Wealthfront’s Home Buying Guide
Publication date: This guide was last updated on June 1, 2026. The information in this guide is accurate as of this date. If and when we make wholesale, material updates, we will update its publication date.
Buying a home is a big deal: If you’re like many people, it’s both a personal and financial milestone, and it could easily be the largest purchase you’ve ever made. Whether you’re just browsing or getting ready to navigate the closing process, buying a home comes with a lot of questions. We’re here to help.
To get the answers that matter most, select where you are in the home-buying process right now.
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Affordability
What are the all-in costs of home ownership?
Some people mistakenly believe that the only costs of home ownership are the down payment and the monthly principal and interest payment. However, if you budget with only these factors in mind, you’ll likely be caught off guard when the bills come rolling in.
Some additional costs to keep in mind:
Closing costs
A typical home buyer pays around 2% of the cost of the home to obtain the loan and complete the real estate transaction. This amount goes towards things like an appraisal of the home value, attorney fees, title search fees, transfer taxes, prepaid taxes, insurance, and some required fees your lender might charge. Generally, you can expect to pay these when you close on the home.
Property taxes
Most local governments levy a tax on your real estate. The rate ranges significantly by state and county and is applied to the value of the home.
Homeowners insurance
On average, homeowners insurance (which is required if you have a mortgage) costs about $180/month. In regions that are more prone to natural disasters the average rate can be substantially higher, and you may be required to carry additional insurance (like flood insurance, for example). Your lender can help you determine whether an additional policy is necessary.
Private mortgage insurance (PMI)
If you make a down payment of less than 20%, you’ll likely need private mortgage insurance. This calculator can help you understand the costs. As a rule of thumb, Freddie Mac says that for every $100,000 you borrow, PMI is likely to cost between $30 and $70 a month.
Maintenance costs
Routine home maintenance and repairs will vary depending on where you buy a house and the age of that house, among other factors. Some experts recommend earmarking 1% or more of your home’s purchase price annually to address these costs as they arise.
HOA fees
Most homes aren’t part of a homeowner association (HOA), but about one-third of homes nationally are. HOA fees range by location and dwelling type, but are $259 per month on average.
As you can see in the simplified example below, if you only account for principal and interest in your monthly payments, you could end up underestimating your true monthly costs by a significant amount.
Simplified monthly cost breakdown
Assuming you put 20% down on a $900,000 home with a 30-year fixed rate mortgage
How much house can I afford?
It’s hard to shop with no budget. That’s why, pretty early on in the home buying process, it’s wise to think about what you can afford. This will help you target listings and make sure you’re still in a good position to meet your other financial goals.
The short answer
To figure out how much house you can afford, start by calculating a comfortable down payment and monthly payment, and use those numbers to back into a home value. Avoid the temptation to spend every penny, and make sure to factor in other large expenses like debt payments. A calculator like this one from Freddie Mac can help.
The longer answer
It’s all about tradeoffs. Here’s our guidance on navigating these calculations a step at a time.
Step 1: Start with your down payment.
- The basics: Your down payment is your initial, up-front investment in the home. The size of your down payment impacts your interest rate, whether or not you need private mortgage insurance (PMI), and how big your monthly payments are.
- Conventional wisdom: A 20% down payment is a reasonable starting point for many people, but it’s not right for everyone.
- When to adjust:
- Putting down more than 20% could make sense if you have significantly more cash on hand and want to reduce your monthly payments or potentially get a lower rate.
- Putting down less than 20% could make sense if you are comfortable with larger monthly payments and want to minimize your up-front costs. For example, maybe you want to hold back money to invest instead.
Step 2: Calculate monthly payments (including all-in costs above)
- The basics: These payments will include mortgage principal and interest along with property taxes and homeowner’s insurance (depending on how you choose to handle them, although you’ll need to budget for them either way) and HOA fees if applicable. This calculator from Fannie Mae can help you estimate your monthly payments—just be sure to click on “Advanced View” and factor in those costs as well.
- Conventional wisdom: Historically, the guidance has been to spend no more than 30% of your pre-tax income on housing. This suggestion originated in 1969, when rent in public housing projects was capped at 25% of income. The US Department of Housing and Urban Development raised the cap to 30% in 1981.
- When to adjust:
- Spending more than 30% of your pre-tax income on housing each month might be OK if your income is very high. That’s because some of your other non-housing costs might be fixed and represent a smaller chunk of your income. It might also make sense if you live in an area with a high cost of living, or if you expect your income to continue to increase over time. If you have no other debts, a lender will generally preapprove you for monthly payments that comprise up to 43% of your pre-tax income, but it’s up to you to decide if you feel comfortable handling the monthly payment.
- Spending less than 30% of your pre-tax income on housing each month could make sense if you like having a big financial buffer or are saving for other large financial goals like early retirement or a child’s tuition.
Step 3: Leave yourself a comfortable buffer
- The basics: When you’re buying a house, it’s smart to leave yourself a good amount of buffer. That means not spending every penny on your down payment and not committing to a monthly payment that you know will put a lot of pressure on you.
- Conventional wisdom: You should still leave yourself at least enough wiggle room to cover the following items:
- An emergency fund (with at least 3-6 months’ worth of expenses)
- Your regularly occurring and short-term expenses (groceries, bills, next month’s vacation, any debt you’re paying off, etc)
- Saving/investing for other long-term goals, like a wedding or child’s education
- Saving/investing for retirement
- Home repairs and maintenance. Things will break! Consider setting aside 1% or more of your home’s purchase price annually to fix them.
- Closing costs (often around 2% of total home value)
- When to adjust: This step is less about making adjustments to a general rule and more about figuring out what’s right for your individual situation. For example, if you have a goal to invest $500 each month, you should make sure your monthly budget (including whatever you pay for housing) leaves you enough room to do so.
Step 4: Run the numbers with your interest rate
As you probably know, prevailing interest rates for mortgages can have a big impact on your monthly payment and overall housing budget.
You’ll need to factor in interest rates as you put together the figures you came up with in steps 1 through 3. A calculator like this one from Fannie Mae can help (and you can use additional online calculators to estimate your property taxes and homeowners insurance). Adjust the various inputs (along with your likely interest rate, which any lender should be happy to provide) until you land on a home purchase price that accurately reflects your needs.
How interest rates impact your monthly payment
Let’s assume you decide to put 20% down on a $900,000 house and take out a 30-year fixed-rate mortgage. Ignoring the impact of taxes, insurance, and HOA fees, here’s a simplified illustration of the difference various interest rates (which do not represent actual rates) would make on your monthly payments:
Some scenarios to consider in your calculations:
- What if you expect a large raise or windfall? In most cases, you won’t get approved for a larger loan based on the expectation of a future raise. However, in this scenario, you might be able to pay down your loan balance more quickly or accelerate your progress on other financial goals if the raise/windfall materializes.
- What if you expect your household income to decrease? Do you or your co-borrower plan to take some time off of work? Are you planning a career change that comes with a pay cut? These are good reasons to consider spending less on your home today than you can technically afford now.
- What if you plan to have kids? As you very likely know, kids can be expensive. You might consider scaling back your housing budget so you have more room to pay for things like childcare, which can easily cost $1,300 or more per child per month depending on where you live.
A final word: Once you’ve figured out your budget, stick to your number. Your housing budget is primarily a function of what you are comfortable with. Don’t be swayed by friends, family members, or even your pre-approval letter. If you’re not comfortable with the payments, then it’s not a good idea.
Get a transparent rate estimate for properties in CO, TX, and CA in seconds using Wealthfront’s rate calculator.
How big should my down payment be?
Before diving into the details, let’s first define a few key terms:
Down payment refers to the upfront payment you make on the house.
Principal payments reduce the amount you owe on your mortgage.
Interest payments are what the bank charges for lending you the money.
As we mentioned in the previous section, conventional wisdom is to put at least 20% down to avoid the need for mortgage insurance, but there are various loan options that allow for a down payment as low as 3%. Private mortgage insurance costs vary, but this calculator from Freddie Mac can help you estimate what yours would be. The median down payment for first-time homebuyers is about 10%.
The size of your down payment directly affects the overall costs of your home.
Larger down payment
Smaller loan, which means smaller monthly principal and interest costs (all else equal)
Less likely to need mortgage insurance
Smaller down payment
Larger loan, which means larger monthly principal and interest costs (all else equal)
More likely to need mortgage insurance (which is an added monthly cost)
Here’s an example
A larger down payment means lower monthly payments
The example assumes a single-family home that costs $900,000 with a 30-year fixed rate mortgage. It also assumes the buyer has a 760 credit score with a 25% DTI ratio. It ignores the impact of taxes and insurance.
Down payment | 10% | 20% | 30% |
|---|---|---|---|
Monthly principal & interest payment | $4,877.73 | $4,327.42 | $3,746.04 |
Monthly mortgage insurance | $405 | $0 | $0 |
Total monthly costs | $5,282.73 | $4,327.42 | $3,746.04 |
Note: Assumes 6.041%, 6.023%, and 5.923% interest rates respectively for 10%, 20%, and 30% down payment scenarios.
Deciding between a larger down payment and investing
If you have more than 20% of your home value available for a down payment, you might wonder if it makes sense to make the larger down payment or invest the extra instead. The answer to this question is highly personal. The table below shows some high-level tradeoffs, assuming you have no other high-interest debt, you have a good emergency fund, and you’re still on track to cover other financial goals and home-related costs.
Larger down payment | Smaller down payment, investing the extra instead | |
|---|---|---|
Return | You get a “guaranteed” return in the sense that you will pay less interest over the life of the loan. If your mortgage rate is 6%, putting down more is like getting a guaranteed 6% return on that money. And often, putting down more than 20% can get you a lower rate on the amount you are borrowing, making this even more attractive. This “guaranteed return” is higher when mortgage rates are high. | You get a higher potential upside. You can see Wealthfront’s historical performance here, but it’s worth noting that for many time periods, net-of-fee returns have been significantly higher than prevailing mortgage rates. This might be relatively more attractive when mortgage rates are very low. |
Risk | Low; your “return” is guaranteed | Higher; investment returns vary and can be negative |
Taxes | Your 6% “guaranteed” return is after taxes. In many cases, you can deduct mortgage interest from your taxable income, but you have to itemize to get this benefit. It’s best to speak with a tax advisor if you have questions about how this applies to your situation. | Your investment return is pre-tax. Investments held for at least a year are generally taxed at a lower, long-term capital gains rate (up to 20% at the federal level) than investments you hold for less time. |
Other considerations | You have less liquidity (your money is tied up in your home). Your offer will likely be more competitive—buyers putting down over 20% might be viewed more favorably. | You have more liquidity, assuming you invest in a fairly liquid account. In a highly competitive market, this approach might work against you. |
The bottom line
The right size down payment is the one that allows you to feel comfortable with your monthly payments and reach your other goals. For some people, this will mean maximizing what they pay up front so they won’t have the stress of large monthly payments in the ensuing years. For others, this will mean putting down less—potentially to leave room in the budget to address other short-term goals or even maximize the amount of money available to invest.
How should I invest my home savings?
Risk and potential reward are correlated, and there are many ways you might decide to save or invest the funds you’re setting aside for a future home purchase. The key is to balance growth potential with risk, and the right option for you depends largely on your time horizon.
If you plan to buy within three to five years
Markets can be volatile from year to year. In fact, our analysis shows that there could be a 25.2% probability of loss for investments held for just one year. For near-term home purchases, it’s prudent to stay out of the markets to avoid a potential downturn. If your home purchase is in the next three to five years, consider investing funds for a down payment in a lower-risk option, such as a high-yield savings or cash account, low-risk fixed income product, certificates of deposit (CDs), or a money market account. These options can all help your savings grow without exposing your savings to a lot of market risk.
Whether you treat three years, five years, or something in the middle as the cutoff depends in part on how flexible the timing of your home purchase is. For instance, if you want to buy in exactly five years and don’t have the flexibility to wait out a market downturn, then you might want to keep your home savings in cash—even if it means forgoing potential returns.
If you plan to buy more than three to five years from now
If your time horizon is longer (or more flexible), you can likely afford to take on more risk. For home purchases that are at least three to five years away, consider investing your money in a long-term globally diversified investment portfolio, which can deliver higher returns than short-term savings options. As you get closer to purchasing a home, we suggest moving money from your investment account to a safer, low-risk option, as mentioned above.
Here’s how some popular Wealthfront products can help you save for a home
Wealthfront Cash Account
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No market risk
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Automated Bond Ladder
Earn more on your extra cash with zero state taxes with an automated ladder of US Treasuries.
Very low risk
0.15% annual advisory fee
Locked-in rates
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Automated Investing Account
Build wealth with a globally diversified portfolio of index funds, designed to maximize your after-tax returns.
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0.25% annual advisory fee
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Deciding to buy
What are the benefits of owning a home?
Buying a home is a huge life milestone, in part because of what it signifies—permanence, stability, and putting down roots. But the main benefits of owning a home are arguably threefold:
1. Practical
Even if you don’t buy a home, you still need to pay for lodging somehow. For most people, this is in the form of monthly rent. When you buy a home and pay a mortgage, you’re saving into a permanent asset that has the potential to appreciate over time. Plus, you get automatic protection against rising rent costs.
2. Financial
Owning your home comes with a few potentially significant tax breaks.
Mortgage interest deduction: While you don’t get a tax deduction for paying rent, as a homeowner you can deduct the interest you pay on up to $750,000 of your mortgage balance.
State and local tax deduction: You can also deduct up to $40,000 in property taxes.
Capital gains exclusion: When it comes time to sell your home, you can exclude capital gains up to $250,000 (or up to $500,000 if you file a joint tax return with your spouse).
Keep in mind that these benefits vary by state. For questions about your specific situation, it’s smart to speak with a tax professional.
3. Emotional
The most significant benefits to owning your home are not necessarily financial. Maybe you want to buy a home because it’s a place to call your own that gives you the freedom to live the life you want. Maybe you place a high value on the sense of permanence that often comes with homeownership. In short, your reasons are often justifiably emotional, which is why the case for buying a home can’t be solely rationalized by a financial model.
Deciding between buying and renting
Buying and renting both have their upsides. Here’s a look at how some of the main benefits of each stack up.
Benefits of buying a home
Locking in some of your housing costs (although your insurance costs and taxes can still change over time)
Potential home value appreciation
Potentially significant tax benefits
Emotional benefits & stability
Benefits of renting
Greater flexibility to change locations
Greater flexibility to rent more or less space
Lower up-front costs than buying, leaving you more money to invest
Potentially lower monthly costs
You can also use a calculator like this one from Freddie Mac to help make your decision.
Our rule of thumb:
If you can afford the down payment on a home that is likely to appreciate, you plan to hang onto the property for at least five years, and you want to buy, it’s reasonable to go for it. Why five years? That’s a rough estimate of the amount of time it takes for housing appreciation to outweigh your transaction costs.
How does buying a home fit in with my other goals?
If you’re like most people, you have multiple financial goals—some in the near future (a new car, a vacation), and others that are further away (retirement). Homeownership is likely just one of them. It’s important to think about the relative prioritization and timing of your goals to ensure buying a home will allow you to stay on track.
Start on the right foot
Before you buy a home, there are some foundational steps you should take to get your finances in order.
1. Ensure you have an adequate emergency fund
A good emergency fund, which we define as 3-6 months’ worth of expenses, can help you navigate financial setbacks like a large medical bill or job loss. You should have this in place before tackling any other financial goals.
2. Tackle your high-interest debt
Before you start saving for a home, it’s smart to put money towards paying down any high-interest loans. There are differing opinions about what constitutes a “high interest loan,” but as a rule of thumb, you might want to consider paying down loans with interest rates greater than 8%, such as credit card debt.
3. Get your 401(k) match
Next, consider contributing to your company-sponsored 401(k) if your employer offers a matching contribution. An employer match is basically free money, making it much more attractive to participate.
Map out your longer-term priorities
After you build your emergency fund, pay down high-interest debt, and maximize your 401(k) match, it’s time to understand what your longer-term financial priorities are. These are highly individual, but they could include:
Do you want to cover your children’s college education costs in full?
What about having a comfortable lifestyle in retirement?
Do you need to buy a home sooner rather than later?
Next, consider which goals are most important to you. Once you’ve decided the relative importance and timing of these priorities, you can then determine how much of your savings to allot to each goal. Let’s look at an example of how this can work:
Example: Alex and Taylor
Alex and Taylor, an imaginary couple in their early thirties, want to buy a home. They have a solid emergency fund and have already paid off their high-interest credit card debt. Now, they’re grappling with how to allocate their remaining savings between a down payment and their other long-term goals.
Their priorities:
1. Homeownership: They hope to buy a house in the next three to five years and put down at least 20% to avoid the need for private mortgage insurance.
2. Retirement: They want to retire comfortably between the ages of 55 and 60—the earlier, the better.
3. Travel: Each year, they take at least one international trip which costs about $10,000. They’d like to continue this.
The tradeoffs:
The table below shows three potential approaches Alex and Taylor could take to their priorities, and what impact each would have on their financial goals. Keep in mind that this is an extremely simplified example meant to illustrate tradeoffs, not provide commentary on how much to save for various goals.
Approach | Impact on home purchase | Impact on retirement savings | Impact on travel |
|---|---|---|---|
Save aggressively for a home: Set aside the majority (~75%) of their savings for a down payment, ~15% for retirement, and ~10% for travel. | Shortest timeframe: They’re easily able to save up a 20% down payment within three years. | Slower growth: There is less money available for retirement accounts beyond their 401(k) match. Retiring by 60 is a stretch. | Reduced travel: They skip or significantly scale back some international trips. |
Take a more balanced approach: Allocate ~40% of savings to down payment, ~30% to retirement accounts, and ~30% to a travel fund. | Medium timeframe: It takes two extra years to hit their 20% down payment target, meaning they purchase a home in five years. | Steady growth: They maintain a good rate of retirement savings, but likely will need to retire closer to 60. | Maintained travel: They can still take one international trip per year. |
Prioritize travel and retirement: Save ~20% for a down payment, ~50% for retirement, and ~30% for travel. | Delayed timeframe: They delay purchasing a home beyond their original timeframe, or they make a smaller down payment (and accept a higher monthly mortgage payment/PMI). | Most growth: They are on track to retire by 55 or even significantly earlier. | Increased travel: They can increase the number of international trips they take per year. |
How to avoid feeling “house poor”
Wealthfront Mortgage Operations Lead Irwin Marrero (NMLS #891539) weighs in on how (and why) to avoid overspending on housing.
You’ve probably heard the phrase “house poor” before—it refers to the situation where someone is spending so much on housing that they’re unable to meet other financial commitments and save for other goals. Often, this means they’re spending significantly more than 30-40% of their pre-tax income on housing. They might have to forgo both near-term expenses (a vacation, a car repair) and long-term goals (setting aside enough for retirement) just to keep up with their housing costs.
Years ago, I experienced this firsthand when I bought my first home and when I took on a mortgage payment that stretched my comfort zone. When combined with the unexpected repairs that inevitably come with owning a home, that tight budget quickly became a financial bottleneck that forced me to put other priorities on hold.
Looking back, this experience reshaped my approach to homeownership by teaching me the importance of a strong safety net and buying comfortably below your limits. Preserving that financial breathing room protects your other goals and ensures your home remains a place of comfort rather than a source of stress.
When is the right time to buy?
Timing the real estate market is like trying to time the stock market—it’s very hard to do. Plus, supply and demand vary regionally, making any attempt to time the market even more challenging.
The chart below shows the Case-Shiller Home Price Index, a leading measure of US residential real estate prices, over time. As you can see, while home prices in the US have generally increased over time, short-term real estate market volatility is hard to avoid.
It’s Hard to Time the Housing MarketVolatility in the Case-Shiller Home Prices Index since 1987
Similar to changes in home prices, changes in prevailing interest rates are also difficult to predict. Mortgage rates are correlated with 10-year Treasury rates, and even experts disagree on some of the factors that drive long-term Treasury yields.
What does that mean for you? We don’t think you should put much effort into trying to time your home purchase. If you find a home you like that you can afford and you’re likely to stay in for at least five years, then it’s reasonable to go for it.
What if there’s a downturn in the housing market?
Housing market downturns happen, period. If you buy a home, you should be emotionally prepared for its value to fluctuate over time, just like the value of any investment.
In the event of a downturn, if you have a fixed-rate mortgage, your monthly principal and interest payments shouldn’t be affected. However, you may be at risk if there’s a significant drop in real estate prices and you have a sudden need to sell your home, say for a job opportunity in a new location. In this case, you may be forced to sell your home at a loss. If the value of your home has decreased significantly, you may not have enough to repay the remaining balance on the mortgage. In general, the larger your down payment, the lower the risk that you face this particular issue.
Does time of year matter?
Buying a house in the spring/summer, which is typically seen as “home-buying season,” can mean there are more homes on the market for you to choose from. However, there can also be more competition from other buyers—and this can translate into higher prices.
Buying a home in the fall/winter can mean there’s less inventory on the market, so you might have fewer choices. But with fewer buyers looking, sellers might be more willing to negotiate—and that might mean you get a better price.
Shopping around
How should I pick a mortgage?
Picking a mortgage is more than just shopping around for the lowest rate. You’ll also want to make sure you’ve got the right loan for your situation—including type, term, and more.
Here are some questions to ask yourself:
1. Will you take out a conventional loan?
For most people, the answer is yes—conventional loans are the most common type. Here’s a breakdown of how they compare to other loan types.
Conventional loans
Offered by private lenders, and not insured or guaranteed by the federal government
These can be conforming (meaning they follow Fannie Mae & Freddie Mac rules) or non-conforming
Non-conforming loans are less standardized and warrant a higher degree of scrutiny when you’re shopping around. Examples include:
Jumbo loans, which exceed loan limits set by the Federal Housing Finance Agency
Interest-only loans
Balloon payment loans
Government-backed and other options
Government-backed loans are insured or guaranteed by the federal government. They include FHA and VA loans, among other types
An FHA loan might make sense if you have a low credit score and are having trouble qualifying for a conventional loan
A VA loan might be advantageous if you or someone in your family is a veteran or service member
There are a broad range of other options for unique borrower scenarios
2. How much certainty do you want about your interest rate over time?
Some borrowers want to lock in an interest rate for the full length of the loan. Others might be comfortable allowing the rate change over time—particularly if it means a lower rate up front. Your preference will dictate which of the following you choose:
Adjustable-rate mortgage (ARM): This is a home loan with an interest rate that changes periodically after the end of the “fixed period,” which is the initial timeframe during which the interest rate stays the same. Often, the interest rate for an ARM during the fixed period will be about a quarter point to a half point lower than the rate you’d get on a 30-year fixed-rate mortgage. Your monthly principal and interest payments can change significantly after the end of the fixed period. ARMs are often referred to with two numbers: one indicating the length of the fixed period, and the second indicating how frequently the rate adjusts thereafter.
Example: A “5/6 ARM” will have a fixed interest rate for five years, and the rate will adjust every six months after that, within certain limits.
Why pick one? You might choose an ARM if you get an attractive initial interest rate and you are confident you will sell the home or pay off the entire loan before the fixed period expires. You might also choose one if you believe your financial situation will be different enough in five years that the risk of higher monthly payments is unlikely to be an issue (potentially due to career growth or a company liquidity event like an IPO).
Fixed-rate mortgage: This is a home loan with an interest rate that stays the same for the entire term of the loan. Your monthly principal and interest payments remain the same over time with a fixed-rate mortgage.
Example: A 30-year fixed-rate mortgage will have the same interest rate (and the same monthly payments) for 30 years.
Why pick one? A fixed-rate mortgage can make sense if you want to lock in your monthly principal and interest payments for a long period of time.
This decision boils down to your risk tolerance: If you take out an ARM with a lower interest rate today, are you willing to take the chance that the rate might go up in the future? A fixed-rate mortgage is generally more predictable.
3. How much time do you want to pay back the loan?
Your “mortgage term” is how long you have to repay the loan. Commonly, this will be 15, 20, or 30 years. Your mortgage term matters because it has a large impact on your monthly payments as well as your total interest costs.
Longer mortgage terms usually mean lower monthly payments (because you’re spreading the purchase out over time) but higher total interest costs (because you’re borrowing money for longer).
Shorter mortgage terms mean the opposite: your monthly payments are typically higher because you’re paying the loan off faster, but your total interest costs are lower because you don’t borrow money for as long.
4. Are points right for your situation?
Points (sometimes called “discount points”) are optional fees you pay directly to the lender at closing in exchange for a lower interest rate. One point is 1% of the total mortgage amount and usually lowers your rate by about 0.25%, although this can vary. The important thing is to figure out how long it will take the points to pay for themselves in the form of lower monthly payments. You should also think about the likelihood that you’ll refinance, because if you take out a new loan on your home, you don’t get the money you paid for your points back.
We’ll share a very simplified example (which assumes you have a 30-year fixed rate mortgage) to show how you can approach this.
Home purchase without points
Home price: $900,000
Down payment: $180,000
Loan amount: $720,000
Points: 0 points purchased for $0
Interest rate: 6.00%
Monthly principal & interest: $4,316.76
Home purchase with points
Home price: $900,000
Down payment: $180,000
Loan amount: $720,000
Points: 2 points purchased for $14,400, 0.25% each
Interest rate: 5.50%
Monthly principal & interest: $4,088.08
Are the points worth it? Multiply your monthly savings (in this case, $4,316.76−$4,088.08, or $228.68) by the number of months you expect to keep the loan and compare that to the cost of your points to help decide if points make sense. If the points cost more than they save you, you should probably skip buying them.
After 2 years: $5,488.32
After 5 years: $13,720.80
After 10 years: $27,441.60
As you can see, in this example, the up front cost of your points ($14,400) is higher than your savings until just over five years into your mortgage. Keep in mind that this example does not factor in the opportunity cost of spending $14,400 on points when that money otherwise could have been invested—but you can calculate that pretty easily using a calculator like this one.
Other things to keep in mind:
“Origination points” are not the same thing as discount points. Origination points are just lender fees expressed as a percentage of the amount you’re borrowing.
As a rule of thumb, buying discount points makes more sense if you plan to stay in your home (and keep your mortgage) for a long time.
What types of loans doesWealthfront Home Lending offer?
Wealthfront Home Lending offers conventional loans (including jumbo loans) with fixed or adjustable rates, with the option of points, for homebuyers and those looking to refinance in CO and TX, with CA and more states coming soon.
Our rates are ~0.50% below the national average, and you can manage the application process right in the Wealthfront app.
How should I pick a lender?
Don’t just rely on your real estate agent’s guidance
There are a lot of mortgage lenders out there, and your real estate agent might have strong recommendations (often based on personal relationships and previous experience, rather than a comprehensive knowledge of industry). It’s smart to do your own research and not just rely on their advice.
Figure out who offers the specific loan product you want
Not all lenders offer every type of loan. If you have a specific loan product in mind, start by building a list of lenders who offer that product. For example, Wealthfront Home Lending does not currently support VA or FHA loans—so if that’s your desired loan type, you’ll want to look elsewhere.
Shop around to see who has a competitive interest rate for the loan product you want
How to get a rate quote
Some lenders will make you go through the entire application process just to see a personalized rate, which can be time consuming. Others (like Wealthfront) will provide an estimate much earlier in the process so you can make an informed decision more easily. You can access Wealthfront’s rate calculator here.
Keep the following in mind as you shop around:
Don’t compare an interest rate to an annual percentage rate (APR): The interest rate on a mortgage tells you how much interest you’ll pay on your loan, but the APR covers the interest rate plus various other costs associated with your mortgage. Try to compare two interest rates.
Take points into account when you compare rates: Most lenders will display headline rates with different amounts of points, which can make it hard to get a true apples-to-apples comparison. As a workaround, you can try matching the rates across lenders and then comparing the number of points required to get it. Our rate calculator makes it easy to see a range of rates based on various numbers of points.
Keep an eye on fees: Beyond the interest rate, you’ll also want to look at section A fees (named for the section of the loan estimate form where they appear). These aren’t the only fees you’ll pay to get your loan, but they are established and charged by the lender—meaning that if they seem unreasonably high, you can pick another lender. You should also glance at section B fees (costs associated with third-party vendors chosen by the lender) like the appraisal fee. These fees vary less, and you can’t shop for them, but you can still pick another lender if they seem unusually high. Below, you can see where to find them on a Wealthfront Home Lending Loan Estimate.
Section A Fees
Established and charged by the lender
Section B Fees
associated with third-party vendors chosen by the lender
Sample Loan Estimate for illustrative purposes only. Not a loan offer. Actual rate, fees and terms will vary.
Section A Fees
Established and charged by the lender
Section B Fees
associated with third-party vendors chosen by the lender
Sample Loan Estimate for illustrative purposes only. Not a loan offer. Actual rate, fees and terms will vary.
Remember that rates and fees are often inversely correlated. A lender might offer a low rate, but make some of that up through higher fees (or vice versa). You’ll need to evaluate both fees and interest rates together in the context of a loan estimate to get a complete picture.
Don’t forget about experience
Your experience throughout the entire mortgage process—from your initial rate quote to closing—can vary a lot from lender to lender.
Traditional mortgage lenders tend to do a lot of business over the phone and by email. You can expect sales calls, significant back-and-forth, and a process that involves a good amount of paperwork. This process can be cumbersome and carry significant overhead costs—and these costs can show up in a few ways: your time, your interest rate, and the fees charged by your lender.
Digital mortgage lenders, including Wealthfront Home Lending, can offer a more streamlined experience (although there will still be variation from lender to lender). In Wealthfront’s case, that streamlining means lower overhead and thus lower costs for you. Wealthfront Home Lending offers rate estimates within seconds, an experience free of sales calls, and a digital process you can navigate yourself from our app or website (although our loan officers are available by phone and email if you need them, too).
Questions your lender should be able to answer easily
Michael Young, Director of Home Lending (NMLS #2360681) at Wealthfront, explains the questions your lender might be squirrelly about. If you can’t get a good answer to these questions—and fast—that can be a red flag.
What’s my rate?
If a lender makes you jump through a lot of hoops to see your estimated rate, it’s not a great sign. A lender who is confident in their rates won’t mind making it easy for you to shop around.
What are your fees?
Some lenders will deliberately underestimate their fees early in the loan process to make their offering appear more attractive. It can be hard to identify this practice (and fees do often change before closing for reasons that are not nefarious), but it’s worth asking what assumptions your lender is using when they provide an estimate so you can make sure they’re reasonable.
How soon can I refinance?
For a rate-and-term refinance on a conventional mortgage—where you’re lowering your rate or changing your loan term—there’s typically no waiting period. Cash-out refinances, where you tap your equity, require your current loan to be at least 12 months old. Some lenders may not technically want you to refinance in the first six months because they can lose the money they made originating the loan. Choose a lender you trust to help you refinance whenever it’s advantageous for you—not just for them.
What should I know about refinancing?
Refinancing is the process of replacing an existing mortgage with a new loan. Generally, it means you will pay closing costs again—which means you’ll want to consider whether the benefits of refinancing outweigh those costs. There are a few common reasons to refinance:
Refinancing to get a lower interest rate
Homeowners commonly refinance when mortgage rates have come down enough that the savings from lower monthly payments are enough to offset the cost of closing on a new loan. (You can read more about how to conduct a break-even analysis in this blog post.) Refinancing can lower your total interest costs significantly over the life of the loan.
For example:
Original mortgage
$500,000 principal remaining
7% interest rate, 30-year fixed rate
$3,326.51 monthly payment
$697,543.60 total interest cost over the life of the loan
Refinancing
$500,000 principal remaining
6.5% interest rate, 30-year fixed rate
$3,160.34 monthly payment
$637,722.40 total interest cost over the life of the loan
Wealthfront makes it easy to get a great rate when you refinance. Check out our rate calculator for a personalized, straightforward estimate in seconds.
Refinancing to change the type or term of the loan
Maybe you got an adjustable-rate mortgage and your monthly costs increased significantly when the fixed period ended. Or maybe you got a big raise and you want to switch from a 30-year fixed rate mortgage to a 15-year fixed rate mortgage so you can pay off the loan more quickly and pay less interest overall. These are both examples of reasons you might consider refinancing. Again, you should just make sure to weigh the benefit of refinancing against the closing costs you’ll incur.
Refinancing to convert home equity into cash (known as a “cash-out refinance”)
This is when you borrow more money than you currently owe on your home, allowing you to “cash out” some of your home equity. You might do this if you need to pay off other, higher interest debt or you have another pressing need for the funds but would otherwise need to borrow at a higher rate. Remember: Cash-out refinancing means your total loan amount will go up, which can raise your monthly principal and interest payments.
When should you refinance?
Your lender should be willing to discuss rate-and-term refinancing (where you’re lowering your rate or changing your loan term) with you at any point in time, although they will sometimes discourage it before six months. That’s because they can lose the money they made originating the loan in the first place if you refinance too soon. However, you should feel comfortable pushing back if you encounter this resistance from your lender. Cash-out refinances, where you tap your equity, typically require your current loan to be at least 12 months old.
In general, you should refinance when your expected benefit outweighs your closing costs. For example, if you know refinancing to get a lower interest rate will save you $200 a month and your closing costs will be $10,000, then it will take 50 months, or a little over four years, for you to hit your break-even point ($10,000/$200=50). If you think you’ll be in your home at least that long, then refinancing could make sense. But if you’re planning to sell your home in a year or two, that calculation tells you that refinancing probably isn’t the right move because you won’t benefit from the lower payments long enough to recoup what you spent on closing costs.
Navigating the process
What can I do early to be prepared?
Even if a home purchase isn’t in your immediate future, there are a few things you can do to better prepare far in advance.
Pay down any and all debt
When you pay down your debt, you decrease your debt-to-income (DTI) ratio. This is a key input in determining the terms and interest rate for your mortgage.
Start with your highest interest debt—in many cases, this will be credit card debt.
Remember: Paying off debt with a 10% interest rate is like getting a guaranteed 10% return on your money.
Start improving your credit score
Lenders use your credit score to assess the risk they take on when giving you a loan. They use it to determine whether you qualify for a mortgage and what interest rate you’ll pay. A healthy credit score is 740 or higher, and you’ll get the best interest rates with a 780 or above. This resource from the Consumer Financial Protection Bureau can help you figure out your score. To increase your score, you can:
Set up bill payment reminders to avoid late payments.
Stay well below your credit limit.
Build a long history of paying off loans on time.
Save intentionally
This might seem like a no-brainer, but everyday expenses can get in the way of proactively saving for larger goals. By defining a monthly amount to put towards a home and depositing it in an appropriate savings or investment account, your future won’t become an afterthought.
Consider setting up a dedicated account for home savings and making automated transfers on a regular basis.
If you get a raise or bonus, consider increasing the amount you contribute to your home savings.
Time can be your friend. A longer time horizon means more time to save for your down payment and build up your credit score. But don’t forget about your living expenses in the meantime: Be sure to factor rent and other household expenses into your savings plan.
What does it take to qualify for a mortgage?
When it comes to securing a mortgage, there are several financial considerations at play. Here are a few key factors that will affect your ability to qualify for a loan with favorable terms.
A good credit score
Mortgage lenders consider your credit score when determining how risky it is to give you a loan, which impacts the interest rate you can get. Shoot for a 740 or higher if you can. All else equal, if your credit score is above 760, you are likely to get a mortgage interest rate that is about 0.25% to 0.375% lower than someone with a credit score of 660. If your credit score is in the 500s, you should expect some challenges in qualifying for a mortgage and, if you do find one, it may have a much higher interest rate.
A low debt-to-income (DTI) ratio
Your DTI is the sum of all of your monthly debt payments, including credit lines, minimum monthly payments for any credit card debt, auto loans, and your upcoming mortgage expenses, as a percentage of your monthly pre-tax income. Most mortgage lenders prefer to issue a mortgage that will keep your DTI below 43%. Once your DTI goes above that, it becomes much more difficult to secure a mortgage. This calculator can help you determine your DTI ratio.
Does RSU income “count” when calculating your DTI?
Danielle Daniels (NMLS #2781987) a Director of Home Lending Operations at Wealthfront, explains what you need to know if you receive income from restricted stock units, or RSUs.
If restricted stock units, or RSUs, are part of your compensation then it’s important to understand under what circumstances they “count” for the purposes of calculating your DTI ratio. The answer will vary from lender to lender, but here’s an overview of what they tend to look for.
When your RSUs are likely to count:
They’re already vested, and they’ve been vesting for at least a year.
Your vesting schedule indicates they’ll continue to vest for several more years.
The company is public (so lenders can assume your RSUs are at least somewhat liquid).
When your RSUs are unlikely to count:
They’re not vested yet, and you’re brand new to the company.
You received a one-time grant that doesn’t continue into the future.
The company is still private, meaning the RSUs aren’t liquid.
Wealthfront Home Lending treats RSUs as qualifying income when your company is public, the shares in question are fully vested, and vesting is expected to continue for at least three more years.
A healthy down payment
The size of your down payment, or the up-front payment you make on the house, impacts your interest rate, whether you need to pay private mortgage insurance, and the size of your monthly mortgage payments. Conventional wisdom is to put at least 20% down to avoid the need for mortgage insurance, but there are various loan options that allow for a down payment as low as 3%. In 2025, the median down payment for first-time homebuyers was about 10%. In general, the bigger your down payment, the lower your interest rate (which saves you money over the long run).
How does pre-approval work?
When you start going to open houses, one of the first questions a seller’s broker is likely to ask you is whether you’re pre-approved yet. Here’s what you need to know.
Pre-approval: The basics
What is it? Pre-approval is a formal letter from your lender that states the specific loan amount you’re qualified to borrow, based on a thorough verification of your credit, income, and assets. Put more simply, it is documentation that shows how much a lender thinks you can afford, and it can help convince a seller to accept your offer.
When do you need it? It’s smart to get pre-approval before you start seriously looking at homes. That way, if you see something you like, you’ll be able to act quickly. Just remember that pre-approval letters also expire, usually in 1-3 months, so you might need to get a new one if you have a long search.
How do you get it? The process varies by lender and type of pre-approval (more on that below). But generally, you will share specific pieces of financial documentation with your lender so they can give you a letter stating the amount they’re conditionally willing to loan you to buy a home.
Types of pre-approval
Confusingly, there are a few different types of pre-approval, and they differ from lender to lender. Here’s a quick overview of the three main kinds:
Pre-qualification: Pre-qualification carries the least weight from a seller’s perspective, because it typically doesn’t involve an in-depth analysis of your finances—it’s really just an estimate. Pre-qualification is also the fastest type of pre-approval to get. It can provide you with some useful information if you’re early in the process and want to get a rough understanding of your potential budget.
Pre-approval: Regular pre-approval involves some analysis of your finances. You’ll likely need to provide documentation including pay stubs, tax returns, and bank statements. Typically, pre-approval also involves a credit check. As a result, pre-approval carries a higher level of validation than pre-qualification. If you’re seriously looking at homes, you should make sure you get a pre-approval letter.
Underwritten pre-approval: This kind of pre-approval carries the most weight with sellers, but it also takes the longest to get. It indicates that an underwriter has reviewed your finances in depth, and it’s most likely to help you close on a home quickly (if that’s something you’re concerned about) because it front-loads a significant portion of the underwriting process. Underwritten pre-approvals can be great in a really competitive market.
Documents needed for pre-approval
Different lenders will have slightly different requirements, and some are more document-heavy than others. The list below is not exhaustive, but it’s a good starting point:
Two most recent statements for all of your bank/investment/retirement accounts
Two most recent paystubs
W-2s for the past two years or, if you’re self-employed, your two most recent business tax returns
Two most recent personal tax returns
Pro tip: Tailor your pre-approval letter every time you make an offer
Wealthfront Lead Loan Officer Justin Saks (NMLS #928943) shares a tip to make the offer process go more smoothly—and explains how Wealthfront Home Lending makes it especially easy.
Let’s say your lender is willing to pre-approve you to borrow $500,000 but you’re making an offer on a home for which you only plan to borrow $400,000. You don’t necessarily want the seller to know you have room in your budget to pay a lot more, so it’s smart to revise your pre-approval letter to reflect the amount you actually plan to borrow.
Some lenders will require you to call or email them to make this change. Wealthfront Home Lending offers editable pre-approval letters right in our app. We’ll tell you the maximum amount you’re pre-approved for, and you can lower the number in the letter as needed throughout your home search—no need for back and forth with a loan officer.
How do the offer process and closing process work?
What happens when you submit an offer
You saw a home that checks the major boxes on your list, and the price seems right. The next step is to submit an offer (also called a purchase agreement), usually through your real estate agent. This is a legally binding contract between a buyer and seller that outlines the agreed-upon price, terms, and conditions for the sale of the property. Sometimes, a seller will submit a counter offer and you’ll need to decide whether or not the counter offer works for you—remember, you’ll still want to stay within your budget. But once you reach an agreement with the seller and both parties have signed, it’s official: You’re on your way to becoming a homeowner.
Next, it’s time to start chipping away at your final tasks before closing. Here’s what you need to start thinking about right away, and what can wait until closer to the end.
What to do as soon as your offer is accepted
Start getting your down payment ready to go: Often, buyers need some time to move money around before wiring their down payment to the title company. Now is the time to get your ducks in a row. Moving money around at the last minute can be stressful, and it’s a common reason for closing to get delayed. Don’t let it happen to you.
Pay your deposit (or “earnest money”): As soon as your offer is accepted, you’ll need to pay the deposit you agreed to in your contract. This deposit is often between 1% and 3% of the home price depending on the market (but it can be higher or lower), and it’s something you can negotiate with the seller—a higher deposit can make an offer stronger. Generally, the deposit is held in escrow by a title company. If and when you close on your home, you can apply this deposit to your closing costs or down payment. If you back out of the purchase for a reason not covered in your contract (covered reasons are called “contingencies”), you generally lose this deposit.
Finalize your application: This is the formal request you submit to your lender that contains your financial and property information. It’s used to determine eligibility and approval for a mortgage loan. If you’re working with Wealthfront Home Lending, this step is easy—by the time you reach this stage, your application is about 90% done already.
Figure out when you want to rate lock: Rate locking is the process of getting a guarantee from your lender that the interest rate and points will remain unchanged for a specific period—usually 30 days, but not always. Rate locking protects you from market fluctuations until the loan closes. Some lenders, including Wealthfront Home Lending, offer rate lock extensions (usually for a small fee) in case your closing is delayed. If you’re comfortable with your rate now, it’s best practice to go ahead and lock it—it’s a way of ensuring your monthly payments remain affordable. It’s very hard to predict if and how mortgage rates will move in the future.
Work with your lender to get an appraisal: This is when a professional, unbiased third party provides an estimate of what the property is worth. Ideally, the home will appraise for an amount that’s greater than or equal to the offer price. But this doesn’t always happen. If the home appraises for less than the offer price, there are a few paths you can take, including potentially putting down more cash to close the gap.
Start shopping for homeowners insurance: Your lender will require you to purchase a homeowner’s insurance policy in order to close. This insurance provides financial coverage to repair or rebuild the home (and potentially replace personal belongings) in the event of fire, theft, or other covered disasters. Because there’s so much regional variation in disasters and insurance policies, it’s smart to start shopping ASAP. You can pay for your policy at closing (more on that below).
What needs to happen right before closing
Make a decision about & get an invoice for your homeowner’s insurance policy: Your lender can use your invoice to pay for your policy at the same time as your other closing costs.
Receive your “clear to close” notification: Near the end of the home loan application process, the underwriter will give their final approval—this indicates that all loan conditions have been met and the lender is authorized to schedule the signing of the final documents and fund the mortgage. After this, your lender will be able to tell you exactly how much money to bring to closing, which means you can start scheduling wires. (When you do this, be very cautious of hacking and phishing attempts, which are on the rise—you should always call your settlement agent to confirm wiring instructions using a verified phone number.)
Complete your final walk-through: Before closing, you’ll take one last look at the home to make sure the home is in the condition you expect. If the seller agreed to any repairs, this is the right time to make sure they’ve been handled. Buyers usually do this a day or two before closing.
Close on your home: This is it! This is the final step in your home purchase process where you and the seller sign legal documents and, if you haven’t already, transfer funds. This is when ownership of the property is officially recorded and handed over.
Get a mortgage rate~0.50% below the national average.
Wealthfront Home Lending offers:
Clear rates up front—get a quote in seconds with our rate calculator
No pushy sales calls
A simple process you can manage yourself in the Wealthfront app
