First-Time Home-Buyers Guide: What You Need to Know About Buying Your First Home

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Interested in buying your first home? Owning a home comes with a lot of responsibility, but also offers countless benefits. You no longer have to deal with a landlord, noisy roommates, or shared walls. You can enjoy your private space and what would have been your rent money goes back into your pockets. When you have a home, you build your financial resources and own a real estate investment.

What Does the First-Time Home-Buying Process Entail?
The first-time home-buyers guide walks you through what you need to know about the process of buying your first home. You will find information on the mortgage process, down payments, finding a real estate agent, and more.

However, buying a home isn’t as easy as finding your dream home and making an offer, there are quite a few steps involved. Plus, you’ll need to keep in mind that factors like the effect of inflation on home-buying, the state of the market you’re looking to buy in, and your personal financial situation can play a large role in the cost of your home as well as your ability to secure a loan.

Understandably, buying a home can seem complicated and overwhelming when you’re first getting started. That’s why we’ve broken the process down into easy-to-follow steps that make the home-buying process clear. From start to finish, we cover everything about finding and buying a home you love. Keep reading or use the links below to navigate this first time home buyers guide!

How to Buy a House in 10 Simple Steps

The process for buying a house may seem complex. Luckily, you can break it down into manageable action items with this guide to buying your first home.

Follow these steps to be well on your way to becoming a homeowner. You’ll be happy you did when you reap the worthwhile, long-term reward of owning your own home.

Step 1: Organize Your Finances

The first step is to make sure you have a thorough understanding of your current financial state. You need to ensure that you’re actually able to afford the costs of homeownership before diving head first into this major purchase. Use our free home affordability calculator to help you through this step.

Analyzing your budget means breaking down your current expenses, noting all of your income from all sources, and ensuring you have sufficient savings. A simple rule to follow is to have enough savings to cover your living expenses for three to six months—however, you may want to aim for the higher end of that range. Not that when you’re calculating your expenses you want to make sure you cover all your bases, including student debt, utilities, clothing, and other necessities.

You should also check into your credit score; a low score of about 500-580 can get you a loan. But an excellent credit score of 700-780 can get you a loan on your much better terms. This usually means a lower interest rate, which can save you significantly over the life of your loan.

Another factor that can impact your ability to qualify for a mortgage is your debt-to-income ratio (DTI), which should be 43% or lower if you want to get the best terms. DTI ratio compares the amount of debt you have with how much income you bring in and is meant to determine the likelihood that you’ll be able to make your mortgage payments.

With this information in mind, learn which mortgage program offers the loan amount you need, allows for a down payment you can afford, and accepts your credit score.

Once you’ve figured out typical costs and interest rates, go to an online mortgage calculator. Enter in your loan term, home insurance costs, and other details. The calculator will help determine how much you’ll be paying per month for a certain priced house.The monthly mortgage payment could extend anywhere between 15 to 30 years. So, there is no need to strain yourself financially. You can update and acquire a better, bigger house down the road.

Keep in mind that there are options for those with a smaller budget, like foreclosed homes.

Step 2: Shop Around for the Best Mortgage Loan

Shop around for the best mortgage quote. Mortgage lending companies, banks, and credit unions are all good places to start with.

Most first–time homebuyers tend to lose out on saving thousands of dollars by choosing the first mortgage lender they are referred to without doing their own research. To make sure you’re getting the best deal:

  • Consult at least 3 different mortgage providers.
  • Learn all the details you can before starting the mortgage pre-approval process.
  • Compare the quotes from all mortgage lenders, then lock up the best deal.

Step 3: Get Prequalified for a Mortgage

Once you decide who you want to get a loan from, contact a mortgage loan officer to start the pre-approval process. The financial institution will ask for required documents such as your:

  • W2s
  • Tax returns
  • Recent pay stubs

Once you’ve turned in all the required documents, it might take a couple weeks to find out if you’re pre-approved and for how much.

Remember to look at your budget and determine how much you want to spend per month on a house. Keep in mind that you don’t have to use the entire loan amount you’re approved for. For example, being pre-approved for $250,000 doesn’t mean you should buy a house for that much. A house worth $175,000 might be a better fit for your budget in the long run.

Step 4: Hire a Real Estate Agent

This might come as a surprise for you, but according to reports, approximately 14% of homebuyers don’t hire a real estate agent to help them through the home-buying process. However, it’s often highly beneficial for first-time homebuyers to seek help from a skillful realtor. Realtors have extensive experience and have their finger on the pulse of the home-buying market. For example, they’ll be up to date on current market rates to make your search for a new home easier overall.

Some people decide to buy a home without a realtor, but most people, especially first-time home buyers, seek their help. An experienced realtor has detailed information on the area and knows the current market.

When considering a realtor, meet with them and ask the following questions:

  • Do they have experience as a realtor?
  • Do they have any clients who can give them a good reference?
  • What are their fees?
  • Are they knowledgeable about the neighborhoods and current homes?
  • Do they have a specialty area or a unique skill set?
  • Does their personality mesh with yours?

You may have to sign a contract saying that you’re exclusive with a certain realtor. Other times, you can agree to a trial period of a few weeks to see if you actually want to work with them.

You shouldn’t ever feel pressured to buy a home through a realtor. They get paid based on buying or selling a home, but they have many clients, including those who don’t buy anything. If an arrangement isn’t working for you, don’t feel obligated to stick with your realtor and buy a home through them. You can always find another realtor who is a better fit.

Step 5: List Your Needs and Wants

Before you begin your search, it’s important to know what you want in a home. Do you want to have a garage or live near a park? Knowing the answers to these types of questions will help you make better decisions when you’re house shopping.

Talk through what you want and loop in your realtor. He or she should know what types of homes to show you, so you don’t waste time. List out everything you want, but remember that you’ll probably have to compromise. Divide your list into must-haves and nice-to-haves, so you can more easily evaluate each home.

Here’s what to look for when buying a house:

Design elements

  • Square footage
  • Floor plan
  • Move-in ready vs. fixer upper
  • Number of stories
  • Flooring (hardwood, carpet, tile)
  • Basement (finished vs. unfinished)

Rooms

  • Number of bedrooms
  • Number of bathrooms
  • Family, living, and dining rooms

Outside features

  • Garage
  • Porch
  • Patio
  • Backyard
  • Space for home additions
  • Space for garden or playground

Location

  • Neighborhood
  • School district
  • Walkability
  • Property taxes
  • Near public transportation
  • Near a park or trail
  • Distance to the city
  • Distance from work

Structure

  • Type of heating and cooling system
  • Year home was built
  • Outside appearance (brick, siding, stones)

Step 6: Begin House Hunting

Many homeowners host open houses — a set time that the house is open to the public for viewing. You may or may not go with your realtor. Open houses are a low-pressure, fun way to look at homes. You might even get to speak with the seller or the seller’s realtor.

Regardless of whether you attend open houses, you’ll want separate appointments to see potential houses. Your realtor should set up these appointments for you. It usually works best to have several visits in one day to maximize your time. Be clear about the houses you want to see, but know that you might tweak your list of must-haves and nice-to-haves after seeing a few homes.

Step 7: Make an Offer

Once you find the home you want, you’re ready to make an offer. Your realtor can help you figure out an appropriate offer and help you prepare all the documents. Your initial offer might be accepted, rejected, or the seller could send a counter-offer back to you.

Offers include more than just a selling price, too. They can include who will pay closing costs, what the closing date is, and which appliances will stay in the house. Each time you send an offer or counter-offer, you’ll be signing a contract. When the seller counters, you’ll need to sign their terms to make it official.

Step 8: Get Approved for Your Loan

Getting approved for your loan should be seamless, especially if you’ve been pre-approved and it’s within the pre-approval amount. Be sure to contact your mortgage officer to tell them you put in an offer on a home. 

They’ll need the:

  • Address
  • Amount of your down payment
  • How much your loan will be

Your officer will then verify that everything is approved for your mortgage.

Your mortgage officer will also set up a time for an appraiser to appraise the home. Your financial institution wants to make sure the home is valued at what you’re paying or more.  For example, they want to verify that a house you’re buying for $180,000 is worth at least $180,000.

Step 9: Hire a Home Inspector

After your offer has been accepted, you’ll want to schedule a home inspection. This step is crucial to ensuring there are no substantial issues with the home.

Hire a professional to go through the home with you. They’ll be able to spot things you may not be aware of, such as cracks in the foundation, a leaky roof, or old appliances. Most importantly, you want to know about any major costs that you might incur in the near future.

Once you have the details from the home inspection, examine the report carefully. Even if your offer is already accepted, you can renegotiate or rescind your offer altogether. For example, maybe the inspector found a foundation issue in the house. If it’s going to cost $10,000 to fix, you can try to negotiate your offer for $10,000 less. The selling homeowner has the right to accept, reject, or negotiate whatever you propose. 

Be aware that you do run the risk of losing the home in a re-negotiation process. However, purchasing a home with major problems could end up being more costly and frustrating.

Step 10: Close On Your Home

Your house has been appraised and inspected. All negotiations have settled and you’re ready to sign the dotted line.

When you meet for the closing, your mortgage officer might join. Sometimes the selling homeowner will be there too. Your mortgage officer will help you prepare the paperwork and go through all the fees. You might have to bring additional items like certain identification or a cashier’s check.

The closing date is mainly about paperwork and official ownership. Depending on the agreement, you could get your keys that day or a later date that both parties have agreed to.

Buying a home — especially your first one — is an exciting financial milestone. While there are many steps to home ownership, there are resources and professionals to help you along the way. Most importantly, having a home you love is priceless. You’ll understand the feeling when you finally hold those keys in your hand.

First-Time Homebuyer FAQs

What Is the First Step to Buying a House for the First Time?

The very first step when buying a home for the first time is to review your finances and come up with a reasonable home-buying budget. The idea is to make sure that you know how much you can afford in monthly mortgage payments. Make sure you also consider expenses such as homeowners’ insurance, property taxes, and utilities in addition to your mortgage. 

You should also contact your financial institution to learn about their mortgage interest rates. It’s always best to be prepared for what you’re getting into.

While U.S. homeowners that are younger than 40 years old collectively own approximately 4 million homes, you don’t need to put yourself in a financial bind to become one of them. Before you make a move on buying a home, you should feel confident about your financial situation. Otherwise, it might be a good idea to push pause and work on improving your financial health.

How Much Should a First-Time Buyer Have Saved?

First-time buyers need to focus on saving up for the down payment and closing costs, which are typically around 2-5% of the total purchase value. Down payment requirements can range anywhere from 0% to 20% or more, depending on the loan terms.

The average sales price of new houses that were sold in December of 2021 ended up being $457,300. So, if you haven’t decided on a home budget yet, you can use that as a starting point to get an estimate for the costs above.

A first-time buyer should also keep these expenses in mind:

  • Home insurance 
  • Property tax
  • Homeowner’s association (HOA) fee
  • Home inspections
  • Furnishing costs
  • Moving expenses
  • Home upgrades
  • Monthly mortgage payments

With the above costs in mind, you’ll have a better idea of how much you need to save.

What Types of Programs Are Available for First-Time Homebuyers?

Many types of home loan programs extend a mortgage to first-time homebuyers. Some of the most common include:

  • FHA (Federal Housing Administration) loans
  • USDA (U.S. Department of Agriculture) loans
  • VA (Department of Veterans Affairs) loans
  • Conventional loans (Fannie Mae or Freddie Mac)

Other loan options for first-time homebuyers include NADL (Native American Direct Loan), Good Neighbor Next Door, FHA 203(K) loan, Energy Efficient Mortgage Program, Freddie Mac CHOICE Renovation loan, and Fannie Mae HomeStyle loan.

If you want to build a house, look into construction loans.

What Fees Do First-Time Homebuyers Have to Pay?

The fees you might have to pay as a first-time homebuyer includes:

  • Down payment: This varies between 5-20% of the entire home’s purchase price. In the case of FHA or conventional loans, it can be as low as 3%.
  • Earnest money deposit: It is also known as good faith deposit. 1-2% of the entire home’s purchase price is sometimes provided with the offer to your seller. This shows the seller your eagerness to purchase.
  • Home inspection charges: Hiring an expert home inspector may cost you around $300-500. Seek your realtor’s help to find an expert inspector they may have worked with before.
  • Closing/settlement costs: This accounts for about 2-5% of the home’s purchase price. This includes the fee you need to pay mortgage lenders, realtors, and third parties involved in assisting with your home purchase. It may include several expenses like appraisal fees, attorney fees, credit report fees, government recording costs, lender origination fees, survey fees, tax service fees, title services, underwriting fees.
  • Moving expenses: This will vary depending on whether you choose to do it yourself or get professional assistance, how far you’re moving, and more.
  • Property taxes and homeowners’ insurance: Plan for monthly PMI private mortgage insurance) which is usually required for those who had a down payment of less than 20% and your property taxes on your home, these depend on your state’s property tax laws.

Next Steps After Buying Your First House

Once you’ve secured your mortgage, gone through escrow, and finally moved to your dream home, you can celebrate, but that’s not the end of your homeownership journey. To ensure you don’t fall into a financial crisis as soon as you buy a property, you should prioritize budgeting for the first year of homeownership. Following suggestions will help you face what could come after buying your first house.

  • Continue to save: You may incur homeownership costs like extra repairs and upgrades. Having a savings account or strict budget will help you cope with any surprise expenses.
  • Routine maintenance: Keep your new house updated. Get the repairs fixed in their initial phase to avoid higher maintenance expenses down the line.
  • Consider refinancing when your finances improve: If your finances improve significantly after you buy your home, it may be worthwhile to consider refinancing. With a refinance, you may be able to qualify for better terms and save money in the long run.

If you want help budgeting as a homeowner, use the Mint app and our home budget template. Keep a track record of your budget to keep your finances in good standing as a first-time homebuyer and help you prepare for anything that may come up.

Get Ready to Become a Homeowner

So now you have a better idea of how to prepare and what to expect as a first-time homebuyer. We hope this first-time buyer’s guide has helped you feel more confident as you go through this process. However, if you still have some questions, you can take a look at our comprehensive guide that covers the home-buying process in a more general overview.

The key to a good experience when purchasing your first home is to take the time to prepare and set yourself with realistic expectations. And if you find that you might need to take a step back and reassess your finances first, that’s okay too. Remember, you can use Mint to help you budget, track your savings, and monitor your finances to help you successfully take on first-time homeownership.

Good luck for your home buying journey!

Sources: Statista | U.S. Census Bureau and U.S. Department of Housing and Urban Development | Zillow Consumer Housing Trends Report 2021

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