Buying your first home is a major financial decision, and the process involves much more than finding a property you like.
You need to think about your mortgage, cash needed at closing, inspections, property taxes, homeowners insurance and what owning the home will actually cost after you move in.
Knowing the steps to buying a home before you start can make it easier to set a realistic budget and recognize important decisions as they come up.
Key Takeaways
- Your mortgage preapproval is not necessarily your ideal homebuying budget.
- First-time buyers can have low- and even no-down-payment mortgage options depending on eligibility.
- Budget for closing, maintenance and other ownership costs in addition to the down payment.
1. Choose a Buyer’s Agent Carefully
A real estate agent can help you search for homes, evaluate properties, prepare offers and navigate negotiations.
Don’t choose an agent solely because they’re a friend, relative or the first person you meet.
Consider interviewing agents and asking about:
- Experience working with buyers
- Knowledge of your local market
- Experience with first-time buyers
- Communication style
- Availability for showings
- How they approach offers and negotiations
- Services they provide
- How they are compensated
If you’re working with an MLS participant subject to National Association of REALTORS® rules, you’ll generally enter into a written buyer agreement before touring a home together.
The agreement should explain the services the agent will provide and how compensation works. Broker fees and commissions are negotiable rather than set by law.
Read the agreement before signing and make sure you understand its duration, compensation terms and any provisions about ending the relationship.
2. Know Your Budget Before You Fall in Love With a Home
It’s easy to stretch your budget when you find a house that seems perfect.
Set your financial limits before you’re standing in the kitchen imagining where the furniture will go.
Look beyond the purchase price and estimate the complete monthly housing cost, including:
- Mortgage principal
- Interest
- Property taxes
- Homeowners insurance
- Mortgage insurance when applicable
- HOA or condo dues
You should also leave room for utilities, maintenance, repairs and the rest of your household budget.
A lender may approve you for more than you personally want to spend.
Preapproval tells you what a lender may be willing to finance based on the information reviewed. It doesn’t tell you how much you need to spend.
3. Understand Your First-Time Homebuyer Loan Options
First-time homebuyer does not necessarily mean there is one special “first-time buyer mortgage.”
Instead, buyers commonly compare several mortgage programs.
Potential options include:
- Conventional loans
- FHA loans
- VA loans for eligible borrowers
- USDA loans for eligible borrowers and properties
- State or local down payment assistance programs
Some conventional programs allow qualifying first-time buyers to put down as little as 3%.
FHA can allow 3.5% down for qualifying borrowers with a credit score of at least 580. VA and USDA financing can offer 0% down when the borrower and transaction meet program requirements.
A first-time homebuyer loan options guide can help you compare the basic eligibility, down-payment and mortgage-insurance differences among the major programs.
Don’t choose solely based on the minimum down payment. Compare the interest rate, APR, mortgage insurance or program fees, cash to close and long-term cost.
4. Don’t Assume You Need 20% Down
The 20% down payment is one of the most persistent first-time homebuyer myths.
Putting 20% down can have advantages, including avoiding private mortgage insurance on many conventional loans.
But it isn’t the universal minimum required to buy a home.
Depending on eligibility, buyers may have access to:
- 3% down conventional financing
- 3.5% down FHA financing
- 0% down VA financing
- 0% down USDA financing
- Down payment assistance programs
5. Don’t Use Every Dollar You Have for the Down Payment
Your down payment isn’t the only cash you’ll need.
Closing costs commonly include expenses associated with obtaining the mortgage and transferring ownership of the property.
The Consumer Financial Protection Bureau says closing costs often fall around 2% to 5% of the purchase price, excluding the down payment, although actual costs vary significantly by loan and location.
You may also spend money before closing on items such as:
- Home inspection
- Specialty inspections
- Appraisal
- Earnest money
Then come moving costs, furniture, maintenance and potentially immediate repairs.
CFPB recommends considering other savings needs and an emergency cushion when deciding how much cash to devote to the purchase.
That doesn’t create a universal rule that every buyer must keep exactly three or six months of expenses in savings. Your appropriate cash reserve depends on your finances and risk tolerance.
6. Learn What Mortgage Lenders Will Review
Mortgage qualification involves more than a credit score.
Lenders can evaluate:
- Credit history
- Income
- Employment
- Debt-to-income ratio
- Assets
- Down payment
- Cash needed at closing
- Property and appraisal requirements
Documentation depends on how you earn your income.
A salaried employee may provide recent pay statements and W-2 information, while self-employed, commission, bonus or rental income can require different documentation.
Tax returns are important for some borrowers but are not universally required from every homebuyer in every mortgage scenario.
A first-time homebuyer checklist can help you understand the financial and documentation issues to review before applying.
7. Keep Your Finances Stable During the Mortgage Process
Once you’re preapproved, avoid making major financial changes without talking with your lender.
That can include:
- Financing a car
- Opening several new credit cards
- Taking out a personal loan
- Making large unexplained deposits
- Moving substantial amounts of money between accounts without records
A job change also does not automatically disqualify you for a mortgage.
But employment and income are part of underwriting, so tell your loan officer about a planned or recent job change instead of assuming it doesn’t matter.
Similarly, don’t take on new debt because you’ve already received a preapproval letter.
Preapproval is conditional, and lenders may verify financial information again before closing.
8. Research the HOA Before You Buy
If the home is part of a homeowners association or condominium association, understand what you’re buying into.
Don’t stop at the current monthly dues.
Review available information about:
- HOA fees
- Services and amenities included
- Rules and restrictions
- Reserve funding
- Recent financial statements
- Pending or recent special assessments
- Planned major projects
- Insurance
- Meeting minutes when available
A relatively low monthly fee is not necessarily a benefit if the association has inadequate reserves and owners later face a large special assessment.
Also consider whether the community’s rules fit how you intend to use the property.
9. Get a Home Inspection
A home can look excellent during a showing and still have issues that aren’t obvious to an untrained buyer.
A professional home inspection can provide more information about the observable condition of systems and components such as:
- Roof
- Foundation
- Electrical system
- Plumbing
- Heating and cooling
- Exterior
- Interior components
An inspection isn’t a guarantee that every defect will be found, and specialty areas such as radon, termites, sewer lines, pools or septic systems may require separate services.
Don’t confuse the lender’s appraisal with the home inspection. An appraisal primarily addresses property valuation and applicable mortgage requirements; it does not replace the buyer’s inspection.
10. Look Past Cosmetic Problems
Ugly paint, dated fixtures and worn carpet can dominate your first impression without necessarily being the most important issues.
Think about which characteristics are relatively easy to change and which are difficult or expensive.
Cosmetic items can often be altered after closing.
Changing things such as the following can be substantially harder:
- Lot
- Home location
- Floor plan
- Overall size
- Major structural components
- HOA restrictions
That doesn’t mean renovation costs don’t matter.
If a house needs significant work, estimate what those projects could cost and whether you actually want to take them on.
11. Expect More Costs and Paperwork Than Just the Mortgage
First-time buyers can be surprised by how many separate costs appear between an accepted offer and closing.
Depending on the transaction, expenses can include:
- Lender charges
- Appraisal
- Title services
- Recording charges
- Prepaid interest
- Property taxes
- Homeowners insurance
- Mortgage insurance
- Escrow funding
Your Loan Estimate provides an early breakdown of estimated mortgage and closing costs.
Later, the Closing Disclosure shows the final loan terms and closing costs before consummation.
Review the documents instead of looking only at the monthly principal-and-interest payment.
Pay particular attention to the estimated total monthly payment and cash to close.
12. Think About the Life That Comes After Closing
Buying a home is not simply a financial transaction.
Think about whether the property fits the life you expect to live there.
Consider:
- Commute
- Amount of space
- Outdoor maintenance
- Expected length of ownership
- Potential household changes
- Accessibility needs
- Travel and lifestyle priorities
- Ongoing ownership costs
A large yard may be an advantage if you want outdoor space and a burden if you don’t want to maintain it.
A pool can be valuable to one buyer and an unwanted maintenance expense to another.
And buying isn’t automatically financially preferable to renting simply because the mortgage payment appears similar to the rent.
Homeowners also take responsibility for repairs, maintenance, taxes, insurance and transaction costs.
How Long Does It Take to Buy Your First Home?
There is no dependable universal timeline.
Your home search could take days or many months depending on inventory, budget, location and how quickly you find a property that meets your needs.
After an offer is accepted, the closing timeline depends on the contract, lender, appraisal, inspection, title work and underwriting.
Rather than building your plans around an old national average, give yourself flexibility.
If you have a lease ending or another move-out deadline, leave room for the possibility that the purchase doesn’t happen on your preferred date.
What Should a First-Time Buyer Do Before Looking at Homes?
A useful order is:
- Review your income, debt, credit and savings.
- Set your personal monthly housing budget.
- Research mortgage programs and down-payment options.
- Get mortgage preapproval when you’re ready to shop seriously.
- Interview real estate agents.
- Understand and sign any required buyer representation agreement.
- Define your must-haves and dealbreakers.
- Begin touring homes.
Preapproval can be particularly useful because it gives you an idea of what a lender may be willing to finance and can show sellers that you’ve already spoken with a lender.
It is still conditional and does not obligate you to use that lender for the final mortgage.
Bottom Line
Your first home purchase comes with a learning curve, but you don’t need to become a mortgage underwriter, inspector and real estate professional before buying.
Focus on the decisions that affect you most.
Know what payment fits your budget, compare mortgage programs, preserve enough cash for more than the down payment, choose professionals carefully and investigate the property before committing to it.
And remember that getting approved to buy a home is only the beginning. The better question is whether the home, mortgage and ongoing ownership costs fit the life and finances you want after closing.
FAQ
How much does a first-time homebuyer need for a down payment?
It depends on the mortgage. Some conventional programs allow eligible buyers to put down as little as 3%. FHA can allow 3.5% down for qualifying borrowers with a 580 or higher credit score, while eligible VA and USDA borrowers can potentially finance a home with no down payment.
Do first-time buyers need 20% down?
No. Twenty percent is not a universal mortgage requirement. Putting less than 20% down on a conventional mortgage can result in private mortgage insurance, but many buyers use lower-down-payment programs.
Should I get preapproved before looking at homes?
Preapproval can help you understand your potential financing range and demonstrate to sellers that you’ve spoken with a lender. It is particularly useful once you’re ready to make offers.
Do I have to use the lender that preapproves me?
No. CFPB notes that a preapproval does not commit you to that lender. Once you have a property under contract, comparing official Loan Estimates can help you evaluate lender offers.
Do I need a real estate agent to buy my first home?
You aren’t universally required to use an agent, but a buyer’s agent can help with searching, contracts, offers and negotiations. If you work with an MLS participant subject to NAR rules, a written buyer agreement is generally required before touring homes together.
How much are closing costs for a first-time buyer?
CFPB says closing costs commonly run about 2% to 5% of the purchase price, excluding the down payment, although actual costs depend on the loan, property and location.
Do I need a home inspection if the lender orders an appraisal?
An appraisal does not replace a home inspection. The appraisal addresses valuation and applicable mortgage requirements, while the inspection is intended to help you understand the physical condition of the property.
Will changing jobs stop me from getting a mortgage?
Not automatically. The effect depends on your income and employment circumstances. Because lenders verify qualifying income, tell your lender about employment changes as soon as possible.
How long does buying a first home take?
There is no standard timeline. The home search varies widely, and the period between an accepted offer and closing depends on financing, inspections, appraisal, title work, underwriting and the purchase contract.
What is the biggest mistake first-time homebuyers make?
There isn’t one universal mistake, but focusing only on the purchase price or mortgage payment can cause buyers to underestimate the true cost of ownership. Include taxes, insurance, maintenance, closing costs and your other financial goals in the budget.
