Buying a home is an exciting milestone in many people’s lives. However, with rising property prices, limited housing inventory, and stricter mortgage requirements, it can also be an overwhelming process. From setting a budget to exploring financial incentives, knowing the basics early on can make the journey smoother and help you shop for homes more confidently.
This blog explores valuable insights and tips to consider as a first-time homebuyer.
Your Essential Guide to First-Time Home Buying
- Save for a Down Payment and Closing Costs
Start by saving for a down payment ranging from 5% to 20% of the home’s buying price. A bigger down payment can secure better mortgage terms and reduce monthly payments.
Beyond the down payment, remember to budget for closing costs. Closing costs can add up to 2-6% of the home’s price and include home appraisals, taxes, legal fees, inspections, and more.
If you save 20% or more, you can avoid Private Mortgage Insurance (PMI) — an extra expense for buyers who put down less than 20%. Consider using Individual Retirement Account or First-Time Home Buyer Savings Account, which may offer tax benefits and faster growth.
- Determine Your Budget and Ongoing Costs
Once you’ve saved for a down payment, it’s time to create a comprehensive budget. Consider monthly income, moving expenses, and ongoing costs like property taxes, utilities, homeowner’s insurance, maintenance, and debt obligations to decide how much you can afford to spend on a home. If moving costs are a concern, you can explore loans for moving expenses, which can help cover the costs of hiring movers, renting a truck, and relocation-related other expenditures.
Lenders will calculate how much to loan you based on your Gross Debt Service (GDS) and Total Debt Service (TDS) ratios. Ideally, your housing-related costs shouldn’t exceed 39% of your gross income, and total debts, including mortgage, should remain under 44%.
- Explore First-Time Home Buyer Assistance Programs
Look for government-sponsored programs, low-interest loans, and down payment assistance schemes. If your income qualifies, you could benefit from grants or forgivable loans, which don’t need to be repaid if you meet certain conditions (like living in the house for a specific number of years).
Top programs to explore include:
- Federal Housing Administration (FHA) Loans – allow smaller down payments.
- VA Loans – for veterans, active-duty military, and surviving spouses, with no down payment and low interest rates.
- USDA Loans – available for buyers in rural areas, offering up to 100% financing.
- Get Pre-Approved for a Mortgage
A mortgage preapproval shows sellers that you’re a serious buyer with a lender backing you. Unlike pre-qualification, which is an estimate, preapproval is based on an in-depth look at your finances, credit score, income, and assets. This step ensures you know how much you can afford and sets clear expectations before you start house hunting.
Having a preapproval also strengthens your offer in the competitive housing market, giving you an edge over buyers who haven’t secured financing. Lenders generally hold your approved interest rate for 60-120 days, protecting you from rate increases while you shop for your home.
- Make a Strategic Offer and Close the Deal
Once you’ve found the perfect home, it’s time to make an offer. The offer should include the purchase price, any conditions (like securing financing or passing inspections), and the expected closing date.
Be prepared to negotiate in competitive markets. On the other hand, if the home has been on the market for a while or you’re in a buyer’s market, you may have room to negotiate a lower price or request repairs and upgrades. Before finalizing your offer, ensure you have an inspection contingency in place. It allows you to back out or negotiate based on any major issues revealed during the home inspection.
Conclusion
Buying your first home is a major milestone that requires thoughtful preparation and informed decisions. The abovementioned tips can enhance your prospects of finding the perfect home within your budget and help you work through the complexities of the real estate market. Don’t forget to account for closing costs, home inspections, property taxes, and moving expenses, which may require specific loans for moving expenses or home improvement, alongside other options like FHA Loans, VA Loans, or conventional loans.
