Learn strategies for saving a down payment, shopping for a mortgage, finding the perfect house and more.
Like any major purchase, you’re going to want to do some research before buying a home for the first time. We’ve categorized our tips for first-time home buyers into a few groups:
- Preparing to buy tips
- Home shopping tips
- Home purchasing tips
Preparing to buy a house
When you’re saving to buy your first home, start saving well before you’re ready to go shopping. Here are some of the main costs you need to consider related to your impending home purchase:
TIP 1: Start saving early
- Down payment: The required down payment will depend on the type of mortgage you choose, your lender’s terms, and how much money you put down. Some buyers with excellent credit are able to get loans with as low as 3% down, but even 3% can be a challenge to save. Buying a $500,000 house? That 3% is $15,000. Figure out about how much money you may need for a down payment so you can start setting up a monthly amount going from your checking to savings accounts.
- Closing costs: These are fees and expenses you pay to finalize your closing (home purchase), and they can be $5,000-$10,000 or more. The closing costs are NOT included as part of your loan and are paid at the home inspection, closing, etc.
- Moving expenses, furniture, home repairs, and upgrades: You may need some cash after your home closes, for things like replacing the furnace or moving your belongings.
TIP 2: Decide what you can realistically afford
Talk with a lender to determine what your monthly payment would be with various loan programs, down payment options, and set a price range you are comfortable with.
TIP 3: Work on your credit score
You can get free copies of your credit report from each of the three major credit bureaus, and then you can see what you need to work on to improve your score. Keep your credit card balances low, don’t open any new credit cards, and pay all of your bills on time.
TIP 4: Explore mortgage options
There are many mortgage options available for all types of buyers (from USDA loans backed by the U.S. Department of Agriculture to a a VA loan for veterans to conventional loans). You’ll also have to decide whether you want a 15-year mortgage or a 30-year mortgage, and whether you want the interest rate to stay the same or not. Your lender can help you figure out what your monthly payment would be on each type of mortgage, and will help you determine what you are eligible for. Don’t be afraid to talk to multiple mortgage lenders to see what programs and terms are available before deciding on a home loan.
TIP 5: Get your pre-approval letter
A pre-approval is a lender’s offer to loan you a certain amount of money at particular terms (including mortgage rates, other terms). A pre-approval letter shows home sellers that you are serious about buying. In some markets this can give you an edge over other home buyers, and in other markets it’s essential to putting in an offer or sometimes even getting a showing scheduled.
Apply for a pre-approval once you are ready to start shopping for a home.
Home shopping tips
For all home shoppers, not just those buying a home for the first time, shopping to find a home is probably the most fun – but also stressful – part. If you’re a first time homebuyer, visit open houses to get a sense for what you like in a home (or definitely don’t want).
TIP 6: Choose your “must-haves” for neighborhood and type of house
Figure out what you need in a home so that you can narrow down your search. Do you want a yard (and the upkeep that goes with it?) or do you prefer to be in a condominium where someone else is responsible for the outdoor upkeep? Are you interested in a fixer upper that needs a lot of work or are you more interested in a turn-key home?
Whatever your preferences, you should decide on what you must have in your home – and what you definitely don’t want. This will help you narrow down what homes you should go see at an open house or on a private showing.
Once you find a home you love, visit at different times of the day to get a sense for the amount of traffic and noise in the neighborhood.
TIP 7: Choose your real estate agent carefully
A good real estate agent will watch the market for homes that meet your requirements and budget. They also will not push you to spend at the top of your budget (or go beyond it). And, probably most importantly, your agent will guide you through the negotiation and closing process. Get referrals from other recent home buyers, check references and reviews, and ask about the agent’s experience working with first-time home buyers.
Home purchasing tips
Once you’ve found a home, have your mortgage loan figured out, and want to move forward, here’s what you need to do:
TIP 8: Don’t go beyond your budget
You may need additional funds for repairs or improvements, so don’t spend beyond your budget on your first home. Avoid financial stress down the road by setting a budget and sticking to it.
Tip 9: Negotiate
Your real estate agent will be able to help you negotiate your offer to a home seller, whether it’s asking the seller to pay for repairs that arise at a home inspection or negotiating to keep certain fixtures in the house.