Buying your first home is likely the largest financial transaction of your life. The process can feel overwhelming, but understanding each step helps you navigate with confidence and make informed decisions.
Preparing Financially
Check Your Credit
Your credit score significantly impacts mortgage rates. According to FICO, the difference between a 680 and 780 score can mean tens of thousands in extra interest over a 30-year loan. Review your credit report, dispute errors, and work on improving your score if needed.
Save for Down Payment and Costs
While 20% down is traditional, many loan programs require less:
- Conventional: As low as 3%
- FHA: 3.5% minimum
- VA: 0% for eligible veterans
- USDA: 0% in eligible rural areas
Beyond the down payment, budget for:
- Closing costs (2-5% of purchase price)
- Home inspection ($300-500)
- Moving expenses
- Initial repairs and furnishings
- Emergency reserves for unexpected repairs
Reduce Debt
Lenders examine your debt-to-income ratio. As outlined in our debt payoff guide, reducing existing debt improves your mortgage qualification and buying power.
Getting Pre-Approved
Pre-approval shows sellers you're a serious buyer and clarifies your budget. The Consumer Financial Protection Bureau recommends comparing offers from at least three lenders.
Required documents typically include:
- Two years of tax returns
- Recent pay stubs
- Bank statements
- Employment verification
- Photo ID
Understanding Loan Types
Fixed-Rate Mortgages
Interest rate stays constant for the loan term (typically 15 or 30 years). Offers predictable payments and protects against rate increases.
Adjustable-Rate Mortgages (ARMs)
Rate is fixed initially (often 5-7 years), then adjusts periodically. May offer lower initial rates but carries future rate risk.
Government-Backed Loans
- FHA: Lower credit requirements, smaller down payment, requires mortgage insurance
- VA: No down payment, no PMI for veterans and service members
- USDA: Zero down for rural properties, income limits apply
House Hunting
Determine Your Needs
- Location priorities (commute, schools, amenities)
- Size requirements (bedrooms, bathrooms, garage)
- Must-haves vs. nice-to-haves
- Future needs (growing family, aging in place)
Working with Agents
A buyer's agent represents your interests at no direct cost—sellers typically pay commissions. Look for agents experienced in your target neighborhoods.
Evaluating Properties
Beyond the home itself, consider:
- Property taxes and HOA fees
- Neighborhood trends
- Future development plans
- Insurance costs (especially flood zones)
Making an Offer
Your offer should include:
- Purchase price
- Earnest money deposit (shows good faith)
- Contingencies (inspection, financing, appraisal)
- Preferred closing date
- Included items (appliances, fixtures)
Due Diligence Period
Home Inspection
Never skip this. A qualified inspector identifies potential problems with structure, systems, and safety. Use findings to negotiate repairs or price adjustments.
Appraisal
Lenders require an appraisal to ensure the home's value supports the loan amount. If it comes in low, you may need to renegotiate or make up the difference.
Title Search
Ensures clear ownership and identifies any liens or claims against the property.
Closing Day
Prepare to sign many documents. Bring:
- Photo ID
- Certified check for closing costs (or wire funds)
- Proof of homeowner's insurance
After closing, you'll receive keys to your new home. Like building any lasting habit, homeownership requires ongoing attention—budget for maintenance (typically 1-2% of home value annually) and protect your investment.
