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Buying your first home can be one of the most rewarding days of your life. It’s often the culmination of years of hard work and finally gives you a place that’s entirely your own. At the same time, shopping for a new home can quickly become challenging, whether it’s your first time or not. There’s so much to think about — from mortgage rates to the type of loan you’ll use.
That’s why we’ve created this guide detailing how to buy a house for the first time. It covers everything you need to know about purchasing property with tips for buying a house the first time. Let’s get started.
If you’ve ever browsed for homes online through sites like Zillow, you may already be familiar with how you start the home buying process, when you narrow down your options based on preferences and needs. It’s a time to consider factors like how much home you can afford, what neighborhood you want to live in, and how a new home loan would fit into your broader budget.
We take a closer look at the key factors you should consider when starting your home-buying process below.
The minimum credit score you need to apply for a home loan can vary by lender but is often around 620. You can obtain a credit report for free online if you don’t know your score. In addition to your overall credit score, lenders will also consider factors like your payment history and whether you have any debt in default.
Thankfully, charge-offs, loan delinquencies, and other serious debts typically fall off your credit score 7 years after the initial missed payment. So, even if you have a poor credit score or history, you can still eventually qualify to purchase a new home if you start working at it today.
You’ll also need to start thinking about how a new mortgage payment would fit into your broader budget. To figure it out, take your total monthly income and subtract all other monthly payments from it except your current housing costs. The amount left over will be the maximum you can allocate to a new mortgage payment.
However, you’ll also want to leave room for things like unexpected repairs, retirement savings, and other expenses that may not be in your standard budget. The exact amount will depend on personal factors, like your current level of savings.
Now that you know how much home you can afford, it’s almost time to start looking at them. But first, you’ll want someone to show you around the areas you’re interested in. Real estate agents are experts in local housing markets who can lead the search for your new home. You tell them what you want and your budget, and they show you the matching options in your area.
Working with an agent can save you a lot of time and ensure you don’t miss any potential buying opportunities. Sellers usually pay the real estate agent’s fees, but they may pass some of the costs to you in the form of a higher home price or extra closing costs.
Now’s a good time to start thinking more about the neighborhoods that interest you. There are a number of factors that can go into this, including:
How you weigh these factors depends on your preference. If you have a hard time zeroing in on neighborhoods that align with your goals, talk it out with your real estate agent. That’s exactly what they’re available to help you with.
One of the challenges of shopping for your first home is that you often don’t yet know what you don’t know. This makes it easier to get surprised by unexpected expenses or requirements in the home-buying process.
This section should help you avoid those unwanted outcomes. Here are six tips for first-time home buyers that can give you a smoother experience as you put your first time home buyer loan to use.
The vast majority of homes require a down payment, which is an upfront amount of cash you provide at the time of purchase. The average down payment for first-time home buyers is 6% to 7% of the home’s price — $30,000 to $35,000 on a $500,000 house.
However, it’s often better to put down 20% of the home’s price, if you can. Otherwise, you may need private mortgage insurance (PMI), which will increase your monthly payment.
If you’re struggling to save for a down payment, but know you can afford a monthly mortgage, consider an FHA loan, which is also sometimes called a “first time home buyer loan.” These are backed by the Federal Housing Administration and may allow you to buy your first home with as little as a 3.5% down payment. This can be especially helpful if you’re buying a house with low income.
Once you have a down payment saved, the last major obstacle between you and your first home is getting a mortgage preapproval from a lender. You can often initiate the preapproval process online, but may need to go into a physical branch to finalize it.
The process is fairly straightforward and begins with choosing a lender. You may be able to go through your personal bank for a loan, but don’t have to. Once you’ve decided on your lender, the institution will ask for your income, debt, and other details they need to know when deciding whether to offer you a loan and, if so, how much.
If the lender decides to offer you a mortgage loan, they’ll give you a preapproval letter specifying the maximum amount. You can take this to a realtor and begin shopping for a home. Note that you’ll still need to finalize your loan approval before buying a home you like, but this can be as simple as providing documents that verify the information you provided while getting pre-approved.
At this point, with down payment and first time home buyer mortgage prepared, you’re officially ready to choose a home and begin the purchasing process. On your end, that means telling your realtor which home you want to buy and how much your offer is. Your agent will share that information with the seller, who can decide to accept, counter-offer, or deny. Once you agree on a price with the seller, it can take 45 to 60 days until the home is officially yours.
However, any offer you make should be contingent on the house passing a home inspection. This involves hiring an inspector to evaluate the home’s interior and exterior. They’ll look at everything from the home’s foundation to its roof and electrical wiring to let you know if there are any potentially costly issues you should be aware of before finalizing your purchase.
Once you close on a home, you’ll incur a few last costs that you need to pay to finalize the transaction. These can include:
Closing costs typically range from 3% to 5% of your loan amount but can vary based on purchase price. It’s another important expense to save for as you continue preparing for home ownership.
As you go through this process, you should also consider the other expenses you’ll incur as a new homeowner. For example, property taxes are due annually and are often thousands of dollars. You’ll also want homeowners insurance, and should be prepared to tackle unexpected maintenance costs when necessary.
It may be best to set up a new savings account for home expenses like these. If you contribute a little bit to it every month, you’ll be more prepared to pay for associated home expenses when they come up.
Buying a home is a major decision that you never want to rush into. It’s important to honor the process, think carefully about all of your options, and talk about your choices with people you trust before you finalize a decision.
That’s true about both choosing a home and a lending company for your mortgage. You want to work with a bank that has your back and makes the process easy on you, since you’ll have a relationship with them that can last as long as 30 years.
There’s nothing quite like buying your first home, but going from finding your dream house to moving in can be a lengthy process with plenty of obstacles in between. One way to make the experience easier on yourself is to choose a lending partner that can help you through it.
At Fidelity Bank, we specialize in mortgage loans and pride ourselves on providing every buyer with the clarity and confidence they need to bring their dreams of homeownership to life.
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