Starter homes can help people build equity in their early years of homeownership, which can help them financially in the future.

They are typically smaller, cheaper houses owned for five to 15 years. In 2026, the average starter home costs $262,317, according to Redfin, which defined this type of property as the cheapest third of the housing market. Someone would need to earn $80,000 annually or more to afford that — which is around the median household income in the United States, per Redfin.

However, starter home prices can vary widely by where you live. If you're considering a starter home, here's how to figure out what you can afford, how to prepare and which lenders are great for first-time buyers.

Whether you’re thinking about homeownership in a few years or starting your journey tomorrow, you’ll need to figure out whether you can afford home prices in your area.

Here are three steps to help you calculate how much house you can buy:

1. Figure out how much you can spend on housing each month

Housing is considered affordable when all expenses fall below 30% of take-home pay, according to the U.S. Department of Housing and Urban Development.

If you make $6,000 per month before taxes — or $72,000 annually — your housing budget should not exceed $1,800.This includes expenses like your mortgage payment, private mortgage insurance, utilities, property taxes, and homeowners insurance.

You can figure out your own budget by multiplying your take-home pay each month by 0.3.

2. Figure out how much you can spend on a down payment

Your down payment can play a big role in determining how much home you can afford.

The more you have on hand for a down payment, the less you’ll have to pay back monthly with a mortgage. Let’s break it down using the scenario above to show how much your down payment size can affect how much you can afford: If a person earns $6,000 per month before taxes, they have $1,800 to spend on housing.

If we estimate they’ll spend $350 on the expenses we mentioned above, then they have $1,250 left to put toward their mortgage each month.

  • With a $20,000down payment and a mortgage with a 6.5% fixed rate and 30-year term, this person could afford a home that costs as much as$217,800. The down payment would make up 9% of the overall purchase price — the average size for a first-time homebuyer.
  • With a $50,000 down paymentand a mortgage with a 6.5% fixed rate and 30-year term, this person could afford a home that costs as much as$247,800. The down payment would make up 20% of the overall purchase price.

Plus, if you put 20% down, you can avoid private mortgage insurance, which could cost up to 1% of your loan value per year.

3. Calculate your budget

Once you figure out how much you can afford to spend each month and how much you have saved for a down payment, then you can determine how much you can budget using our mortgage calculator.

4. Compare your budget to the market you’re shopping in

Check out local listings to see if there are any houses listed within your budget. If prices in your area are too high, consider exploring more affordable regions to find a viable starter home.

Using Redfin data, Select made an interactive map to showcase the starter home market. Hover over a state to see what the typical one costs in your area.

Once you figure out how much home you can afford and where you want to buy, you can start looking for a mortgage lender.

Here are some of our favorite lenders for first-time homebuyers.

**Rocket Mortgage **

If you make less than 80% of the area median income (AMI), look into Rocket Mortgage. ONE+ by Rocket Mortgage is a great option for low-income first-time homebuyers who don’t have hefty down payment funds. Plus, it has a stellar record of customer service, with high marks from J.D. Power and the Better Business Bureau.

  • Annual Percentage Rate (APR)- Apply online for personalized rates; fixed-rate and adjustable-rate mortgages are available.

  • Types of loans- Conventional loans, FHA loans, VA loans, Jumbo loans, low-down-payment mortgages

  • Terms- 10-, 15- and 30-year fixed-term conventional loans, 30-year VA and FHA loans, custom mortgages with fixed-rate terms from 8 to 29 years.

  • Credit needed- 620 for conventional loans

  • Minimum down payment- 0% for VA, 1% for RocketONE+, 3% for conventional, 3.5% for FHA, 10% to 15% for jumbo

**Guild Mortgage **

Guild Mortgage is an excellent choice for first-time homebuyers — especially those with less-than-perfect credit. It will accept applicants with credit scores as low as 540 for its FHA product, much lower than the typical 580 required.

  • Types of loans- Conventional, FHA, VA, USDA, Arrive Home, Zero Down, jumbo, renovation, refinancing, reverse mortgages, home equity loans

  • Terms- 10 to 30 years

  • Minimum credit score- 540 for FHA, VA and USDA loans; 600 for Zero Down; 620 for conventional loans, 680 for jumbo loans. Nontraditional credit options available

  • Minimum down payment- 0% for USDA, VA, Arrive Home™ or Zero Down; 1% for conventional loans, 3.5% for FHA loans

Chase Bank

If you prefer to do your banking in-person, go with Chase Bank. It has over 5,000 retail locations — more than any other bank — so you can sit down and speak with someone about your loan. Chase also promises to close on time. If it doesn’t, it will pay you $5,000.

  • Annual Percentage Rate (APR)- Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included

  • Types of loans- Conventional loans, FHA loans, VA loans, DreaMaker℠ loans and Jumbo loans

  • Terms- 10 – 30 years

  • Credit needed- 620

  • Minimum down payment- 3% if moving forward with a DreaMaker℠ loan

  • Terms apply.

  • Offers first-time homebuyer assistance?

Why trust CNBC Select?

At CNBC Select, our mission is to deliver high-quality service journalism and comprehensive consumer advice to our readers, enabling them to make informed financial decisions. Every mortgage review is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of financial products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties and we pride ourselves on our journalistic standards and ethics.Catch up on CNBC Select's in-depth coverage of credit cards, banking and money and follow us on TikTok, Facebook, Instagram and X to stay up to date.

Read more

Editorial Note:Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.