A Beginner’s Guide to Buying a Home for the First Time

Buying a home is likely the largest purchase you’ll ever make, so it’s completely normal to feel a bit overwhelmed when hundreds of thousands of dollars are on the line — especially when you’re buying a home for the first time.

With these first-time homebuyer tips, you’ll have a good grasp of the basics of the process so you can house-hunt with confidence.

Understanding the basics of buying a home

The transition from renting to homeownership doesn’t happen overnight, and it’s a process that typically takes a few months. Unless you have cash to buy a home outright, chances are you’ll need to finance your purchase with a mortgage. And that means you’ll need to get a mortgage preapproval from a lender.

Your monthly mortgage payment consists of principal, interest, taxes, and insurance, or PITI. Even if you get a fixed-rate mortgage and your principal and interest payments don’t budge, the taxes and insurance portion of your payments can change over time.

Depending on your down payment amount, you might also need to pay private mortgage insurance (PMI) and homeowners association dues.

When you buy a home, focus on the monthly payment you can comfortably afford vs. the maximum loan amount you qualify for, says Brandon Matyas, a branch manager with CrossCountry Mortgage in Bethlehem, Pennsylvania.

Essential steps in the homebuying process for first-timers

The homebuying process involves a lot of moving parts, critical deadlines, and big decisions. Here’s a step-by-step guide to help you prepare for the road ahead:

1. Set a homebuying budget

Before falling in love with a home you can’t afford, take stock of your finances, including all of your recurring bills. 

When a lender pre-approves you for a mortgage, it won’t look at bills that don’t appear on your credit report (think health care, child care, tuition, utilities, groceries, etc.). So rather than focusing on the overall loan amount or home’s price tag, decide what monthly payment you can comfortably afford given your current obligations and bills. In other words, just because you qualify for a $500,000 mortgage doesn’t mean you can afford the monthly payments that come with that loan amount.

2. Shop around for a mortgage

It’s a good idea to start rate-shopping and comparing lenders at least two to three months before you get serious about looking at homes, Matyas says. As you shop around, make sure you’re evaluating similar loan products and terms for a true apples-to-apples comparison.

While shopping for the best mortgage rates is important, so is finding the right loan program. Make sure to ask lenders about first-time homebuyer programs and loans. For example, government-backed FHA loans and certain conventional loans for first-time buyers have low down payment and credit score requirements that help would-be homeowners who might be strapped for cash.

3. Get pre-approved for a home loan

Once you’ve narrowed down your list of lenders to two or three, apply for a mortgage pre-approval. At this point, a lender will do a hard credit pull and request financial documentation, such as your latest pay stubs, federal tax returns, lists of assets and liabilities, and bank statements. 

"If we can take a look at the credit [profile], sooner than later, we can run what's called a credit wizard where we can basically tell them what to do so that their credit will improve throughout the product," Matyas says.

If you’re one of the 15 million Americans who are self-employed, you’ll have extra hoops to jump through for a preapproval. Matyas advises providing key business documentation, such as federal tax returns, profit and loss statements, proof of business operations, a letter from your accountant and bank statements.

4. Hire a skilled real estate agent

When you’re navigating how to buy a home for the first time, don’t try to go it alone. Instead, consider hiring a real estate agent who has experience working with buyers. Ask friends, colleagues or relatives for recommendations of agents they’ve used and interview at least two or three different professionals.

“The benefits of using a REALTOR®, among other things, is that a REALTOR® will set them up specifically on a search based on their criteria,” Matyas says. 

Some first-time homebuyers make the mistake of going directly to the seller’s listing agent to get the deal done because they simply don’t understand how it works. While real estate agents are permitted in some states to represent both a buyer and seller, known as “dual agency,” the agent is first and foremost looking out for the seller, says Christopher Holt, owner of Iron Valley Real Estate in Exton, Pennsylvania.

“If you come across an agent that's willing to do dual agency, you should back away slowly because it's not in your best interest,” Holt recommends.

Additionally, you might have to pay your agent’s commission directly if a seller doesn’t offer to do it. Remember, your agent’s commission is always negotiable so ask upfront what they charge, how and when they expect to be paid and what their services include.

5. Narrow down your real estate wish list

Work with your real estate agent to decide what you do (and don’t) want in your first home. This includes the number of rooms and bathrooms, number of floors, lot size, home type, and other key criteria. 

However, don’t get too caught up on minor cosmetic issues. Holt says he helps buyers envision their criteria as a pyramid with three points: price, condition, and location. 

“You can't have a place that's in great condition in a great location and have it be at a low price,” says Holt, adding that he recommends buyers pick the point that’s most important to them. “You can only have two at the same time, but you’ll never have three.”

6. Make (and negotiate) an offer

Once you find a home you love, it’s time to make an offer. Your real estate agent can help you craft a compelling offer, but you ultimately call the shots on the offer price and terms you want to negotiate. 

Negotiating an offer successfully depends on whether you’re in a competitive market that favors sellers or a less competitive market that gives buyers the upper hand.

“If we're going in a non-competitive situation, we can offer below asking price, we're going to do inspections, we’re going to talk about credits or repairs to the house, so that should be an easier deal,” Holt says. 

In a hot seller’s market, though, you’re unlikely to get many concessions from a seller with multiple offers on the table. Instead, offer to close sooner or include a rent-back agreement, which gives the seller more time to move out after closing, Matyas recommends. Alternatively, making a larger down payment could sweeten the deal for sellers, he adds.

7. Get a home inspection

Although a home inspection isn’t required, getting this professional evaluation of a home’s condition can reveal major issues that could lead to costly repairs down the line. If you’re already cash-strapped and you skip the inspection, you could be setting yourself up for expensive headaches later.

“Most first-time homebuyers will not waive inspections and I, as a REALTOR®, will never advise my clients to waive inspections,” Holt says.

If the inspection reveals major issues, you can ask the seller to repair the problems, provide you with a seller credit, or reduce the purchase price. However, there’s no guarantee the seller will negotiate these items, which is why Holt never advises buyers to skip this critical step.

8. Work with your lender to get final loan approval

After your offer is accepted, your lender will order a home appraisal to determine the property’s market value. The appraisal ensures the home is worth the amount you’re borrowing from the lender so it’s not overleveraged. Your lender will usually order a title search and require you to purchase title insurance to ensure the property is free of ownership claims or liens.

Once your lender approves you, you’ll receive a closure disclosure form three business days before closing. This document outlines your final loan terms and amount, along with all closing costs and cash you need to bring to closing. Check this form for accuracy and ask questions about anything you don’t understand.

Before closing on your new home, avoid racking up credit card balances, opening new accounts or loans, changing jobs, or making large, unsourced bank deposits during this time. Doing so could sabotage your loan approval and the entire transaction, Matyas says.

9. Close on your new home

Right before closing (also called the settlement), you’ll have the chance to do a final walk-through of the property to ensure any agreed-upon repairs are completed and the home is move-in ready. 

You’ll also receive instructions from the closing agent on how to pay your down payment and closing costs. Before wiring money, double-check the instructions and verify the account information with the closing agent directly by phone to avoid falling victim to mortgage scams.

At the closing, you’ll sign the final loan documents and legal paperwork that transfers ownership from the seller to you. The closing agent will walk you through each document before it’s signed. Bring your government-issued photo ID and whatever form of payment the closing agent requested.

Financial preparation for first-time homebuyers

Getting your finances and credit in shape to buy a home will set you up for a smoother mortgage approval process. Here’s how to prepare:

• Check your credit report: Before you rate-shop with a lender, it’s a good idea to pull your credit report and check your scores. Get a free copy of your credit report from AnnualCreditReport.com. Many financial institutions offer existing customers complimentary access to their credit scores online, too.
• Correct any credit report errors: If you spot a rogue account on your credit report or suspect some other error, reach out to creditors to correct the information so it reflects on your report when lenders do a hard pull.
• Pay down debt: If you know you have lackluster credit or a high debt load, work on paying down account balances and making on-time payments. Whittling down account balances to less than 30% of your credit limit can boost your credit score and lower your debt-to-income ratio (DTI).
• Save for a down payment: Depending on the loan program you choose, expect to have at least 3% of a home’s purchase price saved up for a down payment. Some loan programs, such as VA loans and USDA loans, require zero down.
• Set aside money for closing costs and other expenses: Closing costs are fees your lender and third parties charge to process your loan application. Closing costs can range from 2% to 5% of the loan amount. Plus, don’t forget to save up for moving expenses and setting up utilities in your new place.
• Build an emergency fund: Experts generally recommend saving three to six months’ worth of living expenses. Not only does this keep you afloat if your income is disrupted, but it also keeps your mortgage payments current so you avoid default and potential foreclosure.

How to choose the right home for you

This is the fun part of house-hunting, but it’s not without some difficulty. That’s because you have to narrow down your wish list criteria, and it’s easy to get hung up on cosmetic or minor issues.

Instead of overanalyzing unsavory paint colors or outdated flooring, think more critically about the home’s bones: the layout, floor plan, number of bedrooms and bathrooms, accessibility, flex spaces, and yard size. Figure out what you can (and can’t) live without, and prioritize your search accordingly.

While you can always renovate and change your home, you can’t change the neighborhood. Consider the neighborhood’s vibe, proximity to busy streets and noise, the school district, commuting distance to work and proximity to recreation, shopping and other amenities. 

Closing the deal: What to expect

From the time your offer is accepted to the day you finally get those coveted house keys, a lot has happened. Expect the closing process to take about 30 to 45 days.

During the time between an accepted offer and your closing date, your lender will likely ask for more documentation. Expect your lender to pull your credit report and verify your employment just before closing, too. crucial to keep the status quo in your finances and credit until after your closing date.

“Don't do anything with your credit: don’t open any new credit … and don't make any large transfers of any kind,” Matyas cautions. “Because once you do something, sometimes it's hard to undo it from a documentation standpoint. That could threaten your approval and you could lose out on the deal.”