Buying a home for the first time can be equal parts intimidating and exciting. It’s an enormous commitment and the process is often long and complex—closing alone takes more than 40 days on average.
However, when you do the up-front research on how to buy a house and you have a solid team in your corner, the process is a lot smoother.
In This Article
Getting ready to buy a home
You’re probably eager to start looking at houses, but there are a few steps that should come first in the homebuying journey. If you make these moves up-front, you can find a more affordable home and stay in that home for your lifetime.
Research first-time buyer programs
Many state and local governments offer first-time home buyer programs, as do nonprofits. Using one of their first-time homebuyer programs can make all the difference when it comes to getting you into a mortgage and loan that fits your budget.
Homebuyer programs vary depending on where you live, and each has different qualifications, so you’ll have to do some research.
However, they can potentially give you any or all of the following support when you’re buying a home for the first time or even for some repeat buyers:
- Forgivable grants
- Loans for closing costs
- Reduced interest rates
- Flexible loan qualification requirements
- Educational programs
- Access to tax breaks
Save for your down payment
When you’re preparing to buy a house, saving for a down payment is one of the first steps you should take. While some first-time home buyer programs can help with your down payment, you could still be required to come up with some of the funds.
You may have heard that you need a 20% down payment to buy a home. However, this rule is not hard and fast.
While it’s true that most lenders require you to pay for private mortgage insurance (PMI) if your down payment is below 20%, some lenders and loan types are more flexible.
In fact, in 2023, the average down payment for a first-time home buyer was just 8%, according to the National Association of Realtors (NAR).
If you can’t save that much money, consider a government-backed loan program that allows reduced down payments or no money down. VA-backed loans, for example, don’t require a down payment or PMI.
Just keep in mind that there are major benefits to increasing your down payment amount:
- Gain equity sooner
- Avoid PMI
- Reduce your monthly payments
- Reduce your interest rate
Determine how much you can afford
Before you can qualify for a mortgage, the lender has to determine what you can afford. Lenders look at a few different calculations to make sure your salary is enough to cover your potential costs.
Their requirements will vary, but here’s what many lenders look for:
- Front-end ratio: Your monthly mortgage payment, including property taxes and insurance, shouldn’t exceed roughly 28% of your gross (pre-tax) monthly income. This is also known as the Rule of 28.
- Back-end ratio: Your minimum monthly debt payments, including the new mortgage payment, shouldn’t exceed roughly 43% of your gross monthly income.
Based on these guidelines, you can use an online mortgage calculator to get a good estimate of the maximum loan amount you’ll qualify for.
Just keep in mind that being approved for a loan doesn’t mean it’s truly affordable. Lenders don’t look at all of your monthly expenses or consider the costs of owning a home, such as repairs and maintenance, so they can potentially approve you for a loan that’s too big for your budget.
In other words, the ultimate responsibility for determining what fits in your budget falls to you.
Review your credit
Your credit score plays a huge role in getting approved for a mortgage and securing the best, most affordable terms. According to FICO, the average mortgage APR for credit scores of 760 and up is 6.665%, while the average for scores below 640 is 8.254%.
That might not seem like a big difference, but on a $300,000 loan with a 30-year payment, the borrower with an 8.254% APR will pay an extra $117,277 toward interest and an additional $326 monthly on their mortgage payment.
So, if you want to save as much as six figures on a large loan, such as a mortgage or a refinanced loan, one of the only ways to do it is by improving your credit.
You can start by pulling your free credit reports at AnnualCreditReport.com to see what’s in them and what you can fix.
If you find errors, you have the right to dispute them, and the credit bureau has a set period (usually 30 days) to investigate and then remove incorrect items.
Here are some other ways you can improve your credit scores:
- Pay down credit card balances
- Ask your credit card issuers to increase your credit limits (but do not increase your spending)
- If a family member has good credit, have them add you to one of their credit cards as an authorized user
- Don’t apply for any credit cards or other loans before closing on your mortgage.
Collect documents
Another way to reduce the stress of homebuying is to get your documents in order up-front. Mortgage lenders want to verify your finances using primary sources, so you’ll likely need to provide all of the following documentation:
- A pay stub from the last 30 days
- Last two years of W-2s
- Two most recent federal tax returns
- Two most recent bank statements
- Photo ID
Get help from a real estate agent
Buying a home for the first time is best done with a team. In addition to a loan officer, a real estate agent can help you navigate the process and even save money. Here’s what a buyer’s agent can do:
- Navigate the local market
- Guide you through the home-buying process and represent your interests
- Negotiate an offer on your behalf
- Connect you with real estate attorneys, home inspectors and other professionals you may need to hire
If you’re tempted to skip hiring a real estate agent, keep in mind that the listing agent may only be responsible for helping the seller. As a first-time buyer, it’s important to have an agent looking out for your interests and guiding you through the process, too.
Shop for a mortgage
Don’t put mortgage shopping off until after you choose a home. If you do, you could end up with a long list of problems, including finding a house that you love but can’t get financing for. On top of that, you’ll be more tempted to buy outside of your affordable price range.
Instead, find out what you’re approved for and shop with the loan amount in mind. When you do, you’ll have a better chance of getting your offer approved since sellers tend to prioritize buyers who have everything in order, including their loan offer.
Understand pre-approval vs. pre-qualification
During the mortgage process, you might hear two terms that sound deceptively similar: pre-qualification and pre-approval. Neither of these guarantees what you’ll be approved for, but they can give you an idea in advance. Here’s what makes them different:
- Pre-qualification: A lender’s estimate of what you will qualify for based on unverified information you provide.
- Pre-approval: A conditional, time-limited loan commitment that includes the maximum amount the lender will offer. Pre-approval is based on the lender’s review of your complete loan application with all the required documents, as well as a credit check and financial review.
From the time you’re pre-approved to when you make an offer on a home, interest rates can fluctuate, and your financial situation and credit scores can change, too.
As a result, your final loan offer can change. However, some lenders allow borrowers to lock in’ a rate at the time of application, often for a fee.
Learn how to reduce your mortgage interest
There are several factors that determine your annual percentage rate (APR), which is a figure that represents the total fees and interest you pay on a mortgage.
You don’t have the ability to control all of these factors as a buyer, but understanding them can help you prepare and shop for the best rate.
- The market rate: The market rate is based on a variety of factors, including federal interest rates. If market rates are high, you may want to wait to buy a home.
- The lender: Each lender has a range of APRs they offer, and some are lower than others. You can find the best rates by comparing lenders and negotiating.
- The length of the loan: Most mortgages have a repayment term of either 15 or 30 years. Thirty-year mortgages give you a more affordable monthly payment, but 15-year mortgages have lower APR.
- Your information: The lender decides which rate they’ll offer you based on your credit score, debt, income and down payment amount.
- Rate type: Adjustable-rate mortgages (ARMs), or loans where the rate can change, usually start off with the lowest APRs. But fixed-rate mortgages, or loans where the rate won’t ever change, have predictable monthly payments and can be far more affordable in the long term.
- Loan type: Some government-backed loans and special homebuyer programs give you access to below-market rates.
Choose a mortgage type
Conventional mortgages
Conventional loans are the most common types of mortgages you’ll find. They’re not connected to any special loan program, so the requirements to qualify vary by lender.
However, they’re typically harder to qualify for than government-backed loans and you usually have to pay PMI if your down payment is less than 20%.
Jumbo mortgages
Jumbo mortgages are conventional mortgages where the loan amount is over $766,550 (or more in high-cost areas). These mortgages often require a minimum down payment of 20%.
Government-backed mortgages
Government-backed mortgages are offered by many lenders, including banks and credit unions, but they’re backed by the government. Each type of government-backed loan has its own eligibility requirements and special guidelines.
For example, VA loans are available to certain people affiliated with the U.S. military, while USDA loans are available for people with low-to-moderate incomes who want to build or buy homes in rural areas.
| Loan Type | Minimum down payment | Minimum credit score | Special fees/costs | Special benefits |
| Conventional | 3% | 620, with exceptions | PMI | No up-front mortgage insurance |
| Jumbo | 20% or more | 720, with exceptions | High APR | High loan limits |
| FHA | 3.5% | 500 | Up-front and monthly mortgage insurance | Low closing costs, buyers can purchase up to 4 units |
| VA | 0% | Varies by lender | VA Funding Fee, up-front mortgage insurance | Low closing costs and APR |
| USDA | 0% | 620, with exceptions | Up-front fee, mortgage insurance premium | Low APR, up to 38-year repayment |
Attend the inspection
If you think a home inspection is non-essential, think again. In a competitive market, you might be encouraged to waive your inspection to get your offer accepted—25% of buyers waived their inspections in early 2024, according to the NAR—but even a brand-new house can have major problems under the surface.
Hiring an inspector usually costs around $350, but that’s nothing in comparison to the expensive home improvements and overdue repairs a good inspector can spot. Here’s what their inspection could unearth:
- Cracked foundation
- Missing siding
- Roof damage
- Plumbing leaks
- Frayed electrical wires
- Termite damage
- Mold
- Outdated pipes
- Broken HVAC or furnace
- Fire hazards
Depending on your purchase contract, you may have the right to cancel if you discover these issues or you can negotiate to have the seller pay for the repairs.
Home appraisal
An appraisal is a professional estimate of your home’s market value. Most lenders require you to have an appraisal to approve your mortgage, and the lender will hire the appraiser themselves.
But appraisals can also help you. For example, you can use a low appraisal to help you negotiate a lower purchase price.
While a home appraiser looks at many of the same things as a home inspector, they also consider recent sales of similar properties and other market trends.
Another important difference is that, while the inspector works for the buyer, the appraiser’s responsibility is with the lender, although the borrower will pay the appraiser’s fee as part of their closing costs.
Prepare for closing
Closing day, or the day you complete the purchase transaction and receive the keys to your new home, usually happens around 42 days after the seller accepts your offer.
Before you close, you’ll have a list of tasks to complete, and you’ll want to take advantage of your last chance to review documents, ask questions and ensure you understand your mortgage terms.
According to the CFPB’s mortgage closing checklist, your steps to prepare for closing should include the following:
- Determine who will conduct the closing and select a place and time
- If you want a professional advocate, arrange to have an advisor or lawyer with you at the closing event
- Request and receive your Closing Disclosure at least three days in advance of closing
- Compare your Closing Disclosure to your most recent Loan Estimate and address any costs that have changed
- Arrange your payment for the remaining amount owed
- Obtain a cashier’s check or proof of wire transfer for the exact payment amount due
What happens at closing?
Once you arrive at closing with your documentation and ID, you’re almost done. During closing, you’ll review and sign the following loan documents:
- Deed of Trust or Mortgage: A document that confirms the loan details and gives the lender the right to repossess your home if you fail to uphold your payment agreement.
- Promissory Note: A legal contract outlining the details of your loan payment.
- Closing Disclosure: An itemized list of final terms, credits and charges.
Closing can be an intimidating process, but don’t let anyone rush you. It’s not until you sign these documents that you become legally committed to the transaction.
So take time to read everything and don’t be afraid to ask questions. You’re taking on an enormous commitment; you have a right to be comfortable and informed.
Understanding closing costs
Closing costs include all the fees, taxes and other expenses incurred while finalizing a mortgage. These costs typically range from 2% to 5% of the home’s value. In 2023, the average costs and fees for homebuyers were just under $6,000.
The homebuyer usually pays the closing costs, but some of the line items can be negotiated and the seller may even agree to cover specific expenses.
Alternatively, you can add your closing costs to your loan, but that means taking on more debt and potentially being under-water before you even start repaying the mortgage.
Move into your new home
Once the closing process is done, you’ve achieved what many refer to as the American dream: you’re now a homeowner! That means you can say goodbye to landlords and rent and renovate your home however you wish.
For first-time homebuyers, this whole process can seem long and intimidating, but it’s worth taking your time to do it the right way so you can afford to stay in your home for years to come.
Written by Sarah Brady | Edited by Rose Wheeler
Sarah Brady is a financial writer and speaker who’s written for Forbes Advisor, Investopedia, Experian and more. She is also a former Housing Counselor (HUD) and Certified Credit Counselor (NFCC).