Financing · Honest guide
How to Finance Buying a House
“Get a mortgage” is the answer most people know — but it’s one item on a much longer menu. There are six families of financing: standard loans, rate structures and buydowns, assumable mortgages carrying someone else’s low rate, seller financing and its risky cousins, cash and cash-adjacent strategies, and specialty loans for everyone the mainstream rejects. This is the complete map — what each option is, what it truly costs, and the honest hierarchy for choosing the cheapest money available to you.
Last updated July 2026
Start here
Financing a house, the short version
Three ideas organize everything below. First, financing is a menu, not a single door. The two loudest myths — that you need 20% down and that cash always wins — both die on contact with the actual options: conventional loans start at 3% down, FHA at 3.5%, VA and USDA at zero, and cash buyers give up real opportunity cost that a delayed-financing refinance can recover.
Second, the cheapest money follows a hierarchy: an assumable low-rate loan (if you can find one and bridge the equity gap) beats VA/USDA, which beat state housing-agency loans, which beat standard conventional/FHA, with jumbo where prices demand it and non-QM strictly as a last resort. Working down that ladder deliberately is worth more than any rate-shopping trick.
Third, this guide is the “what” — the map of options. The “how” — pre-approval, comparing Loan Estimates, locks, underwriting — lives in our guide to getting a loan and the financing pillar; the “how much” lives in affordability. Choose your vehicle here first.
Family two
Terms, ARMs, points, and buydowns: shaping the rate you get
The same loan comes in a dozen shapes. A few are bargains, several are traps, and the difference is arithmetic.
Term length and the ARM reality check
30 vs. 15 years, worked: on a $400,000 loan at current rates (~6.5% / ~5.8%), the 30-year runs about $2,527/month and the 15-year about $3,325. The extra ~$800 buys you well over $200,000 in lifetime interest saved and rapid equity. The honest tiebreaker: the 30-year wins only if you’d genuinely invest the difference; most people don’t, making the 15-year forced savings for those who can carry it. A 20-year splits the difference — always worth a quote. ARMs: modern adjustables are far safer than their pre-2008 ancestors (you’re qualified at the maximum rate, with 2/1/5-style caps) — but their historic discount has largely evaporated; spreads to the 30-year fixed are often minimal. The rule: an ARM earns its risk only with a confirmed short horizon and a real discount. Verify the spread the week you shop, not from an old article.
⚠️ Points and buydowns — where good math goes to die
Discount points: 1% of the loan buys roughly 0.25% off the rate, breaking even around years 5–6 — so points lose whenever you might refinance or sell first. Sobering data: in a recent high-rate year, nearly six in ten purchase borrowers paid points, yet regulators found their final rates barely beat non-payers’. Pay points deliberately or not at all; when rates are more likely to fall than rise, lender credits (the reverse trade: higher rate, cash toward closing) often win. Temporary buydowns (2-1, 3-2-1): a seller- or builder-funded escrow subsidizes your first years’ payments — fine as a gift, and unused funds credit back if you refinance early. Builder buydowns deserve one hard look: the majority of large builders now advertise below-market rates through their captive lenders, but analyses find their prices run ~6% above comparable resale homes. You may be financing the “discount” in the price — compare the incentive against a straight price cut, always.
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Family three — the centerpiece
Assumable mortgages: taking over someone else’s low rate
Millions of loans written in the cheap-money years can legally change hands. Almost nobody uses them — here’s the honest why, and how.
The opportunity and the mechanics
FHA, VA and USDA loans are assumable — a qualified buyer can take over the seller’s existing loan at its original rate (conventional loans aren’t; their due-on-sale clauses block it outside family transfers). The pool is enormous: roughly 12 million assumable loans exist, about 7 million of them below 4%. Assuming a 3% note instead of signing a new ~6.5% one saves $700–$1,000 a month on a typical balance. Mechanics: you apply through the seller’s servicer, qualify at the note’s terms, skip the appraisal, and pay capped fees (around $1,800 on FHA; 0.5% plus a small processing fee on VA). Regulators now impose 45-day decision rules — but plan on 45–90+ days in practice, because servicers earn little on assumptions and behave accordingly. Two seller-side notes worth knowing: a veteran seller’s VA entitlement stays trapped in the loan unless a veteran buyer substitutes their own; and specialized platforms (typically charging ~1% of price) now exist to find listings and push servicers.
⚠️ The equity gap — the catch that filters everyone out
You assume the balance, not the price. A $450,000 house with a $250,000 balance at 3% leaves a $200,000 gap you must cover with cash or a second mortgage (few lenders offer assumption seconds; ask early). The blended math still often wins: $250,000 at 3% plus $200,000 at ~8% blends near 5.2% — more than a point below a fresh loan. The honest scorecard: total completed assumptions nationally have run in the mere thousands per year — rare, slow, and paperwork-heavy — but for buyers with meaningful cash and patience, it’s frequently the single cheapest money on this page. Rule of thumb: pursue it when the blended rate beats a new loan by 0.75%+ and the gap doesn’t drain your reserves; build the servicer delay into your contract dates.
Family four
Seller financing and the creative structures — honestly flagged
Legitimate tools exist here. So do the internet’s favorite traps. The dividing line is the deed.
✅ Seller financing, done right
When a seller owns the home free and clear (a large share of US homes are), they can be the bank: you sign a promissory note and a recorded mortgage or deed of trust, and the deed transfers to you at closing — that deed transfer is the entire safety line. Typical terms: 10–25% down, a rate 1–3 points above market, 5–10 year balloons. Federal rules keep casual sellers legal (a person financing one property a year is exempt from originator licensing; balloons allowed), and your protections are non-negotiable: recorded deed, title insurance, a licensed originator documenting ability-to-repay, and a real-estate attorney. Family loans are the friendliest version: charge at least the IRS minimum rate (the long-term applicable federal rate, currently ~4.5%), record it as a genuine mortgage so interest is deductible and the IRS sees a loan rather than a gift.
🚨 The risky cousins, ranked by danger
Land contracts (contracts for deed): the seller keeps title until your final payment — miss one and you can forfeit everything paid. Some states have added protections; deed-transfer financing is safer everywhere. Rent-to-own: a 1–5% option fee plus rent credits sounds like a ladder, but most tenants never exercise the option and forfeit it all; institutional programs are more legitimate than storefront deals, and independent inspection plus a title check are mandatory either way. “Subject-to” — taking over payments on a loan that stays in the seller’s name — is the guru-course special: the lender’s due-on-sale right hangs over it, insurance gets tangled, and the seller’s bankruptcy, death or divorce can collapse the whole thing. It has narrow professional uses and no place in a first purchase. The pattern to memorize: if the deed doesn’t transfer to you at closing, the risk transferred to you instead.
Family five
Cash, delayed financing, and the power-buyer platforms
Cash wins bidding wars. It also costs more than it looks — and there are ways to have it both ways.
The cash math, honestly
Cash purchases are at record shares — roughly a quarter of primary-home buyers, driven almost entirely by equity-rich repeat buyers (under one in ten first-timers pays cash). What cash buys: winning offers, 7–21 day closings, no financing contingency, sometimes a 1–3% price concession. What it costs: everything that money could otherwise earn, concentrated in one illiquid asset. The elegant middle path is the delayed-financing exception: buy in cash to win, then take a mortgage out within six months — no waiting period, priced as a cash-out refinance, capped around 80% of value — restoring your liquidity while keeping the cash-buyer’s negotiating power. If a bidding edge is what you’re after without the bankroll, power-buyer platforms survive from the proptech shakeout in leaner form: they front a cash offer you repurchase with a mortgage, for fees around 1–2.5% — read the fee schedule and repair-charge terms with care, and compare against simply strengthening a financed offer.
Cash-adjacent, briefly
Securities-backed lines let wealthy buyers borrow against a portfolio instead of selling it — no capital-gains trigger, floating rate, and a margin call if markets drop at the wrong moment; a tool for the well-capitalized and disciplined only. 401(k) loans and home-equity draws on another property can fund down payments — both covered with their trade-offs in the 401(k) guide and the down payment guide. The theme across all of it: liquidity has a price, and the best structures rent it briefly rather than surrendering it permanently.
Family six & the decision
Non-QM, new construction — and the hierarchy that chooses for you
Where the mainstream-rejected borrow, where builders play games, and the one-paragraph decision framework.
The specialty shelf
Non-QM loans serve real borrowers the standard system can’t document: bank-statement loans for the self-employed (deposits instead of tax returns), DSCR loans for investors (the property’s rent qualifies, not your income), asset-depletion loans for retirees (savings divided into monthly “income”), and recent-credit-event loans for those fresh out of foreclosure or bankruptcy. The price: 1–3 points above conventional and 10–20% down. The strategy: use non-QM as a bridge, then refinance to conventional the year you qualify — never as a permanent home. New construction has one rule: the builder’s lender can be incentivized but never required — dual-shop every captive-lender deal against an outside quote on five-year total cost, and ask whether the flashy rate buydown could be taken as a price reduction instead.
💡 The framework, in one paragraph
Walk the ladder: assumable (if findable and the gap is coverable) → VA/USDA (if eligible) → state HFA (if income fits) → conventional or FHA by credit-and-down profile → jumbo where prices force it → non-QM last. Compare finalists on five-year total cost from the Loan Estimate, never the headline rate. Treat “marry the house, date the rate” with respect and suspicion in equal measure: refinancing costs $2,000–$6,000, requires requalifying, and isn’t guaranteed to ever pencil — recent years punished buyers who budgeted for the rate they hoped to refinance into rather than the one they signed. And keep the honest exit in view: if buying drains your emergency fund or your horizon is under 3–5 years, renting longer is the better financing decision — the timeline math lives in the buying timeline and affordability guides.
Quick answers
Financing a house: common questions
What are all the ways to finance a house?
Six families: standard loans (conventional, FHA, VA, USDA, jumbo, state housing-agency programs, physician loans); rate structures layered on top (term length, ARMs, points, buydowns); assumable mortgages (taking over a seller’s low-rate FHA/VA/USDA loan); seller financing and family loans; cash and cash-adjacent strategies (including delayed financing and power-buyer platforms); and non-QM specialty loans for the hard-to-document. The skill isn’t knowing one — it’s walking the hierarchy from cheapest to priciest money for your profile.
Do I really need 20% down?
No — that’s the most durable myth in real estate. Conventional loans start at 3% down, FHA at 3.5%, and VA and USDA at zero; state housing agencies stack down-payment assistance on top. What 20% buys is skipping mortgage insurance — but conventional PMI cancels automatically once you reach enough equity, making a smaller down payment a temporary cost, not a life sentence. The full math lives in our down payment guide.
What’s an assumable mortgage and why does it matter?
FHA, VA and USDA loans can be taken over by a qualified buyer at their original rate — and millions of them carry rates near 3% from the cheap-money years. Assuming one instead of signing a new loan at today’s rates can save $700–$1,000 a month. The two catches: the equity gap (you assume the balance, not the price, so you need cash or a second loan for the difference) and slow servicers (plan 45–90+ days). When the blended rate beats a new loan by 0.75%+, it’s usually the cheapest money available.
Is a 15-year mortgage worth it?
If you can carry the payment comfortably, usually yes: on $400,000, the 15-year costs roughly $800/month more than the 30-year but saves over $200,000 in lifetime interest and builds equity fast. The honest counterargument — take the 30-year and invest the difference — only works for people who actually invest the difference. The 15-year is discipline you can’t skip; a 20-year is the underrated compromise worth quoting alongside both.
Should I pay points or take a buydown?
Only with the math in hand. A point costs 1% of the loan for ~0.25% off the rate, breaking even around years 5–6 — so it loses if you might sell or refinance sooner, and lender credits (the reverse trade) often win when rates lean downward. Temporary 2-1 buydowns are fine when a seller or builder funds them — unused funds refund at payoff. The trap is builder buydowns hiding an inflated price: always compare the incentive against a straight price reduction.
Is seller financing safe?
It can be — the dividing line is the deed. Legitimate seller financing transfers the deed to you at closing with a recorded lien, title insurance, documented terms and an attorney involved; that’s a real purchase with a private lender. The risky forms keep title from you: land contracts (miss a payment, forfeit everything), and “subject-to” deals where the loan stays in the seller’s name under a due-on-sale cloud. If the deed doesn’t transfer, the risk did.
Is rent-to-own a good path to buying?
Rarely. The structure — a 1–5% non-refundable option fee plus rent credits toward a future purchase — sounds like a ladder, but most tenants never exercise the option and forfeit everything, sometimes over minor lease violations. Institutional programs are more legitimate than storefront deals, but the better route for most renters is fixing the blocker directly: credit repair, down-payment assistance, or an FHA loan (see our bad-credit and no-money guides).
Should I use the builder’s lender?
Compare, never assume. Builders can legally offer incentives ($10,000–$20,000 in credits, flashy rate buydowns) tied to their captive lender — but they cannot require you to use it, and their base pricing frequently gives back what the incentive promises. Get the captive offer in writing, get one outside quote, compare five-year total cost, and ask whether the incentive can become a price reduction instead — a lower price outlasts any buydown.
Should I wait for rates to drop?
Waiting is a bet, not a plan. Recent experience is the cautionary tale: buyers who postponed for lower rates spent years paying rent while prices appreciated and rates stayed stubborn. The sounder framework: buy when the payment works at today’s rate for a home you’d hold 5+ years, treat any future refinance ($2,000–$6,000, never guaranteed) as a bonus rather than a budget line — and if the payment only works at an imagined future rate, it doesn’t work.
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