If the thought of buying your first home feels overwhelming, you’re not alone. After all, there’s a lot to consider before you sign the dotted line. That’s why we created this first-time homebuyer guide. We’ll walk you through how to buy your first home, step by step, so you’re well informed and the homebuying process feels more doable. Let’s get started!

Start Saving

One of the most important steps to buying a house for the first time is committing to a savings plan. Look at your current budget to see how much you can set aside each month. Try to make it an automatic transfer so it takes priority over other spending.

As you determine your savings goal, keep in mind that you’re not just saving for a down payment. You also need to consider:

  • Closing costs – These include a variety of expenses such as attorney fees, title transfer, taxes, and lender costs. On average, closing costs are two to five percent of the purchase price.
  • Mortgage points – If your mortgage interest rate is higher than you’d like, you can choose to pay fees to the lender in exchange for a reduced rate. This can lower your monthly mortgage payments. However, you must pay for these points at closing. (One point costs one percent of your mortgage amount.)
  • Moving expenses – If you plan to hire professional movers, you’ll need to have enough cash ready on the move-in date. You might also need new furniture.
  • Lease fees – If you’re currently renting and need to break your lease, be sure to look at your agreement to see how much you might have to pay.
  • Unexpected repairs – Make sure you have a little padding. You don’t want to move into your new home without any savings.

How Much Should a First-Time Homebuyer Put Down?

Let’s talk more specifically about your down payment. When buying your first home, you’ll often hear people say that a down payment must be 20% of the purchase price. But in reality, you have more options.

If you have good credit, lenders will consider a lower down payment. There are also several loan programs specifically designed for first-time and/or low-to-moderate income homebuyers, which we’ll discuss later in this article.

Despite these options, it’s important to remember that by choosing a lower down payment, you’re taking out a larger mortgage. That means you’ll pay more principal and interest in the long run. You’ll get a house sooner, but it’s up to you whether it’s worth the extra cost.

Determine How Much House You Can Afford

Figuring out how much house you can afford will focus your home search and ensure you don’t take on more debt than you can handle. One of the critical first steps for first-time homebuyers is to create a realistic budget that estimates your expenses once you’re in the home. There will be new costs to consider like property taxes, homeowners insurance, water and trash bills, and maintenance. You might also have HOA fees if you live in a townhouse or condominium. Plus, you need to think about other long-term savings goals like retirement or college for your children.

While there are more precise ways to calculate how much house you can afford, a good rule of thumb is to multiply your gross household annual income by 2.5. That’s the income from your W-2 (before taxes are removed).

Just remember – if you have other debts like credit cards or student loans, you should keep your house payments on the lower end of that amount. Or, wait until you’ve paid them off to purchase a home.

Make a Must-Haves List

When you’re buying your first home, it’s easy to get carried away by visions of your ultimate dream home. But no house will ever check off all your boxes. Instead, create a must-have and nice-to-have list.

Your must-haves are elements that can’t be changed (or not without significant expense). For example, square footage, the number of beds/baths, or ample outdoor space. You’ll be able to quickly eliminate potential houses if they don’t meet these criteria.

Your nice-to-have list includes items that you’d like to have, but they’re not essential. Perhaps there’s an extra bathroom, newly renovated kitchen, or an enclosed porch. Keep in mind that it’s easy to change paint colors or replace fixtures, so even if the home doesn’t check off your nice-to-haves, you could always add them later.

That being said, while you can make cosmetic changes and renovations, you can’t move your house. Let’s take a look at three must-haves to consider – your neighborhood, commute time, and school district.

Research Neighborhoods

You’re about to become part of a community, so you want to make sure it’s the right one for you and your family. Here are a few ways to do that:

  • Look up local crime statistics and trends to assess the neighborhood’s safety
  • See if amenities are easily accessible (hospitals, pharmacies, grocery stores, restaurants, etc.)
  • Check out traffic and noise levels by driving through the neighborhood at different times
  • Ask around to see if friends or family have experience with the neighborhood

Estimate Commute Time

What’s an acceptable commute, especially during rush hour? Are you open to using public transportation? Do you need easy access to an airport? Once you’ve decided what works for you, you can narrow your search to neighborhoods that aren’t too far from your job or other obligations.

Evaluate School Districts

For parents, assessing the school district quality is a top priority. Check out SchoolDigger for test scores, rankings, boundaries, student/teacher ratios, and ethnic makeup for over 120,000 elementary, middle, and high schools in the United States. Even if you don’t have children, it’s helpful to know the school district’s quality since it can affect home value.

Get Preapproved for a Mortgage

Now that you’ve built up your savings, you know how much you can afford, and what you’re looking for, the next step to buying your first home is to get a mortgage preapproval.

This is when a loan officer looks at your finances (your income, debt, assets, and credit history) and determines how much money you can borrow, how much you could pay per month, and what your interest rate will be.

This has three main benefits:

  • You’ll have a better idea of the price range you can afford
  • It gives the seller peace of mind that you’re a credible buyer
  • You can act more quickly when you find a home you like

When shopping for a mortgage, be sure to compare loan offers from at least three different lenders to ensure you’re getting the best deal possible.

What Types of Loans Can First-Time Homebuyers Get?

  • FHA Loan – This type of loan typically comes with smaller down payments (as low as 3.5%) and lower credit score requirements than most conventional loans.
  • USDA Loan – These loans have income restrictions and are limited to certain rural areas. They also have lower credit score requirements (640+).
  • VA Loan – Active-duty military members, veterans, and their spouses are eligible for lower interest rates, no down payment, or minimum credit score.
  • Fannie Mae or Freddie Mac – These government-sponsored enterprises set borrowing guidelines for loans they’re willing to buy from conventional lenders on the secondary mortgage market. Both programs require a minimum down payment of three percent and a minimum credit score of 620.
  • Conventional Mortgage – Like any homebuyer, a first-time homebuyer can get a conventional mortgage. This means it’s not offered or secured by a government entity (like FHA, USDA, or VA). Rather, it’s guaranteed by a private lender or Fannie Mae and Freddie Mac.

What Programs Are Available to First-Time Homebuyers?

In addition to the loan options described above, you can find first-time homebuyer grants in your state by going to the website of the U.S. Department of Housing and Urban Development (HUD) website. You can also check your local county website for more first-time homebuyer programs and down payment assistance programs. Another helpful resource is the Down Payment Assistance Resource, which provides potential homeowners with a searchable list of programs.

What Credit Score Does a First-Time Homebuyer Need?

According to Experian, credit scores of at least 640 are typically needed to qualify for first-time homebuyer assistance and loan programs. However, you’ll likely need higher credit scores of around 680 or so to qualify for a conventional mortgage. CreditKarma reports that the average credit score of first-time homebuyers is 684, but this number varies depending on where you live.

Find a Buyer’s Agent

Now you’re ready to select your first-time homebuyer real estate agent. Before you simply choose someone based on a recommendation, make sure they specialize in working with first-time homebuyers. You want an agent who has the patience and ability to educate you throughout the process. In addition, they’ll be more familiar with first-time homebuyer loans, grants, and other programs. Their expertise will be invaluable – saving you time, money, and hassle.

Start Looking at Houses

Your agent will search for homes that fit your criteria. This includes your must-have and nice-to-have lists as well as the price range based on the mortgage preapproval. As homes become available, the agent will set up private showings or invite you to open houses. You’ll walk through homes together, talking through the pros and cons.

When buying your first home, an experienced real estate agent can help you think through your needs, see opportunities, look past cosmetic issues, and watch out for any red flags. As they work with you, they’ll learn more about what you really want and can be more targeted in their search.

Make an Offer

Once you’ve found a home that meets your needs, it’s time to make an offer! Since you’re preapproved, you’re ready to go. Your real estate agent will help you determine the most competitive offer based on comparable homes in the area, how long it’s been on the market, the number of bidders, and other factors. Your agent will also negotiate on your behalf.

Buying your first home is a bit nerve-wracking, especially when you feel like you’ve found “the one.” But keep in mind that it’s never a sure thing – and there are other houses out there.

Get a Home Inspection

Your offer should be contingent on a home inspection. A home inspector will examine the property’s condition to help you uncover any issues. However, they won’t answer the question, “Should I buy this house?” so you’ll have to make this decision yourself after reviewing the reports and negotiating any repairs with the seller. When buying your first home, don’t be afraid to ask for what you want – whether that’s a lower sales price or guaranteed fixes before closing.

Here are some important tips to remember:

  • Never skip the inspection, even on a brand new home
  • Select an independent inspector, not affiliated with either the seller or buyer’s agent
  • Confirm what’s included, not all inspections test for things like radon or mold
  • Make sure the inspector can access every part of the home
  • Attend the inspection, pay close attention, and ask questions

Close on Your Home

Once a seller accepts your offer, the closing process will begin. You’re almost finished buying your first home! On average, this takes 40-45 days. During this time, in addition to the home inspection, you’ll need to get an appraisal of the home’s value, obtain homeowners insurance, and submit any additional documentation to your lender. Lastly, a final walk-through takes place 24 hours prior to the closing day.

At your closing appointment, you’ll most likely be joined by the seller, the escrow/closing agent, the real estate attorney, a title company representative, the mortgage lender, and the real estate agents. Here’s what happens:

  • The home’s title and keys are transferred from seller to buyer.
  • The proceeds of the sale are distributed to the seller.
  • The buyers sign the mortgage note.
  • The buyer and/or seller pay other fees such as real estate commissions, title insurance, and pro-rated property taxes.

Move in!

After the closing appointment, you can head right over to your new home – with keys in hand! Hopefully, you have movers ready to go, so you can settle in quickly and revel in your new status. You’re now a first-time homebuyer.

So, What’s Next?

Now that you know how to buy a house for the first time, you can feel more confident about starting the process. By breaking it down into manageable steps, you can work through each one at your own pace. If you’re at the stage where you need a buyer’s agent or a mortgage lender for preapproval, we’re here to help!