Buying your first home can be a rollercoaster of an experience. It’s exciting and overwhelming and fun, all at the same time. But it’s also one of the most consequential decisions you’ll ever make, so who wouldn’t want to lessen those scarier, uncertain feelings?
We’re here with a calm, practical guide full of solid, tried-and-tested advice to help you navigate some of the more complex aspects of the homebuying process.
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Mortgage tips for first-time home buyers
Don’t delay improving your credit score
Your credit score plays a major role in qualifying for a mortgage and securing a satisfying interest rate. The higher your credit score, the better your terms and the lower your interest rate.
Here are some actions to consider when getting your credit in order:
- Pay your bills on time.
- Get free copies of your credit report, review them for errors, and dispute any you notice.
- Avoid opening or closing credit lines when preparing to buy a home.
- Reduce debt and avoid large credit purchases, like a new car.
Something as simple as not applying for a new credit card before getting a mortgage could save you thousands of dollars in interest rates in the long run.
Understand the world of home loan options
First-time home buyers have many types of loans to choose from (including those available for repeat homeowners). Here are some of the most popular loans to explore:
| Loan type | Down payment | Features and requirements |
|---|---|---|
| FHA loan | From 3.5% |
|
| VA loan | 0% |
|
| USDA loan | 0% |
|
| Conventional loan | From 3% |
|
When you’re choosing the right loan, compare the rates, fees, terms, and its flexibility. Also, shop around. Compare mortgage lenders and let them know that you’re looking for the best deal. Negotiating with lenders is a common practice.
You’ll need to save as much as possible
Buying your first home comes with significant out-of-pocket expenses, many of which you may not have even thought about. Here are some of the largest costs to consider:
- Down payment: You may qualify for a zero-down mortgage (a loan that doesn’t require any down payment). However, it’s always recommended to put down as much as possible. A larger down payment will result in lower monthly payments and less interest paid, saving you significant money in the long run.
- Closing costs: Typically, buyers can expect to pay 3–5% in closing costs, depending on the location, home price, and other factors. This includes loan origination fees, transfer taxes, homeowners insurance, and more.
❓Why is it recommended to put 20% down on a home?
You may have heard that you need a 20% down payment to start shopping for a house. While it’s not a set rule, aiming for this amount can help you avoid paying private mortgage insurance (PMI), which lenders often require if the down payment is insufficient (usually less than 20%). Avoiding PMI will also save you money over the course of a loan.
Getting preapproved beats getting prequalified
When you find a lender, you’ll either get prequalified or preapproved for a mortgage. While these concepts sound similar, there’s a clear winner.
Prequalification is a preliminary assessment based on basic information you provide to the lender. It’s a soft inquiry to help you gauge how you might fare were you to officially apply for a loan.
A preapproval is a far more in-depth process. Since lenders will examine your finances and credit score much more closely, a preapproval has more weight in the market. Having a preapproval letter from your lender serves as proof that you’re very likely to secure a loan for a certain amount. You’ll have more negotiation power, and you’ll be able to act fast if and when you come across your dream home.
Financial first-time home buyer tips
Treasure-hunt for first-time home buyer programs
Across the federal government and its state and local counterparts, there are numerous programs to assist first-time home buyers with costs. Some initiatives are fairly easy to qualify for, and others not so much.
Some help buyers with down payments or closing costs, while others target a specific group. For example, Good Neighbor Next Door is aimed at essential workers (teachers, firefighters, or law enforcement officers) who want to buy their first home.
Be sure to explore all the programs available in your area. Check your city and state websites, as well as federal programs—there’s a high chance you might be eligible.
Factor in additional expenses
You’ll be surprised how quickly costs add up when buying a house. For instance, moving expenses, necessary renovations, new furniture, cleaning, and possible additional fees charged during closing that you might’ve forgotten to include.
“The best thing about buying a house for the first time was achieving my dream of homeownership! To this day, buying my first home is my biggest accomplishment,” shared Sain Rhodes, a first-time home buyer in Montana. “The worst thing is the uncertainty involved in the process. There are a lot of points in a real estate transaction where it can fall apart, and that uncertainty can be stressful when it involves your living situation.”
So, prepare for the uncertainty as much as you can, both mentally and financially. We recommend having a property reserve fund to cover any surprise expenses and necessary home maintenance. And, if possible, don’t touch your emergency fund when buying a home—you’ll thank yourself later.
Plan for ongoing costs
Owning a home can be a great way to build equity, which sounds alluring to many aspiring buyers. However, they’re quickly overwhelmed by the hidden costs: 1 in 4 new owners say their financial situation has worsened since the home purchase.
When assessing if you’re financially ready to become a homeowner, remember to consider potential monthly expenses outside of the mortgage: HOA fees, utilities, and property taxes. Also, you’ll be responsible for the upkeep and maintenance—unplanned repairs are inevitable.
First-time homebuying tips when shopping for a home
Choose the right real estate agent
A great real estate agent can make the homebuying process easier, especially for first-timers. Typically, you can expect a buyer’s agent (the one representing your interests) to help you:
- Search for the right property
- Attend showings and open houses
- Prepare and negotiate an offer
- Arrange a home inspection and appraisal
- Navigate the closing process
The fee for a buyer’s agent is around 2.5–3% of the home’s sale price. As a general rule of thumb, the seller tends to cover the commission for both the buyer and listing agent. So, there’s a high chance that you won’t have to bear this cost.
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Know your want-to-haves and need-to-haves
There are plenty of wonderful homes on the market, but it’s important to focus your time and effort on properties that meet your needs and will ultimately be the right fit for you.
Make a list of non-negotiable features for your future home, as well as deal-breakers. Think about whether you want a single-family house or an apartment, which features and amenities are important, what type of neighborhood you would enjoy living in, and so on.
Remember that buying a home is a long-term commitment, so plan for what your life might look like in 5 or 10 years, not just how it is now. For example, if you dream of getting a dog, it may be a good idea to prioritize properties with an outdoor space.
Make an offer they can’t refuse
When you find a home you love, it’s time to make an offer on it. You likely won’t be the only bidder, so it’s essential to make yourself stand out among the competition. Here are some tips to consider:
- Include a preapproval letter: This will show the seller that you’re a serious buyer who can afford the home purchase and take action quickly, if selected.
- Limit contingencies: There are many contingencies buyers can choose from, but that doesn’t mean you should include them all in your offer. Stick with those you deem important for protecting yourself, but don’t put in anything unnecessary (your agent can help you here).
- Personalize your offer: Include a concise and sincere letter to the seller, expressing why you love the home. Such a personal touch could be enough to sway homeowners toward your candidacy (all other things being equal), especially if they have a strong connection to the property.
- Be flexible: When possible, be flexible with closing or move-in dates. Consider shortening the inspection and appraisal timelines or offering a higher earnest money deposit. Being prepared to compromise with the seller and meet their needs can further set your offer apart.
Get a professional home inspection
A home inspection is typically performed after the seller accepts your offer. The buyer will hire an independent contractor who will assess the property’s condition and identify any current and potential problems with the home. Think anything from a cracked foundation to wiring problems.
A home inspection goes hand-in-hand with the common inspection contingency in a purchase agreement. Many realtors we spoke to share the same sentiment: even if you decide to forgo some of the contingencies, an inspection contingency is a must. It will allow you to negotiate repairs and the purchase price or even back out of the transaction altogether if the problems are too severe.
Stick to your budget
Many first-time home buyers fall into the same trap and overextend their finances. According to one recent Clever study, 13% of buyers regret spending too much on their home, the second most common regret mentioned.
While it’s easy to get caught up in a bidding war or fall in love with a place that’s just slightly out of reach, try to keep a cool head. Look at properties slightly below your price limit to give you some wiggle room in price negotiations, and set a firm cap. Remember, as the price of a home goes up, associated costs like taxes and home insurance rise, too.
Be mindful of timing
Seasonal trends can significantly impact your homebuying process and even the purchase price. Typically, spring and summer are the busiest times on the real estate market.[1] This means a larger selection of homes—but also higher prices and more competition. Late fall and winter come with less inventory but better negotiating power for buyers.
Additionally, real estate market trends are closely tied to economic factors, from interest rates to the state of the job market. Keep your eyes peeled and, when in doubt, talk to a local real estate agent. They can give you insight into trends in your area.
Bottom line: A smart agent can make a big difference
Your first house can provide you with a sense of stability, become a wonderful financial investment, and be a place you’ll be happy to call home for many years to come. Learn as much as you can about the process and choose the right team to increase your chances of buying the property of your dreams—without any of the nightmares that could come with it.
And if you’re still looking for a perfect real estate agent, you’re in the right place. Use Clever to find top agents in your area today.