Breaking down barriers to achieve the American dream: How first-time homeownership is possible

Access to homeownership has been one of the primary ways Americans build generational wealth.

However, rising home prices and interest rates are leaving would-be homebuyers on the fence when it comes to believing they could purchase their first home. In fact, first-time buyers only make up 21% of purchases in the housing market, the lowest share since the National Association of Realtors (NAR) began tracking that data in 1981.

Despite this historically low number, the desire to become a homeowner remains strong. According to a NeighborWorks America national survey, 49% of U.S. adults are interested in buying a home. At the same time, 31% believe it's unattainable.

Where is the disconnect, and what is holding interested buyers back from making their dream a reality?

Often fueled by outdated assumptions or unclear information, commonly cited obstacles range from down payment requirements to credit expectations.

The good news is that the housing ecosystem is evolving to better inform and support first-time buyers to help them create a roadmap to success. Financial institutions are expanding educational resources, and lenders are introducing more flexible products. A growing number of organizations, including insurers, are stepping in to help make homeownership more accessible.

Buyers can overcome underestimating their buying power by exploring their options. In this article, Progressive examines widely held beliefs about buying a first home, using current data and lending standards to help clarify what "ready" can look like for today's first-time homebuyers, as well as breaking down some of the barriers that may stand in their way.

Myth #1: A 20% Down Payment Is Required

While 20% down is often the expected amount that comes to mind for prospective buyers, the real average tells a different story. The median down payment for first-time buyers was at an all-time high since 1989 at 10% in recent years, according to NAR.

The Federal Housing Administration (FHA) offers government-backed FHA loans that are designed to assist buyers who do not qualify for a conventional loan. FHA loans allow down payments as low as 3.5%.

Conventional loans, which are the most common loans offered by lenders, are from Fannie Mae and Freddie Mac. These programs are government-sponsored enterprises, meaning they are private companies developed by the U.S. Congress to assist with keeping the mortgage lending industry operating efficiently, and allow as little as 3% down.

A factor to plan for when making a down payment of less than 20% on a conventional home loan is private mortgage insurance (PMI). PMI allows lenders to help protect themselves in the event a borrower defaults on their loan. While PMI is an initial additional cost added to loan payments, it does enable lower upfront down payments.

While PMI supports lenders, the Homeowners Protection Act, or PMI Cancellation Act, provides borrowers with the ability to remove PMI from their loan payment. They must meet certain criteria to meet eligibility, including maintaining current loan payments. Once their equity has reached at least 20%, the borrower can request PMI cancellation or wait for automatic PMI termination.

Myth #2: You Need Perfect Credit to Qualify

The guidelines for an FHA loan make it possible for borrowers with credit scores as low as 500 to meet eligibility requirements, reported by LendingTree. Conventional loans require borrowers to have a minimum of 620 for their credit score.

In addition to FHA and conventional mortgages, the U.S. Department of Veterans Affairs (VA) and U.S. Department of Agriculture (USDA) also offer loan options.

Credit score and down payment minimum requirements, combined with an evaluation of a borrower's overall financial health, vary for each type of loan.

FHA loans offer lower credit thresholds combined with down payment minimums. Qualified borrowers with a credit score of 500 to 579 need to put 10% down, while those with a credit score of at least 580 only need to put 3.5% down.

Conventional loans require a minimum credit score of 620 with a 3% down payment, while those with a credit score of 780 or higher may benefit by qualifying for lower interest rates and PMI premiums.

For qualifying military personnel, VA loans have no minimum credit score rules. Although, most lenders do require a credit score of at least 620 for borrowers. These loans do not require a downpayment.

Designed to assist lower income borrowers in eligible rural areas, USDA loans also have no set minimum credit score or down payment requirement. These are similar to VA loans in that most lenders do require a minimum credit score of 640.

Myth #3: The Down Payment is the Only Financial Hurdle

Aspiring homeowners often underestimate the total cost of buying a home and can be caught off guard by the financial realities of homeownership. When crunching the numbers to figure out how much cash is needed to buy a home, there are calculators and programs available to assist.

Closing costs when purchasing a home are separate from the down payment and may be negotiated between the buyer and seller. These cover a variety of fees, such as attorney fees, property appraisal, title insurance, and more. These costs typically range from 2%-5% of the home price. A home closing cost calculator and other housing calculators are available on FINRED.

All U.S. states have Housing Finance Agencies (HFAs) who exist to assist with providing affordable housing for residents of their state. HFAs help provide affordable mortgages through the federally authorized program Housing Bonds, as well as other housing assistance, according to the National Council of State Housing Agencies (NCSHA). Contact information for each state's individual HFA can be found on NCSHA's map.

The U.S. Department of Housing and Urban Development's Community Development Block Grant (CDBG) is a federally funded program that provides grants to state and local communities. These communities then use the funds to create programs to provide decent housing for low- to moderate-income people in urban areas, including first-time homebuyer programs.

Employer-assisted housing (EAH) programs are designed to help employees with the cost of housing, often located near the workplace. An EAH program can include assistance via loans or grants to help with closing costs or down payments. In some cases, homeownership education and counseling can be combined with forgivable loans. Both public- and private-sector employers can take advantage of developing EAH programs to assist not only their employees, but to aid in the economic development and revitalization of their communities.

Mortgage reserves requirements, or "rainy day" funds, are an additional factor that lenders may require, depending on loan type. For conventional loans, lenders may require up to six months of cash reserves. A borrower's debt-to-income (DTI) ratio, credit score, and down payment may affect whether cash reserves are needed.

What "Homeownership Readiness" Actually Means

For many, purchasing a home can be the largest financial commitment they will ever make.

First-time home buyers should review a number of factors to decide if they are ready now, or if they should develop a plan to become ready in the future. A nationwide list of housing counselors is available to offer advice on buying a home.

Key factors buyers should consider:

• Do they currently have at least two years of stable income and a steady employment history? Additional readiness factors are available from the Consumer Financial Protection Bureau (CFPB).
• Is their DTI ratio manageable? Generally, a DTI below 36% is ideal but some lenders will accept DTIs up to 43%.
• How will they budget for ongoing costs, such as home improvements, maintenance, taxes, and insurance?

First-Time Homebuyer Programs and Resources - There is Help

A range of programs exist to support first-time buyers, from federal loan options from the FHA, VA, and USDA to state and local assistance programs like HFAs and the CDBG, as well as public- or private-funded EAH programs.

Increasingly, private-sector organizations are expanding support to help offset upfront costs, as well as introducing tools and educational resources to help make the path to homeownership more accessible.

Debunking the Myth by Empowering Buyers with Options

Common assumptions about the path to homeownership have made it difficult for prospective first-time home buyers to take the steps needed to buy their first home. However, the truth is that buyers have many options and programs that exist to assist them. High down payments or strict credit requirements are often less of a concern than buyers realize, more so today as the housing industry continues to evolve to support them.

Providing buyers with clear, accurate information about which loans or programs fit their needs, along with increasing support from lenders, and public- and private-sector organizations, will play an important role in helping more first-time buyers move from aspiring homeowners to active participants in the market. Understanding what readiness truly looks like is a key step toward making homeownership a reality.

Please note: This material is offered for informational purposes only. It is not legal, financial, or tax advice.

This story was produced by Progressive and reviewed and distributed by Stacker.

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This story was originally published June 2, 2026 at 5:30 AM.