First-Time Home Buyer’s Guide

First-Time Home Buyer’s Guide

Being a first-time home buyer can feel scary and exhilarating all at the same time. It’s important you approach this major life decision with a plan (and a back-up plan). Here are 10 tips to guide you through being a first-time homebuyer.

  1. Think about why you want to buy.

Are you buying a home because that’s what all your friends are doing or because your family is telling you to? If that’s your only reason, then stop right here because now is not the time to make this investment. If you don’t plan on keeping the home for at least 5 years, it’s probably not worth it and you may end up losing money in the end. However, if you’re at a place in life where you feel established and being a homeowner supports your lifestyle and goals then continue along with this guide.

  1. Determine how much you can afford.

How much you can afford is not necessarily how much a lender will qualify you for. When calculating how much house you can take on, you must not only factor in principal and interest but also taxes and insurance. Together, these are known as PITI. Nerd Wallet has a handy home affordability calculator. And don’t forget about the costs that come with being a homeowner; see the next tip!

  1. Start saving early (and not just for the down payment).

Owning a home comes with costs beyond those that arise during the home buying process. When it comes to cash out of pocket just to get the keys, you’ll need to be prepared for the down payment (if applicable), home inspection, appraisal, earnest money, and closing costs.

Beyond these, once you’re a proud homeowner you’ll want to have established an emergency fund. Now, when the furnace breaks down or the washer leaks, those repairs fall on you. Put yourself in a financial position to handle the new costs associated with being a homeowner.

  1. Research your location(s).

You know the adage, it’s better to have the worst house on the best block than the best house on the worst block. When investing in a home, this is certainly an important consideration! Not only in supporting your own lifestyle – do you prefer the city to the countryside or desire a good school district? But also, when thinking about the future value of the home. After all, part of the reason to buy a home is because it’s an asset that (theoretically) will appreciate in value.

  1. Check your credit.

Your credit score is a determining factor when applying for financing. You can run your credit reports for free each year from the three credit bureaus.

Ensure you’re paying all your bills on time. If you have any outstanding debt (student loans, credit card, car, etc.), it may be prudent to first pay those off before considering buying a home. Not only so that you’ll be approved for better financing but also to be in a better cash flow position to support the expenses of owning a home.

  1. Explore your financing options.

Although there’s always the option to pay cash, most of us don’t have that on hand. So, there are a variety of lending options available, and you should explore which is the best for you. Each have different down payment and eligibility requirements. Don’t forget to search incentives and programs available for first-time homebuyers!

  • VA Loans: are available to eligible current and veteran military service members and usually require no down payment.
  • USDA Loans: are for rural home buyers and require no down payment.
  • Conventional Mortgages: some are targeted at first-time home buyers and can require as little as 3% down.
  • FHA Loans: if you qualify, you can be required to pay as little as 3.5% down.
  1. Learn what the lending process entails.

It’s a good idea to research your mortgage lender options. Typically, start with contacting the bank you already use, ask family and friends for recommendations, or talk with your realtor. Be sure to go with someone you trust and who has experience with the particular type of loan you’ll be utilizing.

  1. Get pre-approved.

Now that you’ve done your research and you’re a serious buyer, it’s time to get pre-approved for financing. This is a simple process wherein you’re essentially given a quote from the lender for how much financing you’re approved for, i.e., how much money the bank will lend you. Remember, just because the bank will lend you that much, doesn’t mean you can “afford” it.

  1. Talk with a realtor.

Start shopping! Check on Zillow and Redfin for open houses or to schedule viewings. Personally, this how we found the realtors we’ve worked with. And if you go in with your preapproval letter, that tells them you’re serious, you’ve done your research, you’ll be able to secure financing and they not only will want to work with you but work for you to get you the best deal on your dream home.

  1. Stick within your budget.

It’ll be easy to get sucked into different “deals”, be tempted to jump on something, or get into a bidding war. But remember, if it doesn’t fit your budget, it’s not the one and you’ll thank yourself later for not taking on a mortgage bigger than your budget. There will always be give and take, and some things may be worth a premium. Just be sure you have your priorities straight, know what your non-negotiables are, hold out until you find the home that fits and when it does, go for it!


MainStreet Team
MainStreet Team

MainStreet Financial Planning, Inc., an independent fee-only financial planning firm was founded in Maryland in 2002 by Jim Ludwick, CFP® who passionately believed that financial planning advice should be accessible to people from all walks of life without product sales and investment management services. In 2006 Anna Sergunina, CFP® joined the team and together they grew MainStreet Financial to a nationally recognized company, with a team of 6 staff members and 5 offices across the country.

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