First-Time Homebuyer Guide

Buying a house for the first time is a big deal. It’s as exciting as it is overwhelming!

Ultimately, buying your first home requires a mix of saving, strategy, and savvy.

We know there’s a lot to learn, which is why we created this step-by-step guide for first-time homebuyers like you. Get the knowledge you need to confidently purchase a home.

Maybe you’re seeking space for a home office or a growing family. Or perhaps you’re craving the community aspects of suburbia or the buzz of a vibrant, walkable city. Or maybe you’re just ready to achieve that major milestone of becoming a homeowner.

Whatever your situation may be, start with the question “Am I financially ready to buy?” before factoring in the emotional reasons for buying a home. Here are four signs you may be ready to buy:

1 Your budget is big enough to cover the down payment, mortgage payments, property taxes, homeowners insurance, and any maintenance fees. This mortgage calculator can help you visualize how much you can save on your mortgage with different down payments.

2 You plan on staying put for a while. In the early years of a mortgage, more of your money generally goes to paying down the interest than to paying off the principal. So staying in a house gives you a chance to begin chipping away at what you owe. It may also give your home time to appreciate in value.

3 You have good credit, which may lead to better loan terms.

4 Rents in your area are higher than what a house payment may be. Check out our buy or rent quiz to see where you stand.

Now you can consider the emotional perspective. Do you crave the autonomy of owning your own place? Are you dying to have control over paint colors and tile choices? Do you yearn for a second bedroom for a child, want your own garden, or need a yard for your dog?

On the flip side: Are you willing to live without your landlord (and their midnight visits to fix your broken heater)? Are you ready for a lot of responsibility?

If you’re fairly certain the time is right to buy, you’ll want to prepare to move quickly when you see a home you like. Here are three steps to make sure you are financially prepared:

Get Preapproved for a Mortgage

Unlike prequalification, which gives you a rough idea of how much money you can borrow, mortgage preapproval is a formal step, when a lender verifies your credit history, income, debt, and assets (so it helps to have your financial documents organized in advance).

This is the moment when you’ll begin to determine what kind of mortgage you want to take out. Will it be a fixed rate or an adjustable rate? How long a term?

A preapproval letter, typically good for 90 days, states that a lender is tentatively willing to lend you a specific sum for a mortgage. The letter shows sellers that you’re a serious buyer who has been vetted. That means you’re ready to act when you find your ideal home and agree on a price.

A preapproval letter is not a guarantee, though. Final loan approval rests with mortgage underwriting.

Get Serious About Your Home Search

Most homebuyers take on a buyer’s agent to represent their interests. The agent’s share of the commission is usually covered by the seller. As a first-time homebuyer, it really helps to have a pro on your side. You may think you know what to look for when buying a house, but a good real estate agent can also help you save money if they know the area values well and can give you negotiating advice. This may be particularly helpful if there are multiple offers on a house.

Once you’ve found a home you love and the offer is accepted, it’s tempting to want to move in as quickly as possible. But regardless of how perfect a home may seem during a casual walk-through, a home inspection is a good idea. It can identify issues that could require expensive repairs down the line. Lenders don’t require an inspection, but including a home inspection as a contingency clause when you present your offer is considered a smart move.

The inspector will typically assess the plumbing, mechanical systems, and the structure of the home. Once the inspection is complete, you should receive a report within a couple of business days. With this information in hand, you may be able to go back to the seller to further negotiate the price of the home and necessary repairs.

Most mortgage lenders will require an objective property valuation after the seller has accepted an offer. The buyer pays for the appraisal ordered through the lender.

Finalize Your Mortgage

As you move into the final phase with your mortgage lender, you can ensure the home mortgage loan terms suit your finances and plans for the future.

A fixed-rate mortgage has an interest rate that stays the same for the entire term of the loan, regardless of fluctuations in the broader economy. Generally speaking, these loans have a higher interest rate than the introductory rates on most adjustable-rate mortgages (ARMs).

An ARM is so named because the interest rate can fluctuate over time. ARMs often start out with a fixed rate that is adjusted after an initial period, typically three to 10 years. The lower introductory interest rate is attractive to many buyers, but in signing onto an ARM, you are taking the risk that interest rates might rise after your introductory period.

A third option, the interest-only mortgage, is less common with first-time homebuyers. These mortgages give borrowers the option to pay only the interest on the loan each month for a period of, say, five to 10 years. At that point, the loan converts to a standard structure in which principal and interest are paid monthly.

Close and Celebrate!

•   The escrow company/closing agent will calculate legal fees, transfer taxes, and closing costs, as well as coordinate the transfer of ownership via the deed.

•   The lender provides documentation of the loan, including the note, the mortgage, closing fees, and other disclosures.

•   The title company will furnish documentation of clear ownership in the form of a title insurance policy.

Before closing, you will need to schedule a final walk-through to ensure that any agreed-upon repairs have been completed and the home has been left in satisfactory condition. You’ll receive a closing disclosure three or more business days before the loan closing for review of fees and terms. If everything checks out, you and the sellers will sign the closing documents.

After the documentation and all financial transactions have been verified as complete by the escrow company or closing agent, the escrow company will record the change of ownership with the county and you will be given the house keys.