Buying a Home Guide
Buying your first home is a big accomplishment, but it can feel overwhelming too. That’s why planning ahead is so important to avoid any surprises. Let’s break down all the steps along the way so you can navigate your home buying process with confidence.
Your Home Search
Finding the ideal location for your new home can take a lot of time, so it’s best to get a jumpstart on your search as early as possible. There are countless questions to ask when you’re house hunting, but here are some important ones:
- What is the cost of living in the city or neighborhood?
- Do you want a house, condo, or duplex?
- What is the school district like?
- Is the area close to the attractions you want, like parks, restaurants, or your job?
You can also group your home qualities into three groups to determine your priorities:
- Things I absolutely need
- Things I want
- Things I can live without
Budgeting for a home can be tricky for anyone, especially a first-time buyer. It’s important to remember you’ll pay more than just your monthly mortgage payment, but utilities, property taxes, and repairs too. Accordingly, it’s best to factor some wiggle room into your budget when deciding what you can afford.
As a rule of thumb, you should prepare to spend 1-3% of your home value each year on expenses.
When you apply for a home loan, your lender will check your credit report. Generally speaking, the higher your credit score, the lower your interest rate can be (along with other benefits).
A few ways to improve your credit score are paying down any debt, keeping your credit card balances low, and paying bills on time.
When you’re about to buy a home for the first time, it’s not a great idea to open a new line of credit or change your spending habits drastically.
Save for a
A down payment is cash you pay upfront when buying a home. It’s calculated as a percentage of the home’s buying price. Down payments can vary widely depending on the type of loan you get and the full price of your home.
Coming up with a down payment can be a challenge for new homeowners. Luckily, the Federal Housing Administration (FHA) helps first-time buyers with access to grants, tax breaks, and FHA loans.
To see if you meet the criteria for a first-time home buyer, check out this reference guide from the US Department of Housing and Urban Development (HUD).
A larger down payment will give you a lower loan-to-value ratio (LTV). This may get you a lower interest rate. If you make a down payment that’s at least 20% of the purchase price of your home, you can avoid paying private mortgage insurance (PMI) on a conventional home loan.
Find a Reliable
A reliable, reputable mortgage lender sets you up for success as a first-time home buyer. Your lender should feel like a trusted partner in your home ownership journey, not just a transactional business partner.
When evaluating mortgage lenders, it’s important to compare their rates, loan terms, down payment requirements, and associated fees. This is a big decision with plenty to consider, so we recommend checking out our guide to choosing the best mortgage lender.
Get Preapproved for
Once you settle on a lender, it’s a good idea to request a mortgage preapproval letter. This is an official document from your lender that shows exactly how much money they will loan you.
A preapproval letter can give you more purchasing power since it shows the seller that you have the necessary funds to purchase the home.
Choose the Best
Mortgage for Your Needs
There are several different types of mortgages worth exploring for first-time home buyers. Click on any of the options to see the details:
- Conventional loans: These are the most popular home loans—you can buy a home with a down payment as little as 3%.
- FHA loans: These loans are more lenient when it comes to financial requirements, making them ideal for first-time buyers looking for competitive mortgage rates.
- USDA loans: These loans offer financing for homes in qualified rural areas—you can get a USDA loan with as little as 0% down (subject to income restrictions).
- VA loans: These loans are exclusively for active military members, veterans, and qualified spouses.
- Home renovation loans: These loans give you access to funds needed to fix up the home you buy.
Each of these loan types has different requirements, so make sure you review the fine print before applying.
Real Estate Agent
After you’ve secured funding for your new home, the next step is choosing a trusted realtor. This person can help you with the all sorts of important steps, such as:
- Schedule open houses at properties that fit your budget and preferences
- Negotiate with the seller for the best deal
- Identify potential issues with the property or surrounding area that you might have overlooked
- Submit an offer letter on your behalf
A home inspection is essential to ensure your dream home doesn’t have any defects. Depending on the results of the inspection, your real estate agent may want to renegotiate the home price.
Underwriting is the process of getting your loan officially approved. If you’ve been preapproved, you can typically avoid big surprises. During the underwriting process, your lender will look at factors like your credit history, tax returns, and debt-to-income ratio.
You’re almost ready to seal the deal on your new home. The closing process is the home stretch—pun definitely intended! Here are the final steps you’ll need to take:
- Purchase homeowners insurance
- Buy a title insurance property
- Do a final walk-through of the home
- Review your loan estimate and closing disclosure
- Calculate and pay your closing costs (usually 2-5% of the home’s purchase price)
- Close on your new home!
As you can see, there’s plenty to prepare for as a first-time home buyer. That’s why it’s crucial to choose a trusted mortgage lender and realtor to give you peace of mind and set you up for success along the way.
Ready to explore your options? Click here to find a loan officer near you.