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6 Simple Steps to Buying a Home: A Guide for First-Time Home Buyers

Buying a home can be daunting, especially for first-time homebuyers. The process requires a lot of time and effort. With this six-step guide, we've simplified the home buying experience to make it more manageable.

Steps to Buying Your First Home

1. SET A BUDGET

Buying a home for the first time is exciting. You can daydream about living in a downtown loft, a countryside cottage, or a sleepy suburban gem. While mentioning budgeting at this time can feel like a buzzkill, it may be the most important thing you do.

Budgeting can help you realize your home buying dreams. It puts your financial situation into perspective and sets you down the path toward homeownership. You have to ask important questions like:

• Am I financially stable enough to buy a home?
• How much can I put down on a down payment?
• What is my credit score?
• Can I get a prequalified mortgage?
• What about a preapproved mortgage?
• What are the current mortgage interest rates?
• Will I have significant expenses in the future, like a new car or business loans?

These questions are a starting point, not an exhaustive list. The answers will vary from person-to-person. More importantly, they will help you find what is “affordable.”

A prequalified or preapproved mortgage is an excellent way to figure out how much you can spend. For a prequalified mortgage loan, you provide some financial information, such as current income and savings, to your lender. They will then estimate how much they will lend you. Preapproval is slightly more intensive and for people who are confident in their credit history and financial readiness. A mortgage advisor can help determine which option is right for you.

As a rule of thumb, a mortgage payment shouldn’t exceed more than a quarter of your monthly income. This rate will give you the financial flexibility to cover other expenses, like utilities, transportation, and food, without straining your bank account. If possible, we recommend paying off all non-mortgage debts before making the leap into homeownership.

2. SORT THE "MUST-HAVE" FROM “NICE TO HAVE”

You’ve had a lot of time to dream about your first home. Now it’s time to make it a reality. Based on your budget, you can figure out what size and style of home are right for you.

Whether you want a condo, townhouse, single-family home, or a duplex, each option has its pros and cons. For instance, buying a fixer-upper might save you money on the purchase price. The home will also require some sweat equity to justify the investment.

The same applies to household amenities. You have to balance what you "must-have" with what is “nice to have.” That includes everything from the lawn size to the neighborhood to the household appliances. Again, everyone has unique tastes. Maintaining some flexibility here, though, can go a long way toward homeownership.

3. FIND THE RIGHT REAL ESTATE AGENT

The operative word here is “right.” The right real estate agent will help you navigate the obstacles of the homebuying process. They can decipher which homes are money pits and which are diamonds in the rough.

Getting the most out of your real estate agent experience means being on the same page. Experienced agents may have a deep understanding of the local housing market. They may also treat you like just another client and push you toward a home that isn’t right for you. Younger agents may give you more time and attention, but they are more susceptible to mistakes. Take the time to talk to several agents to ensure they have your interests at heart.

An alternative is to hire a buyer’s agent. They will negotiate the price for you, fight for terms and conditions that match your needs and anticipate potential problems. Plus, the seller typically pays the fee for the buyer’s agent, so you pay nothing out of pocket.

4. SCOUT LOCATIONS

Get in. We’re going shopping.

With your checklist of "must-have" and "nice to have" items in one hand and your pre-qualification in the other, you can start scouting houses. On average, buyers look at four to eight homes before committing to a property. It can be challenging to remember every last detail during your tours, so take photos and videos for later.

Home tours are your chance to do your best Sherlock Holmes impression. Be thorough about inspecting every detail in the house. For instance:

• Test the electrical system by turning the light switches on and off
• Test the plumbing by running the water
• Check that windows and doors open properly
• Note the amount of storage space
• Listen to the noise level inside and outside the house
• Ask how old the heating and cooling system are
• Check the condition of the appliances
• Get a home inspection from a third-party source

Take as much time as you need to find a home. Unless you are on a deadline, you shouldn’t feel pressure to close on a house. Buying a home is likely the most significant purchase you ever make. Make sure that investment counts.

5. FIND THE RIGHT MORTGAGE LENDER

Your mortgage is a long-term commitment. It’s in your best interest to shop around for the best interest rates and terms before settling on one. Like your home, you have to consider several factors, including:

• Down payment
• Interest rates
• ARM or fixed-rate loan type
• Loan duration
• Monthly mortgage payment

There are special opportunities, too. Military families may be eligible for VA loans, while rural or suburban homebuyers should consider USDA loans. Meanwhile, if you have poor credit, FHA loans are a useful resource.

Mortgage loans can seem complicated. Mortgage calculators make them less so. Plug in your ideal rates, and you can calculate your mortgage payment in seconds. As a rule of thumb, you should make a 20 percent down payment for the best mortgage interest rates.

6. CLOSE ON YOUR HOME

You’re in the home stretch! Before negotiating a purchase price, familiarize yourself with the closing costs. These fees are typically two to five percent of the purchase price. Other hidden expenses can include mandatory repairs, escrow fees, and prepaid homeowner’s insurance.

After agreeing on a purchasing price, your primary concern is paperwork. That includes getting a home appraisal and signing closing documents. Your mortgage lender can handle most of it to ensure you become the rightful owner of the home.

The Bottom Line

Congratulations! You’ve made it to homeownership. Getting here can feel like a lot of work, but if you prepare and educate yourself beforehand, the process will more manageable. Small, proactive steps like setting a budget and fielding mortgage loan offers will give you the confidence to reach the closing process.

That way, you can have the house you want at a price you love.