explicitly stated in the purchase agreement
    3. Know your contingency deadlines: Missing an inspection or financing deadline can cost you the right to use that contingency
    4. Request an extension if needed: If a contingency period is expiring and you haven’t completed your due diligence, ask for an extension in writing

    Earnest Money in Competitive Markets

    In a seller’s market, buyers sometimes waive contingencies to make their offers more attractive. Waiving a financing or inspection contingency puts your earnest money at significant risk. If you waive the financing contingency and your loan is denied, you lose the deposit. This decision should be made carefully with guidance from your agent and mortgage lender.

    Bottom Line

    Earnest money is part of nearly every home purchase — it demonstrates commitment and moves the transaction forward. Protect yourself by ensuring contingencies cover the main reasons a deal might fall through, understanding all deadlines, and always depositing to a neutral escrow account. If the purchase closes successfully, your earnest money simply becomes part of your down payment.

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  • What Is Private Mortgage Insurance (PMI)? How to Avoid It

    What Is Private Mortgage Insurance (PMI)? How to Avoid It

    Private mortgage insurance, or PMI, is insurance that protects your lender — not you — if you stop making mortgage payments. Lenders require PMI when your down payment is less than 20% of the home’s purchase price. It adds to your monthly housing cost and provides you zero direct benefit, which is why most borrowers want to eliminate it as quickly as possible.

    How Much Does PMI Cost?

    PMI typically costs between 0.5% and 1.5% of your loan amount per year, depending on your credit score, loan-to-value ratio, and lender. On a $400,000 loan, that’s $2,000 to $6,000 per year — or roughly $167 to $500 per month added to your mortgage payment.

    The exact rate is determined when you close on your loan. Borrowers with higher credit scores and larger down payments pay less.

    How PMI Works

    PMI is usually added directly to your monthly mortgage payment. The lender collects it and pays the insurance premiums to the private mortgage insurance company. If you default on your loan, the insurer reimburses the lender for a portion of their loss. You, the borrower, receive nothing from this arrangement — it exists entirely to reduce the lender’s risk of lending to buyers with smaller down payments.

    When Is PMI Required?

    PMI is required on conventional loans when your loan-to-value (LTV) ratio exceeds 80% — meaning your down payment is less than 20%. Government-backed loans handle it differently:

    • FHA loans: Require mortgage insurance premium (MIP) regardless of down payment. MIP lasts the life of the loan if you put less than 10% down, or 11 years if you put 10% or more down.
    • VA loans: No mortgage insurance required. A funding fee is charged instead, but it’s a one-time cost, not ongoing monthly insurance.
    • USDA loans: Charge a guarantee fee instead of PMI, similar to FHA.

    How to Avoid PMI

    Put 20% Down

    The simplest way to avoid PMI is to save a 20% down payment before buying. On a $400,000 home, that’s $80,000. For many buyers, this takes years of saving, but it eliminates PMI entirely from day one.

    Piggyback Loans (80-10-10)

    A piggyback loan is a second mortgage taken simultaneously with the first, structured so your total LTV stays at or below 80%. The most common structure is 80-10-10: you put 10% down, take a first mortgage for 80%, and a second mortgage for the remaining 10%. This eliminates PMI but the second mortgage typically carries a higher interest rate than the first.

    Lender-Paid PMI

    Some lenders offer to pay your PMI in exchange for a slightly higher interest rate. This sounds appealing but often costs more over the long run — you can remove borrower-paid PMI once you hit 20% equity, but you can’t remove the rate increase from lender-paid PMI without refinancing.

    How to Get Rid of PMI Once You Have It

    Automatic Cancellation

    Under the Homeowners Protection Act, lenders must automatically cancel PMI when your loan balance reaches 78% of the original purchase price — as long as you’re current on payments. This happens through your normal amortization schedule, whether you take extra steps or not.

    Request Cancellation at 80% LTV

    You can request PMI cancellation in writing once your loan balance drops to 80% of the original value. The lender may require an appraisal to confirm value, and you must be current on payments with a good payment history.

    Refinance Your Mortgage

    If your home has appreciated significantly, refinancing can reset your LTV based on the new appraised value. If your new loan is 80% or less of the current value, PMI won’t be required on the new loan. This strategy works best when interest rates are similar to or lower than your current rate.

    Make Extra Payments

    Paying down your principal faster accelerates the timeline to 80% LTV. Even an extra $100 to $200 per month can shave years off your PMI timeline and save thousands in insurance premiums.

    Is PMI Tax Deductible?

    PMI deductibility has come and gone as a tax law over the years. As of 2026, check with a tax advisor for the current status — it has not been a permanent part of the tax code and has required periodic congressional renewal.

    Bottom Line

    PMI is an unavoidable cost for most borrowers who put less than 20% down on a conventional loan. It typically runs $100 to $500 per month and provides no benefit to you as a borrower. Focus on building equity quickly — through home appreciation, extra payments, or a combination — and request PMI cancellation the moment you cross the 80% LTV threshold. Every month without PMI is money back in your pocket.

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  • Best First-Time Homebuyer Loans 2026: FHA, VA, USDA, and More

    Best First-Time Homebuyer Loans 2026: FHA, VA, USDA, and More

    Buying your first home is one of the biggest financial decisions you will ever make. The good news: there are loan programs built specifically for first-time buyers that make it easier to qualify and require less money down. Here are the best options in 2026.

    What Counts as a “First-Time Homebuyer”?

    For most programs, a first-time homebuyer is someone who has not owned a home in the past 3 years. Even if you owned a home before, you may qualify if enough time has passed. Some programs have no prior ownership requirement at all.

    FHA Loans: Best for Lower Credit Scores

    FHA loans are backed by the Federal Housing Administration and are one of the most popular options for first-time buyers.

    • Minimum down payment: 3.5% with a credit score of 580 or higher. 10% if your score is 500 to 579.
    • Credit score minimum: 500 (though most lenders prefer 580+).
    • Mortgage insurance: Required. You pay an upfront premium (1.75% of the loan amount) plus an annual premium (0.15% to 0.75% depending on the loan) for the life of the loan if you put less than 10% down.
    • Best for: Buyers with credit scores under 700 who cannot qualify for conventional loans.

    Conventional 97 and HomeReady: Best for Buyers With Good Credit

    These conventional loan programs allow down payments as low as 3% with better terms than FHA if your credit is solid.

    • Conventional 97: Available from Fannie Mae and Freddie Mac. Requires a 620+ credit score and 3% down. No income limit.
    • Fannie Mae HomeReady: Designed for moderate-income buyers. Requires a 620+ score and 3% down. Income must be at or below 80% of the area median income. Allows income from a roommate or non-borrower household member to help you qualify.
    • Freddie Mac Home Possible: Similar to HomeReady. 3% down, 660+ credit score, income limits apply.
    • Mortgage insurance: Required until you reach 20% equity — but it can be canceled, unlike FHA mortgage insurance.

    VA Loans: Best for Veterans and Service Members

    VA loans are backed by the Department of Veterans Affairs and are the best mortgage deal available — if you qualify.

    • Down payment: $0 required. You can buy with nothing down.
    • Mortgage insurance: None. You pay a one-time VA funding fee (1.25% to 3.3% of the loan, depending on down payment and whether it is your first VA loan). This can be financed into the loan.
    • Credit score: VA sets no minimum, but most lenders require 620+.
    • Eligibility: Active-duty service members, veterans who served the required time, National Guard and Reserve members (with qualifying service), and surviving spouses of veterans.
    • Best for: Any eligible veteran or service member — it is almost always the best loan available to those who qualify.

    USDA Loans: Best for Rural Buyers

    USDA loans are backed by the US Department of Agriculture and are for buyers in eligible rural and suburban areas.

    • Down payment: $0 required.
    • Mortgage insurance: A 1% upfront guarantee fee and 0.35% annual fee — much lower than FHA mortgage insurance.
    • Income limits: Household income must be at or below 115% of the area median income.
    • Location requirement: The property must be in a USDA-eligible area. Many suburban and rural areas qualify — check the USDA eligibility map at usda.gov.
    • Credit score: 640+ is typical for streamlined underwriting.
    • Best for: Low-to-moderate income buyers purchasing in eligible areas who want to buy with no down payment.

    State and Local Down Payment Assistance Programs

    Most states offer first-time homebuyer programs that provide grants or forgivable loans to help cover the down payment and closing costs. These programs vary widely by state and can provide $3,000 to $25,000 or more in assistance.

    Search for your state’s housing finance agency (HFA) to find programs you may qualify for. Many require a homebuyer education course to participate.

    How to Choose the Right Loan

    • Military background? Apply for a VA loan first. It is almost always the best deal.
    • Buying in a rural area with lower income? Look at USDA loans.
    • Lower credit score (below 700)? FHA is usually your best option.
    • Good credit (700+) and buying in a higher-cost area? A conventional loan with 3% to 5% down may offer better total cost than FHA.

    Bottom Line

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    First-time homebuyers have more options than most people realize. Get pre-approved with at least three lenders, compare loan types, and check your state’s down payment assistance programs before you commit. The right loan can save you tens of thousands of dollars over the life of your mortgage.

    Heads up: This article is for informational purposes only and does not constitute financial advice. We are not licensed financial advisors. Always consult a qualified professional before making major financial decisions.

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  • Renting vs. Buying a Home in 2026: Which Is the Smarter Financial Move?

    The rent vs. buy decision is one of the most personal and financially significant choices you will make. Despite the cultural pressure toward homeownership as the default American milestone, renting is often the smarter financial choice — depending on how long you plan to stay, where you live, and what you would do with the capital tied up in a down payment. Here is a clear-eyed comparison for 2026.

    The Financial Case for Buying

    Building Equity

    Every mortgage payment includes a portion of principal repayment, which builds equity in your home. Over time, you own more and owe less. When you sell, that equity becomes cash. Renters have no equivalent accumulation.

    Appreciation

    Home values have appreciated at roughly 4%–5% annually over the long term, though this varies enormously by location and time period. In markets like Austin, Phoenix, and Nashville, home values doubled or more in the past decade. Price growth is never guaranteed, but long-term appreciation has generally been a tailwind for homeowners.

    Inflation Protection

    A fixed-rate mortgage locks in your housing payment for 30 years. Rent, on the other hand, can increase at lease renewal. In inflationary environments, homeowners with fixed mortgages see their real monthly housing cost decline over time as their payment stays flat while income and prices rise.

    Tax Benefits

    Homeowners can deduct mortgage interest and property taxes on their federal return (subject to limits). When selling a primary residence, couples can exclude up to $500,000 in capital gains ($250,000 for single filers) from taxes.

    The Financial Case for Renting

    Lower Upfront Cost

    Buying a home requires a down payment (often $30,000–$100,000+), closing costs (2%–5% of the loan), and moving costs. A renter typically only needs first and last month’s rent and a security deposit — a fraction of the cost. That freed-up capital can be invested in stocks, index funds, or other assets that may outperform real estate.

    No Maintenance Costs

    Homeowners typically spend 1%–2% of home value annually on maintenance. On a $400,000 home, that is $4,000–$8,000 per year that renters simply do not pay. When the furnace breaks or the roof leaks, the landlord handles it.

    Flexibility

    Renting allows you to move quickly for career opportunities, life changes, or lifestyle preferences. Selling a home takes months, costs 6%–10% in commissions and fees, and can trap you in a market at the wrong time.

    No Market Risk

    Real estate prices can fall. Buyers who purchased at the peak in 2006–2007 saw values drop 20%–50% in many markets. Renters face no such price risk — though they do face the risk of rent increases.

    The Break-Even Horizon

    Homeownership only beats renting after you have stayed long enough to recoup transaction costs through appreciation and equity buildup. This is the buy-vs-rent break-even point. In most U.S. markets in 2026, the break-even horizon is roughly 4–7 years.

    If you are not sure you will stay in a location for at least 5 years, renting is almost certainly the better financial choice in most markets. Moving after 2 years means absorbing closing costs and agent commissions (6%+ of sale price) without enough appreciation to offset them.

    The Price-to-Rent Ratio

    One useful metric is the price-to-rent ratio: the median home price in an area divided by the annual median rent for a comparable property.

    • Below 15: generally favors buying
    • 15–20: the decision depends on individual circumstances
    • Above 20: generally favors renting

    In expensive metros like San Francisco, New York, and Los Angeles, price-to-rent ratios often exceed 30, meaning it takes decades to break even on a purchase versus investing the down payment in the market. In cities like Cleveland, Memphis, or St. Louis, ratios of 10–15 make buying economically straightforward.

    Non-Financial Factors

    The financial math matters, but so does lifestyle:

    • Stability: ownership provides roots, school continuity, and the ability to customize your space
    • Control: renters are subject to landlord decisions — rent hikes, sale of property, lease non-renewal
    • Community: long-term homeowners often feel more invested in their neighborhood
    • Privacy and space: owned homes (on average) offer more space than rented apartments

    Making the Decision for 2026

    Ask yourself these questions:

    • How long do I plan to stay? Less than 5 years usually favors renting.
    • What is the price-to-rent ratio in my target area?
    • What would I do with the down payment if I did not buy? If the answer is “invest it productively,” renting has real competition.
    • Is my income and employment stable enough to take on a 30-year obligation?
    • What does the total cost of ownership (mortgage + taxes + insurance + maintenance) compare to rent for an equivalent property?

    Bottom Line

    Renting vs. buying in 2026 is not a values judgment — it is a financial and lifestyle calculation. Buying makes sense when you plan to stay long enough, the market price-to-rent ratio favors it, and the total cost of ownership beats rent for a comparable property. Renting wins when you have flexibility needs, a short time horizon, or when capital invested elsewhere would outperform the expected appreciation. Run the numbers specific to your market and situation rather than defaulting to either choice based on cultural expectation.

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    Ready to invest? See our guide: How to Start Investing with $100 in 2026.

  • Mortgage Refinance Guide 2026: When to Refinance and How to Save

    Refinancing your mortgage means replacing your existing home loan with a new one — ideally with a lower interest rate, shorter term, or better terms. Done at the right time and for the right reasons, refinancing can save tens of thousands of dollars over the life of a loan. Done carelessly, it can add years to your payoff and cost more than it saves. This guide covers everything you need to know about mortgage refinancing in 2026.

    What Is a Mortgage Refinance?

    When you refinance, your lender pays off your existing mortgage and replaces it with a new loan. You get new terms — a new interest rate, monthly payment, and possibly a new loan term. The process is similar to getting your original mortgage: application, underwriting, appraisal, and closing.

    Reasons to Refinance Your Mortgage

    Lower Your Interest Rate

    This is the most common reason to refinance. If today’s rates are meaningfully lower than your current rate, refinancing can reduce your monthly payment and total interest paid. A 1% reduction on a $400,000 loan can save over $200 per month.

    Shorten Your Loan Term

    Moving from a 30-year to a 15-year mortgage typically raises your monthly payment but dramatically reduces total interest paid. If your income has grown since you took out the original loan, this can be a smart accelerated payoff strategy.

    Switch from Adjustable to Fixed Rate

    Adjustable-rate mortgages (ARMs) offer low initial rates that can spike after the fixed period ends. Refinancing into a fixed-rate loan provides payment predictability — especially valuable in a volatile rate environment.

    Cash-Out Refinance

    A cash-out refinance lets you borrow against your home equity by replacing your mortgage with a larger loan. The difference comes to you in cash, which you can use for home improvements, debt payoff, or other large expenses. This increases your loan balance and resets your repayment clock — approach with caution.

    The Break-Even Rule

    Refinancing costs money upfront — closing costs typically run 2%–5% of the loan amount. The key question is how long it takes for your monthly savings to offset those costs. This is called the break-even point.

    Example: If refinancing costs $6,000 in closing costs and saves you $200 per month, your break-even point is 30 months. If you plan to stay in the home longer than 30 months, refinancing makes sense. If you plan to sell or move before then, it probably does not.

    When Does Refinancing Make Sense in 2026?

    The rule of thumb that refinancing only makes sense if you lower your rate by at least 1% is outdated — it depends on your loan balance, remaining term, and how long you plan to stay. In 2026, consider refinancing if:

    • Current rates are at least 0.5%–1% lower than your existing rate
    • You plan to stay in the home past your break-even point
    • Your credit score has improved significantly since you got the original loan
    • You want to eliminate private mortgage insurance (PMI) if your equity has reached 20%
    • You are switching from an ARM to a fixed rate for payment stability

    How to Qualify for a Mortgage Refinance

    Lenders evaluate the same factors as your original mortgage:

    • Credit score: 620 is typically the minimum; 740+ gets the best rates
    • Debt-to-income ratio (DTI): most lenders want DTI under 43%
    • Home equity: you generally need at least 20% equity to avoid PMI; some programs allow less
    • Income verification: two years of tax returns, pay stubs, and bank statements

    Steps to Refinance Your Mortgage

    1. Check your credit score and dispute any errors
    2. Calculate your home’s equity (current value minus remaining loan balance)
    3. Get rate quotes from at least three lenders — including your current lender
    4. Compare APRs (not just rates) and total closing costs
    5. Lock your rate when you find a competitive offer
    6. Gather documentation: income verification, tax returns, bank statements
    7. Complete the appraisal and underwriting process
    8. Close on the new loan and make sure the old one is paid off

    Refinancing Costs to Expect

    • Origination fee: 0.5%–1% of the loan amount
    • Appraisal fee: $300–$600
    • Title search and insurance: $700–$1,500
    • Recording fees: $25–$250
    • Prepaid interest and escrow setup

    Total closing costs typically run 2%–5% of the loan balance. Some lenders offer no-closing-cost refinances — but those costs are rolled into the loan or covered by a slightly higher rate.

    Mistakes to Avoid When Refinancing

    • Not shopping around — rates vary significantly between lenders
    • Extending the loan term unnecessarily, which adds years of interest
    • Closing a refinance right before selling the home
    • Taking cash out without a specific plan for the funds
    • Ignoring total loan costs and focusing only on the monthly payment

    Bottom Line

    A mortgage refinance in 2026 can be a powerful financial tool if the numbers work in your favor. Start by calculating your break-even point, then shop at least three lenders to find the best rate. Focus on your long-term savings — not just the monthly payment — and make sure you plan to stay in the home long enough to recoup closing costs before you commit.

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  • How to Save for a House Down Payment in 2026

    Saving for a house down payment is one of the biggest financial goals many people tackle. Whether you are targeting 3%, 5%, or 20% down, getting there requires a clear strategy, the right savings vehicle, and consistent action.

    Here is a practical plan to reach your down payment goal, including how much you actually need and where to keep the money while you save.

    How Much Down Payment Do You Actually Need?

    The traditional advice is 20% down, but that is not required. Here are the actual minimums by loan type:

    Loan Type Minimum Down Payment PMI Required?
    Conventional loan 3% (first-time buyers) or 5% Yes, until 20% equity
    FHA loan 3.5% (credit score 580+) Yes, for life of loan in many cases
    VA loan (veterans) 0% No
    USDA loan (rural areas) 0% No (but guarantee fee applies)

    The benefit of 20% down is avoiding private mortgage insurance (PMI), which typically costs 0.5% to 1.5% of the loan amount annually. On a $400,000 loan, that is $2,000 to $6,000 per year added to your costs.

    However, waiting to save 20% means years of rent payments. Many buyers run the numbers and find that buying sooner with 10% or even 5% down — and paying PMI until they reach 20% equity — costs less overall than continuing to rent.

    How Much Do You Need to Save?

    Beyond the down payment itself, budget for:

    • Closing costs: Typically 2% to 5% of the purchase price. On a $350,000 home, that is $7,000 to $17,500.
    • Move-in reserves: One to three months of mortgage payments kept in reserve — many lenders require this.
    • Immediate home costs: Repairs, furniture, and appliances not covered by the seller.

    Example: Buying a $350,000 home with 10% down:

    • Down payment: $35,000
    • Closing costs (3%): $10,500
    • Reserves (2 months): $4,000
    • Total needed: roughly $49,500

    Where to Keep Your Down Payment Savings

    Down payment savings belong in accounts that are safe, liquid, and ideally earning competitive interest:

    • High-yield savings account: Best for most savers. FDIC-insured, accessible within 1 to 2 days, earning 4%+ APY at top online banks in 2026. No risk of losing principal.
    • Money market account: Similar to a high-yield savings account, sometimes with check-writing access. Good for larger balances.
    • Short-term CDs (6 to 12 months): If you know your timeline, a CD locks in a rate. Make sure the maturity date aligns with when you plan to buy.

    Do not invest your down payment in stocks or mutual funds. The stock market can drop 20% to 30% right when you need the money. Capital preservation matters more than growth for a goal with a specific timeline.

    How to Save Faster: Strategies That Work

    Calculate a Monthly Target

    Divide your total savings goal by the number of months until your target purchase date. If you need $50,000 in 36 months, you need to save roughly $1,390 per month. If that is not feasible, either extend your timeline or adjust your target home price.

    Automate the Savings

    Set up an automatic transfer from your checking account to your dedicated down payment savings account each payday. Automate first, spend what is left. Do not rely on manual transfers — they get skipped.

    Put Windfalls to Work

    Tax refunds, work bonuses, and any unexpected income should go straight to the down payment fund. A $3,000 tax refund can cover two months of savings contributions in one day.

    Reduce Your Largest Fixed Expense

    If rent is your biggest expense, consider temporarily reducing it — move in with family, get a roommate, or move to a less expensive area for the saving period. A $500/month reduction in rent adds $6,000 per year to your savings capacity.

    Look for Down Payment Assistance Programs

    Many states, counties, and cities offer down payment assistance (DPA) programs for first-time buyers, often as grants or forgivable loans. The National Council of State Housing Agencies (NCSHA) and your state’s housing finance agency website are good places to start. Some programs cover up to 5% of the purchase price.

    Check If Your Roth IRA Can Help

    First-time homebuyers can withdraw up to $10,000 in Roth IRA earnings tax-free and penalty-free for a home purchase (provided the account is at least 5 years old). You can always withdraw your contributions (not earnings) from a Roth IRA at any time with no tax or penalty. This is not a first resort, but it is an option if you are close to your goal and short on cash.

    Timeline Examples

    Monthly Savings Goal: $30,000 Goal: $50,000 Goal: $75,000
    $500 60 months 100 months 150 months
    $1,000 30 months 50 months 75 months
    $1,500 20 months 33 months 50 months
    $2,000 15 months 25 months 37 months

    Bottom Line

    Saving for a down payment is achievable with a clear target, dedicated savings account, and automated contributions. You do not need 20% down to buy — many first-time buyers put down 3% to 5% and build equity from there. Keep your savings in a high-yield savings account where it earns interest without risk. Look into down payment assistance programs in your area before assuming you need to save the full amount on your own.

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  • First-Time Homebuyer Programs and Grants in 2026

    First-Time Homebuyer Programs and Grants in 2026

    Buying your first home is one of the biggest financial steps you can take. The good news is that there are programs to help. Federal, state, and local governments offer first-time homebuyer grants, down payment assistance, and low-interest loans.

    This guide explains the best programs available in 2026 and how to qualify for them.

    What Counts as a First-Time Homebuyer?

    Most programs define a first-time homebuyer as someone who has not owned a home in the past three years. That means you can qualify even if you owned a home before, as long as you have not owned one recently.

    Federal First-Time Homebuyer Programs

    FHA Loans

    FHA loans are backed by the Federal Housing Administration. They let you buy a home with as little as 3.5% down if your credit score is 580 or higher. If your score is between 500 and 579, you need 10% down.

    FHA loans are popular with first-time buyers because they are easier to qualify for than conventional loans. The trade-off is mortgage insurance. You pay an upfront fee of 1.75% of the loan and a monthly premium for the life of the loan in most cases.

    VA Loans

    VA loans are available to military veterans, active-duty service members, and surviving spouses. They require no down payment and no mortgage insurance. The VA loan is one of the best mortgage deals available in the US.

    You need a Certificate of Eligibility from the VA to apply. Lenders also have their own credit and income requirements, though the VA has no official minimum credit score.

    USDA Loans

    USDA loans are for homes in rural and some suburban areas. They require no down payment. Income limits apply — you generally need to earn at or below 115% of the area median income.

    Use the USDA’s online map to see if a property qualifies. Many areas outside major cities are eligible.

    Good Neighbor Next Door Program

    This HUD program offers a 50% discount on homes in revitalization areas for teachers, police officers, firefighters, and EMTs. You must live in the home for at least 36 months. Properties are listed on the HUD website for seven days before becoming available to the general public.

    Down Payment Assistance Programs

    Down payment assistance (DPA) programs provide grants or low-interest loans to help cover your down payment and closing costs. Most programs are run by state or local housing agencies.

    State Housing Finance Agency Programs

    Every state has a housing finance agency (HFA) that offers first-time buyer programs. These typically include:

    • Below-market mortgage rates
    • Down payment assistance of $5,000–$25,000
    • Deferred or forgivable second mortgages

    Income and purchase price limits apply. Search for your state’s HFA program using the National Council of State Housing Agencies directory.

    Fannie Mae HomeReady Loan

    The HomeReady program from Fannie Mae allows a 3% down payment on conventional loans for low-to-moderate income buyers. Mortgage insurance is required but can be cancelled once you reach 20% equity. You must complete a homebuyer education course.

    Freddie Mac Home Possible Loan

    Similar to HomeReady, Freddie Mac’s Home Possible program offers 3% down with reduced mortgage insurance for income-eligible buyers. You can use gifts, grants, and employer assistance for the down payment.

    Homebuyer Grants

    Some programs give money that does not need to be repaid. These are called grants.

    National Homebuyers Fund

    The National Homebuyers Fund (NHF) offers down payment assistance of up to 5% of the loan amount. It is available through participating lenders in most states. The assistance comes as a grant — you do not pay it back.

    Bank of America Community Homeownership Commitment

    Bank of America offers down payment grants of up to $10,000 and closing cost grants of up to $7,500 in eligible areas. These are true grants with no repayment required. Income and purchase price limits apply.

    Chase Homebuyer Grant

    Chase offers up to $7,500 as a grant for home purchases in designated areas. The money goes toward closing costs or your down payment. No repayment is required.

    First-Time Homebuyer Tax Credits

    Congress has proposed a $15,000 First-Time Homebuyer Tax Credit in recent years. As of 2026, this has not been signed into law. Check with a tax advisor or the IRS for the latest status on any federal homebuyer tax credits.

    Some states offer state-level mortgage credit certificates (MCCs), which let you deduct a portion of your mortgage interest directly from your federal tax bill each year. This can reduce your effective interest rate significantly.

    How to Qualify for First-Time Buyer Programs

    Requirements vary by program, but common criteria include:

    • Income at or below a certain limit (usually 80%–120% of area median income)
    • Credit score of 620 or higher (some programs go lower)
    • Purchase price below the program’s cap
    • Completion of a homebuyer education course
    • Using the home as your primary residence

    Steps to Take Now

    1. Check your credit score. Know where you stand. A score of 620+ opens most programs. A score of 740+ gets you the best rates.
    2. Save for your down payment. Even with assistance, you may need 1%–3% of the purchase price.
    3. Research your state’s HFA. Find your state housing finance agency and see what programs are available in your area.
    4. Get pre-approved. Talk to lenders who participate in first-time buyer programs. Ask specifically about down payment assistance in your area.
    5. Take a homebuyer education course. Most programs require it. HUD-approved courses are available online for about $75–$100.

    Bottom Line

    First-time homebuyer programs can put homeownership within reach even if you do not have a large down payment saved. FHA loans, state HFA programs, and bank grants are worth exploring before you assume you cannot afford to buy.

    The best place to start is your state’s housing finance agency website. From there, a HUD-approved housing counselor can help you figure out which programs you qualify for.

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    See also: What Is a HELOC? How Home Equity Lines of Credit Work in 2026

  • First-Time Homebuyer Loans Guide 2026: Programs, Requirements, and How to Qualify

    Buying your first home is one of the biggest financial decisions you will ever make. The good news is that first-time homebuyers have access to a wide range of loan programs designed to make homeownership more affordable. This guide covers every major first-time homebuyer loan option available in 2026, what you need to qualify, and how to choose the right program.

    What Is a First-Time Homebuyer Loan?

    A first-time homebuyer loan is any mortgage product or assistance program with terms designed to help people who have not owned a home in the past three years. Most programs offer one or more of these benefits: a lower down payment requirement, reduced mortgage insurance costs, below-market interest rates, or down payment assistance.

    The official definition used by most programs: you are a first-time buyer if you have not owned a primary residence in the past three years. That means many people who owned a home years ago can still qualify.

    FHA Loans: The Most Popular First-Time Buyer Option

    Federal Housing Administration (FHA) loans are backed by the government and issued by FHA-approved private lenders. They are consistently the most popular choice for first-time buyers because of their low minimum requirements.

    FHA Loan Requirements in 2026

    • Minimum credit score: 580 for 3.5% down payment; 500 to 579 for 10% down
    • Minimum down payment: 3.5% with a 580+ credit score
    • Debt-to-income ratio: Up to 50% allowed with compensating factors
    • Loan limits: $498,257 in most areas; up to $1,149,825 in high-cost markets
    • Mortgage insurance: Required for the life of the loan (unless you put 10% down, in which case it drops after 11 years)

    The biggest downside of FHA loans is mortgage insurance. You pay an upfront mortgage insurance premium (MIP) of 1.75% of the loan amount plus an annual MIP of 0.55% for most borrowers. This adds meaningful cost over the life of the loan compared to conventional loans.

    Conventional 97 Loans: 3% Down With No Upfront MIP

    Fannie Mae and Freddie Mac both offer conventional loans with just 3% down through their HomeReady and Home Possible programs. Unlike FHA, there is no upfront mortgage insurance premium, and private mortgage insurance (PMI) can be canceled once you reach 20% equity.

    Conventional 97 Loan Requirements

    • Minimum credit score: 620 (higher scores get better rates)
    • Down payment: 3%
    • Income limits: HomeReady and Home Possible require income at or below 80% of area median income (AMI)
    • Mortgage insurance: Required until 20% equity reached; cancelable

    If your credit score is above 660 and you qualify for HomeReady or Home Possible, the reduced PMI costs can make conventional loans cheaper than FHA long-term.

    VA Loans: The Best Deal for Eligible Veterans

    VA loans are guaranteed by the Department of Veterans Affairs and available to eligible active-duty military, veterans, and surviving spouses. If you qualify, VA loans are the best deal in the mortgage market.

    VA Loan Benefits

    • No down payment required
    • No private mortgage insurance
    • Competitive interest rates (typically lower than conventional)
    • Flexible credit requirements (most lenders require 580-620)
    • Funding fee: 2.15% for first use with no down payment (can be rolled into the loan)

    The VA funding fee can be waived if you receive VA disability compensation. Veterans with a disability rating of 10% or higher pay no funding fee.

    USDA Loans: Zero Down Payment for Rural and Suburban Areas

    USDA loans are guaranteed by the U.S. Department of Agriculture and available in eligible rural and suburban areas. Despite the name, many suburban areas outside major cities qualify.

    USDA Loan Requirements

    • No down payment required
    • Income limits: Household income must be below 115% of area median income
    • Location: Property must be in a USDA-eligible area (check the USDA eligibility map)
    • Credit score: Most lenders require 640+
    • Guarantee fee: 1% upfront plus 0.35% annual fee

    USDA loans are an excellent option for buyers outside major metro areas who meet the income limits. The combination of zero down and low fees makes them highly affordable.

    State and Local First-Time Homebuyer Programs

    Beyond federal programs, every state operates housing finance agencies that offer additional assistance. These programs typically provide:

    • Down payment assistance (DPA): Grants or forgivable second loans of 3% to 5% of the purchase price
    • Below-market first mortgages: Interest rates below the conventional market rate
    • Mortgage credit certificates (MCCs): Federal tax credits worth 20% to 40% of annual mortgage interest

    To find programs in your state, contact your state housing finance agency. Income and purchase price limits vary significantly by state and county.

    How to Compare First-Time Homebuyer Loan Programs

    Do not focus only on the interest rate. The true cost of a mortgage includes the rate, fees, and mortgage insurance. Use this framework to compare options:

    1. Calculate total monthly payment including principal, interest, taxes, insurance, and mortgage insurance
    2. Calculate total cash needed to close including down payment, closing costs (typically 2-5% of the loan), and reserves
    3. Calculate long-term cost using the APR, which includes fees amortized over the loan term
    4. Check cancelability of mortgage insurance — PMI on conventional loans can be canceled; FHA MIP typically cannot

    Steps to Qualify for a First-Time Homebuyer Loan

    Step 1: Check Your Credit Score

    Pull your free credit reports from AnnualCreditReport.com. Review for errors and dispute inaccuracies. For FHA loans you need at minimum a 580. For conventional loans, aim for 620 or higher. A score above 740 unlocks the best conventional rates.

    Step 2: Calculate Your Debt-to-Income Ratio

    Add up all monthly debt payments (car, student loans, credit cards, etc.) and divide by gross monthly income. Most programs require a DTI below 43% to 50%. The lower your DTI, the better your loan terms.

    Step 3: Save for Down Payment and Closing Costs

    Even low-down-payment programs require closing costs, typically 2% to 5% of the purchase price. Some programs allow seller concessions or gift funds to cover closing costs.

    Step 4: Get Pre-Approved

    Pre-approval from a lender tells you exactly how much home you can afford and signals to sellers that you are a serious buyer. Apply to multiple lenders within a 45-day window to minimize credit score impact — multiple mortgage inquiries in that period count as one inquiry.

    Step 5: Complete a Homebuyer Education Course

    Most down payment assistance programs require a HUD-approved homebuyer education course. Many are available free online and take three to eight hours. Completing one before you apply speeds up the process and often qualifies you for better terms.

    First-Time Homebuyer Loans: Quick Comparison

    Loan Type Min. Down Payment Min. Credit Score Mortgage Insurance Who Qualifies
    FHA 3.5% 580 Required (life of loan) Anyone
    Conventional 97 3% 620 Required (cancelable) Income limits may apply
    VA 0% 580-620 None Veterans/military only
    USDA 0% 640 Annual fee (low) Rural/suburban areas, income limits

    Frequently Asked Questions

    Can I use gift money for a first-time homebuyer down payment?

    Yes. FHA, conventional, VA, and USDA loans all allow down payment gifts from family members. The gift must be documented with a gift letter stating no repayment is expected.

    How long does the first-time homebuyer loan process take?

    From pre-approval to closing typically takes 30 to 60 days. FHA and USDA loans sometimes take slightly longer due to additional underwriting steps.

    Do first-time homebuyer programs have income limits?

    FHA and VA loans have no income limits. USDA loans require household income below 115% of area median income. Conventional HomeReady and Home Possible require income below 80% of AMI.

    Can I qualify as a first-time homebuyer if I owned a home before?

    Yes, if you have not owned a primary residence in the past three years. This three-year rule applies to most federal and state first-time buyer programs.

    Related Articles

    Related: How Much House Can I Afford? 2026 Calculation Guide

    Related: What Is PMI? How to Remove Private Mortgage Insurance in 2026

    Related: What Is an Adjustable-Rate Mortgage (ARM)? 2026 Guide

    Related: What Is a HELOC? Home Equity Line of Credit Explained

    If you put less than 20% down, you’ll likely pay private mortgage insurance (PMI) — learn how it works and how to get rid of it.

    Homeowners aged 62 and older who have built substantial equity have another financing option worth understanding: see our guide to what a reverse mortgage is and when it makes sense. For reducing the ongoing cost of ownership, see how to lower your property taxes through exemptions and appeals.

  • HELOC vs Home Equity Loan: Which Is Better for Your Situation?

    If you own a home with equity, you have two main ways to borrow against it: a home equity line of credit (HELOC) or a home equity loan. They both let you tap the equity in your home at lower interest rates than personal loans or credit cards — but they work very differently, and choosing the wrong one can cost you.

    HELOC vs Home Equity Loan: Quick Comparison

    Feature HELOC Home Equity Loan
    Interest rate Variable (prime + margin) Fixed
    Disbursement Draw as needed (revolving credit line) Lump sum at closing
    Repayment Interest-only during draw period; then principal + interest Fixed monthly payments from day one
    Draw period Typically 10 years No draw period — full amount borrowed upfront
    Repayment period Typically 20 years after draw period 5–30 years fixed term
    Closing costs Lower (some lenders waive entirely) Higher (similar to a small mortgage)
    Best for Ongoing or uncertain expenses One-time large expenses with known amount

    What Is a HELOC?

    A home equity line of credit is a revolving credit line secured by your home. During the draw period (usually 10 years), you can borrow up to your approved limit, pay it back, and borrow again — similar to a credit card. Interest is typically charged only on what you draw.

    HELOC interest rates are variable, tied to the prime rate plus a margin set by the lender. When the Federal Reserve raises rates, your HELOC rate goes up. When rates fall, so does your payment.

    After the draw period ends, most HELOCs enter a 20-year repayment period where the balance converts to a principal-and-interest loan. Some HELOCs require a balloon payment at the end of the draw period instead — read your terms carefully.

    What Is a Home Equity Loan?

    A home equity loan is a second mortgage. You borrow a fixed amount at a fixed interest rate, and the loan is repaid in equal monthly installments over a set term — typically 5 to 30 years. The entire loan amount is disbursed at closing.

    Because the rate is fixed, your payment never changes. This predictability makes home equity loans the preferred choice for large one-time expenses where you know the total cost upfront.

    When a HELOC Makes More Sense

    Home Renovation with Uncertain Costs

    If you are renovating and do not know the final cost — or you want to draw funds in stages as work is completed — a HELOC lets you borrow incrementally. You only pay interest on what you actually use, not the full approved amount. If the renovation comes in under budget, you are not stuck with a loan for more than you needed.

    Ongoing Expenses or Emergency Access

    A HELOC functions well as a financial backstop. You can open a line, not draw on it, and have it available for emergencies or ongoing needs like tuition payments over several years. You pay nothing unless you actually draw.

    Lower Starting Rate

    HELOC rates are typically lower than fixed home equity loan rates at the time of borrowing. If rates stay flat or fall, you can save money versus taking a fixed loan. This advantage reverses if rates rise.

    When a Home Equity Loan Makes More Sense

    Large One-Time Expenses

    If you are paying for a kitchen remodel with a defined scope, paying off a specific debt, or funding a known expense like a vehicle purchase, a home equity loan gives you all the money at once with a fixed payment. There is no risk of rate increases, and you know exactly when the loan is paid off.

    Debt Consolidation

    Rolling high-interest credit card or personal loan debt into a fixed-rate home equity loan is one of the most common uses. You trade 20–25% credit card rates for a 7–9% fixed home equity loan rate, with a defined payoff date. Because the rate and payment are fixed, it is easier to budget and more predictable than a HELOC.

    Rate Environment Uncertainty

    If you are borrowing during a rising rate environment and expect rates to continue climbing, locking in a fixed rate on a home equity loan protects you from payment increases over the life of the loan.

    Risks of Both Products

    Both a HELOC and a home equity loan use your home as collateral. If you default, the lender can foreclose. This is a fundamentally different risk profile than credit card debt or a personal loan, where the worst outcome is credit damage and collections — not losing your home.

    Specific risks by product:

    • HELOC: Payment shock at the end of the draw period (interest-only payments can double when principal repayment begins); rate increases can significantly raise payments on variable-rate lines
    • Home equity loan: If home values drop, you could owe more than the home is worth if you have a first mortgage and a home equity loan combined; higher closing costs than a HELOC

    How Much Can You Borrow?

    Both products are limited by your combined loan-to-value (CLTV) ratio — the sum of your first mortgage balance plus the new equity loan or HELOC, divided by the home’s appraised value. Most lenders allow a maximum CLTV of 80–90%.

    Example: Home appraised at $400,000. First mortgage balance: $220,000. At 85% CLTV limit, maximum combined debt is $340,000. Available equity to borrow: $340,000 – $220,000 = $120,000.

    You will also need a qualifying credit score — typically 620–680 minimum, with the best rates going to borrowers above 720.

    Tax Deductibility

    Interest on home equity loans and HELOCs is deductible only if the funds are used to buy, build, or substantially improve the home securing the loan. Using equity to consolidate credit card debt or pay for a car is generally not deductible under current tax law. Consult a tax professional to determine how this applies to your situation.

    Bottom Line

    Use a HELOC for ongoing or phased expenses where you want flexibility and do not need all the money upfront. Use a home equity loan for a single large expense with a known total cost where predictability and a fixed payoff date matter more than flexibility. If you are consolidating debt, a home equity loan’s fixed rate and term typically serves you better than a variable HELOC. In both cases, treat the borrowing seriously — your home is on the line.

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  • What Is Private Mortgage Insurance (PMI)? 2026 Rates and How to Avoid It

    Private mortgage insurance (PMI) is a fee many homebuyers pay when they cannot put 20% down on a conventional mortgage. It protects the lender — not you — if you default on the loan. Most borrowers want to eliminate PMI as quickly as possible, and understanding how it works is the first step.

    What Is PMI?

    PMI is insurance required by most conventional mortgage lenders when a borrower’s down payment is less than 20% of the home’s purchase price. The premium is added to your monthly mortgage payment (or paid upfront, depending on the structure).

    PMI exists because lenders consider low-down-payment borrowers higher risk. The insurance compensates the lender if you stop making payments and they have to foreclose.

    How Much Does PMI Cost?

    PMI typically costs 0.2% to 2% of your loan amount annually, depending on your credit score, loan-to-value ratio, and loan type. The premium is added to your monthly mortgage payment.

    Example:

    • Home price: $350,000
    • Down payment: 10% ($35,000)
    • Loan amount: $315,000
    • PMI rate: 0.7% annually
    • Annual PMI cost: $2,205
    • Monthly PMI payment: ~$184

    As a general estimate:

    • Credit score above 760 + 10% down: approximately 0.20%–0.50% of loan value
    • Credit score 700–759 + 5% down: approximately 0.50%–1.00%
    • Credit score below 700 + 5% down: approximately 1.00%–2.00%

    Types of PMI

    Borrower-Paid PMI (BPMI)

    The most common type. The monthly premium is added to your mortgage payment until you reach 20% equity. This is automatically cancelled when you reach 22% equity based on the original purchase price.

    Single-Premium PMI (SPMI)

    You pay the entire PMI premium upfront at closing. Monthly payments are lower, but you lose the upfront amount if you refinance or sell before building significant equity.

    Lender-Paid PMI (LPMI)

    The lender pays the PMI premium in exchange for a higher interest rate on your loan. There is no separate PMI line item, but you pay a higher rate for the life of the loan — even after you would have otherwise cancelled BPMI. This is often the more expensive option long-term.

    Split-Premium PMI

    A hybrid approach where you pay part upfront and part monthly. It reduces monthly costs without requiring the full upfront premium.

    How Long Do You Pay PMI?

    Under the Homeowners Protection Act (HPA), lenders must automatically cancel borrower-paid PMI when your loan balance reaches 78% of the original purchase price (i.e., 22% equity), based on your scheduled payment timeline.

    You can also request cancellation when your loan balance reaches 80% of the original purchase price (20% equity). To do this, you must:

    • Have a good payment history (no payments 30+ days late in the past year)
    • Request cancellation in writing
    • Confirm your property value has not declined (lender may require an appraisal)

    How to Avoid PMI

    Put 20% Down

    The simplest solution: save a 20% down payment before buying. On a $350,000 home, that is $70,000. This eliminates PMI entirely and reduces your loan balance, which lowers your monthly payment.

    Piggyback Loan (80/10/10)

    Take out a primary mortgage for 80% of the purchase price, a second mortgage (home equity loan or HELOC) for 10%, and put 10% down yourself. The primary mortgage stays at 80% LTV, which avoids PMI. The second mortgage has a higher rate, but may cost less than PMI depending on the amounts and rates involved.

    Lender-Paid PMI

    As mentioned, the lender absorbs the PMI premium in exchange for a higher interest rate. This eliminates the monthly PMI line item but adds cost via a permanently higher rate. Run the math over your expected ownership period before choosing this option.

    VA Loans (for Eligible Borrowers)

    VA loans, available to veterans and active military, require no down payment and no PMI. The VA funding fee is a one-time charge that is often less than years of PMI payments.

    USDA Loans

    USDA loans (for eligible rural and suburban properties) have no PMI but do charge an annual guarantee fee (currently 0.35% of the outstanding balance), which is lower than conventional PMI in most cases.

    How to Remove PMI Early

    You do not have to wait for automatic cancellation. There are two ways to speed up the process:

    Make Extra Principal Payments

    Every extra dollar applied to your principal reduces your loan balance and gets you to 80% LTV faster. Even modest extra payments each month can shave months or years off your PMI timeline.

    Get a New Appraisal

    If your home has appreciated significantly since purchase, a new appraisal may show you have already reached 80% LTV based on current value (not original purchase price). Many lenders allow PMI cancellation based on appraised value if:

    • You have owned the home for at least 2 years, OR
    • You have owned it for at least 5 years and the value has increased enough to put you at 80% LTV

    An appraisal costs $300–$600 but can save thousands in PMI if your home has appreciated.

    PMI vs. MIP: What Is the Difference?

    PMI is for conventional loans. FHA loans have their own version called Mortgage Insurance Premium (MIP). There are key differences:

    • MIP includes both an upfront premium (1.75% of the loan amount) and an annual premium (0.55%–1.05%)
    • For FHA loans with less than 10% down, MIP lasts the life of the loan — it cannot be cancelled the way PMI can
    • For FHA loans with 10% or more down, MIP drops off after 11 years

    This is a significant long-term cost of FHA loans. Borrowers who can qualify for a conventional loan and plan to stay in the home for many years are often better served by a conventional loan with PMI (which can be cancelled) than an FHA loan with permanent MIP.

    Bottom Line

    PMI adds real cost to your monthly mortgage payment, but it is not permanent. The fastest paths to eliminating it are reaching 20% equity through payments and appreciation, making extra principal payments, or getting a new appraisal after your home increases in value. If you are buying soon, run the numbers on whether a 20% down payment, a piggyback loan, or a VA/USDA loan eliminates PMI entirely from the start.