Buying a home for the first time: 7 Things you need to know

September 7, 2022 - 6 min read

7 Tips to start your home buying process

Buying a home for the first time is a huge accomplishment. But when you’re just getting started, the process can feel complicated. How do you know where to begin?

These seven tips will help orient you as you begin the home-buying journey. With a little prep work, you’ll have a much better idea of what to expect and how to navigate your home purchase with ease.

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1. Your credit score is key

As you prepare to buy your first home, managing your credit wisely is essential. Your credit score tells lenders how much of a risk you are for a mortgage loan. The higher your score, the better your rate and terms. The lower your interest rate, the more home you can comfortably afford.

You won’t need perfect credit to buy a house. In fact, some mortgage programs require just a 580 score. But many lenders will want to see a credit score of 620 or higher. And credit scores above 740 will get you the best loan terms and rates.

Take the proper steps to increase your credit score and reduce your monthly debts before you begin the home-buying process.

According to Experian, your credit scores are based on the following factors:

  • Payment history
  • Amount owed
  • Length of credit history
  • Credit mix
  • New credit

Raising your score even a few points before you buy a house could potentially save you thousands in interest charges, so it’s worth your time.

>Related: Credit score requirements to buy a house

2. You don’t need 20% down

Contrary to popular belief, a down payment of 20% isn’t necessary to buy a home. In fact, most people put down far less. Since 2018, the typical down payment for first-time home buyers has ranged between 6 and 7 percent. And there are even lower down payment options for first-time buyers, starting at 3% or even zero down.

Government-backed loans such as VA, USDA, and FHA require between 0-3.5% down. Conventional loans, the most popular type of mortgage, require just 3% down for first-time buyers.

So don’t postpone your home buying plans thinking you need to save 20% or invest your entire savings in a down payment. Explore all your mortgage options and talk to a loan officer about whether a zero or low-down-payment loan makes sense for you.

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3. A down payment isn’t the only thing to save for

It’s important to remember that your down payment isn’t the only upfront cost when buying a home. Unless you can negotiate your fees to be covered by the seller, you’ll need to save money for closing costs as well.

Average closing costs typically range from 3% to 5% of the loan amount. That means on a $250,000 home with 3% down, you should save roughly $7,200 to $12,100 for closing costs. The exact amount you pay in fees will depend on a number of factors, including the property value, your loan size, and the requirements of your state and municipality.

Some of the common costs associated with home buying include lender fees and third-party fees as well as prepaid items. “Prepaids” are advance homeowners insurance premiums and property taxes that you pay upfront at closing. Lenders often require you to bank 6-12 months of taxes and insurance when you buy a house.

Assistance with your upfront home buying costs

Fortunately, even if the seller doesn’t agree to contribute towards your closing costs, other options may be available.

One option when your savings are tight is to get gift funds from a parent or relative. First-time home buyers, or those who haven’t owned a home for the past three years, may also qualify for down payment assistance, which can often help with your closing costs as well as the down payment.

Down payment assistance programs can not only shorten your path to homeownership, but they can also free up existing savings for moving and other home-buying expenses.

4. It’s important to budget for all your housing costs

When you’re budgeting for a house payment, it’s important to know the true costs of owning your new home. Your total monthly payment will include more than just principal and interest on the mortgage loan. It also includes monthly dues for property taxes and homeowners insurance, as well as HOA dues if you’re buying within a homeowners association.

A good first start is to use a mortgage calculator with taxes and insurance to estimate your monthly payment.

You should also consider the ongoing cost of home maintenance. This could include furniture and decorating, lawn care, maintaining appliances, renovations, and keeping an emergency fund in case unexpected repairs come up after you move in.

Finally, don’t forget to consider utility costs like electric, gas, water, and sewer.

5. You should talk to a mortgage lender before house hunting

Applying for a mortgage may be less appealing than touring homes. But getting fully pre-approved before house hunting is vital.

Getting pre-approved makes buying a house less stressful. The pre-approval process will confirm that your price range and qualifications are in line with lender guidelines. It will also provide invaluable information — like your estimated interest rate and mortgage payment — that will help with budgeting and planning leading up to your home purchase.

Most sellers also require preapproval before you can make an offer on a home. So this step is not only helpful to you but often necessary when you start getting serious in your search.

Fortunately, the pre-approval process is typically straightforward. In some cases, it an be done in just 24-48 hours. Simply fill out an online application and provide income and asset documentation.

Match with a lender to start your mortgage preapproval

6. Things are easier with a real estate agent

While some buyers may choose to purchase a home without a real estate agent or Realtor, it’s not advisable — especially for your first home purchase.

An experienced buyer’s agent can assist with finding homes that meet your needs, vetting neighborhoods, and scheduling house tours. Perhaps most importantly, they’ll be instrumental in price negotiations and drawing up your purchase contract. Your agent will help you craft the most competitive offer possible within your budget and terms.

Ask your friends, family members, and co-workers for agent recommendations. You can then check out their online reviews, meet with them, and decide if they are a good fit.

>Related: First-time home buyers: How your Realtor can help you win

7. It’s crucial to compare rates and fees

Home buyers should request Loan Estimates for the same type of mortgage loan from multiple lenders. This helps you compare costs and interest rates so you know which lender is really offering the best deal.

According to the Consumer Financial Protection Bureau (CFPB), getting quotes from more than one mortgage lender can save you thousands of dollars over the life of your home loan. And with the ability to quickly get estimates online from many lenders, this is an easy way to save yourself some serious cash.

Keep in mind that most lenders offer the ability to buy discount points. Loan discount points are fees paid to the lender to lower your interest rate. Buying down the rate can make sense if you have the money on hand and plan to stay in the home for a long time. But it might not be the right choice if you only plan to keep the loan for a few years.

Check each of your Loan Estimates to see whether discount points are included in the quoted rates, and make sure you’re comparing offers on equal footing.

Next steps to buying your first home

Buying a home for the first time is exciting. But don’t rush into it too quickly. Taking time to find a great Realtor, research your loan options, and shop for the best interest rate will make a huge difference in your search. These things could be the difference between overpaying for an “okay” home and paying the right price for your dream home.

When you’re ready to get serious, talk to a lender right away. Your lender may be able to save you time by providing specific action steps.

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Craig Berry
Authored By: Craig Berry
The Mortgage Reports contributor
With over 20 years in mortgage banking, Craig Berry has helped thousands achieve their homeownership goals.