How to Buy Your First Home: A Guide for Beginners

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While many of us dream of the day that we're able to buy our first home, we don’t dream of the many steps to buying a house that have to happen first.

For first-timers, the process of buying a home is hardly a simple one, and looking at listings online or visiting open houses is just the beginning. If you've never bought a house before, we have a feeling you have questions about the process — and we have the answers.

This comprehensive guide will walk you through how to buy your first home — from starting to save, to understanding your financing options, to finding an agent, to negotiating an offer. After reading this, you can buy your first home with confidence.  

The 5 big steps to buying your first home

1. Decide how much you need to save

2. Review your financing options

3. Work with the right real estate agent

4. Find the right home

5. Complete the offer and closing process

1. Decide how much you need to save

Before you can start the search for your home sweet home, you should have a strong idea of what you want to spend and how much you can afford. Crunch the numbers sooner rather than later so you know how much to save up and how long it will take you. 

There are a few different costs that you need to plan for before you buy your first home.

The down payment 

The biggest expense you need to save for is your down payment. The down payment is a percentage of the home’s purchase price that you need to pay up front in order to get a home loan. While many people aim to save a 20% down payment, what type of home, lender, and mortgage loan you choose will impact how large your down payment really needs to be. 

There are conventional loans for first time home buyers with good credit that allow down payments as small as 3%, so don’t let the idea of a 20% down payment hold you back.  

Closing costs 

When you do finally get to close on a home, get ready to pay. Closing costs are fees and expenses you need to pay when you close on the sale of a home. Most closing costs are paid by the buyer to the mortgage lender, but the seller will need to pay some closing costs too (primarily commission to the real estate agents). 

Typically, you spend about 2% to 5% of the loan’s amount on closing costs. In some cases, the seller will pay a portion of the closing costs or cover the cost of inspections, so you can try to negotiate either option during your contract. In the meantime, prepare for the full bill and save up to pay the expected closing costs. 

Move-in expenses 

Whether you decide to move down the street or across the country, you’ll need to have some money left over to pay for your move. Once you get to your new home, you may also need to have some money set aside to cover the cost of repairs, appliances, and furniture. It helps to have a bit of a cushion here. 

Consider some of these costs: Renting a moving truck ($50 to $2,000, depending on how much you’re moving and how far), hiring a moving company (up to $2,300 for long distances), or using a moving container ($700 to $5,000 depending on brand, size, and distance), are all moving expenses that add up quickly. When it comes to having a buffer for any repairs, appliances, or pieces of furniture, it’s helpful to have some savings handy to make it easier to tackle those projects sooner rather than later. You may want to spend as little as a couple hundred to hire a house cleaner or a few thousand to get someone to paint your house for you.

2. Review your financing options

Unless you can afford to buy a home with an all cash offer (which most of us can’t), then you need to consider your different financing options. There’s a few steps to take to find the right financing option for you. 

Step 1. Review your credit report

Before you even begin to think about applying for a mortgage loan, spend some time with your credit score. When you apply for a mortgage, your credit score can greatly impact if you qualify, how much you qualify for, and what your interest rate will be. You can get your hands on a free copy of your credit report from each of the three major credit bureaus (Experian, Equifax and TransUnion) annually. Review your reports carefully and if any of them contain errors, alert the credit bureau that has an inaccurate report accordingly. 

If you find your credit score is lower than you would like it to be, you can improve it if you pay all of your bills on time, pay off debts, and keep your credit card balances low.

Step 2. Explore your mortgage options

There are a few different types of mortgages on the market and it’s worth doing some research on which type of mortgage would be right for you.

  • Conventional mortgages: A conventional mortgage usually comes from a bank, mortgage lender, or online lender and is not guaranteed by the government. There are conventional loans designed for first-time buyers that require as little as a 3% down payment.
  • FHA loans: The Federal Housing Administration insures this loan and can require down payments as small as 3.5%.
  • USDA loans: Guaranteed by the U.S. Department of Agriculture, USDA loans are for rural home buyers. Often, USDA loans don’t require a down payment.
  • VA loans: Designed for current and veteran military service members, the Department of Veterans Affairs guarantees VA loans and doesn’t typically require a down payment. 

Step 3. Research assistance programs and tax credits

Plenty of states have first-time home buyer assistance programs designed to help people buy their first homes. Typically, these programs offer mortgages with low-interest rates, provide some sort of down payment assistance, or help cover closing costs. There are also often tax credits available to first-time home buyers, so look at your city, state, and federal options for assistance and don’t forget to see what your options are for tax credits come tax season. 

Step 4. Get preapproved for a mortgage

When you go look at homes, it helps to have an idea of how much a mortgage lender will potentially lend you if you put an offer in on a home. This is where a preapproval letter is really useful. 

Before you apply for your official mortgage (which happens once you successfully make an offer on a home), you’ll apply for preapproval. Once you get a preapproval letter from a lender, you’ll know the amount they will probably lend you. Remember: This is a tentative amount that can change when you officially apply for a mortgage, submit supporting documentation (such as pay stubs), and go through a hard credit check. The more accurate — and honest — you are with lenders when you apply for preapproval, the better chances you have of getting a similar offer once you apply for a mortgage. 

This letter can also give confidence to sellers that if they choose your offer, you’ll follow through with financing, which can help you compete in a seller’s market. 

Once you come to terms with a seller and they accept your offer, you’ll apply for a mortgage. You should apply for multiple mortgage loan estimates, so you can compare the rates and fees of each one to see which will cost you less in the short and long run.

3. Work with the right real estate agent

When it comes time to choose a real estate agent to work with, you can get referrals from recent buyers and should interview multiple agents to make sure they’re experienced in your area, have a communication style that works well for you, and is a good fit for your needs. Don’t be afraid to ask the tough questions. Take your time here, because you’ll find the whole process a lot less stressful if you have the right real estate agent on your side. 

4. Find the right home

Once you find a great real estate agent to work with, you’ll have a guide whose job it is to find the right home for you and will accompany you to open houses. When you attend an open house, keep an eye out for any unusual noises and odors. Take a close look at the outside of the home too to get an idea of what condition the full home is in.

As helpful as real estate agents are, you also need to do a decent amount of research on your end. You’ll want to visit different neighborhoods to get an idea of which community is the right fit for you. It can also be helpful to test out what your commute would look like so you aren’t hit with a nasty rush hour surprise after move-in day. You should also take factors like homeowners association dues, if applicable, into consideration since they will impact your monthly budget.

When it comes to the actual home, weigh the pros and cons of single-family homes, condos, and townhouses. All of these home types have their merits, so which one is “best” truly just depends on which one can meet your personal and financial needs. 

Your preapproval letter will also come in handy here as you’ll know which houses are in your budget, so you don't accidentally get your heart set on a home you can’t afford.

5. Complete the offer and closing process

Once you do find the right home, you have to make an offer. You can work with your real estate agent to decide how much you want to offer for the home and what kind of contingencies you want to add or can waive in order to strengthen your offer. Then your real estate agent will present your offer to the seller’s agent. 

At this point the buyer can reject your offer, accept it, or come back with a counteroffer. If the seller presents a counteroffer, the buyer then gets to decide if they want to accept it or propose their own counteroffer. This process may take some time to work through or one party may choose to end the negotiations and walk away. 

If all goes well and the seller accepts the offer, you should schedule an inspection and appraisal to better understand the condition the home is in and what the value of the home is. The inspection will give you an idea of any problems that exist in the home and the appraisal will help the mortgage lender determine how much to lend you. If the appraiser finds an issue with the property, you may need to negotiate further to determine who will pay to fix the problem

Once the inspection is over (as well as other final steps like a title search and the purchase of private mortgage insurance), you can move on to closing. When you close on the purchase of a home, you need to sign a lot of paperwork and pay your closing costs. Once you’re done, the home is all yours. 

Mastering the art of negotiation

Another reason you want the right real estate agent on your team is because they’ll help you navigate the tricky negotiation process with the seller. 

Generally, you start the negotiation process after you make an offer on the home. The seller may choose to accept your offer as is or want to submit a counteroffer, which will kick off any negotiations. How much negotiation power you have will depend greatly on if you’re in a buyer’s or seller’s market. Your real estate agent should be able to give you a good idea of what the market is like and how tough you can be during any negotiations

Frequently asked questions about buying a home for the first time

How long does it take to buy a home? 

The time it takes to buy a home can vary greatly depending on a variety of factors, but generally the process takes between three and six months. The factors that can affect how long it takes to buy a home include the time of year (spring and summer is more competitive), if the market is a seller’s or buyer’s market, where you’re searching, and if you can make a cash offer (which generally makes your offer more competitive). 

The step that tends to take the longest is actually finding a home you love and is within budget, which can be especially tricky when the market is hot. 

Is homeowners insurance required?

Legally you don’t have to have a homeowners insurance policy, but if you want to borrow money from a mortgage lender, you need to have one. A policy protects you as the homeowner, but it also protects the lender’s interests. If you pay cash, you can technically skip buying a policy, but we wouldn’t recommend it.

What hurdles might you run into? 

Unfortunately, the journey to become a homeowner often throws a few hurdles your way. The National Association of REALTORS found the following issues can cause delays that drag out how long it takes to buy a home. 

  • Issues relating to obtaining financing: 29%
  • Appraisal issues: 23%
  • Home inspection or environmental issues: 12%
  • Titling/deed issues: 13%
  • Contingencies stated in the contract: 5%
  • Issues in buy/sell distressed property: 2%
  • Home/hazard/flood insurance issues: 2%
  • Buyer losing a job: 2%
  • Other: 13%

Once again, a good real estate agent can come to the rescue and help you avoid some of these roadblocks by being there as you navigate this difficult endeavor. You’ll find the process of buying your first home will go a lot smoother if you budget properly, keep on top of your credit report, do your research, and get preapproved. 

Last but not least, you need to remember to celebrate! Becoming a homeowner is a big deal and is a moment worth cherishing.

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