How Can I Buy a House for the First Time?

Are you ready to become a homeowner for the first time? The process can be exciting and overwhelming. If you’ve been wondering, “How can I buy a house for the first time?” you’re not alone. 

First-time buyers often have questions about their credit scores, down payments, and the mortgage approval process. Even shopping for homes can feel like a daunting step. Here’s what you need to know. 

How can I buy a house for the first time? What you need to know

Here’s the big-picture roadmap that will guide you to home ownership:

• Assess your financial readiness
• Check and strengthen your credit
• Get pre-approved for a mortgage
• Start house hunting
• Make an offer
• Complete inspections and appraisals
• Close on your home 

Buying a first home is different from purchasing a second or third home, as you are probably still establishing your financial history. Lenders are going to closely scrutinize:

• Credit history
• Debt-to-income ratio (DTI)
• Savings
• Employment stability

You may also be eligible for special loan programs or down payment assistance, which can make the path to homeownership easier. To take advantage of these programs, make sure you partner with a lender who has experience with first-time homebuyers. They will educate you about programs you may qualify for, which can reduce your out-of-pocket expenses. 

Before you start this process, it’s important to make sure your finances and credit history are in order. The last thing you want to do is apply for a mortgage, only to find out you’ve got months of work left to do first. That brings us to step one. 

Assessing your finances

Take an honest look at your finances. This means making a list of all of your recurring monthly expenses and examining your savings. You will need enough money to cover a down payment on the house, as well as closing costs and inspections. Don’t assume that you will qualify for a first-time homebuying program. It’s best to oversave rather than undersave.

While you prepare for homeownership, pay off as many recurring debts as you can. Eliminating monthly bills, such as credit card payments, will reduce your DTI. The lower your recurring bills, the better your odds of getting approved for a home. 

Ensure you have good credit

One of the most important factors in the homebuying process is making sure your credit score is high enough. The specific score you need will vary depending on which type of loan you are applying for. 

For example, FHA loans accept applicants with a credit score of 580+, although a 620 credit score will make it easier to get approved. You will need a 620 or higher for conventional loans, and a 640 or higher is preferred for USDA loans. 

There are some alternative options. FHA loans accept applicants with a 500+ if they put at least 10% down, but getting approved with that low of a score can be tough.

Remember, the higher your score, the better your odds of unlocking the best rates. A reduction in your rate by even 0.5% can save you thousands in interest over the life of your loan.

Getting pre-approved for a mortgage

After you’ve got your finances and credit in order, it’s time to get pre-approved. You will encounter the phrases “pre-approved” and “pre-qualified.” Getting pre-qualified is faster, but it's not taken as seriously as a pre-approval. Pre-qualification is based on self-reported financial information, most of which isn’t verified. 

To get pre-approved, you will need to submit proof of income, and some lenders run a soft inquiry. Some sellers and their agents require you to provide a pre-approval letter before they will authorize a showing. 

Finding the right home

Once you’ve been pre-approved by a lender, you can start shopping for homes. While you aren’t legally required to get a real estate agent, it’s best to have a professional represent you. Choose an agent who knows the area and has plenty of experience. Talk to them about your must-haves and nice-to-haves, as well as which neighborhoods are at the top of your list.

Don’t overload yourself with options. Look at a few houses at a time until you find one that is the right fit. Be patient, as new homes are hitting the market every single week. 

Making an offer

Work with your agent to submit an offer when you find the right home. Your agent will help you make the offer competitive. A few ways to make the offer more competitive include the following:

• Offer a quicker closing date (i.e., 30 days instead of 60 days)
• Put down a larger deposit
• Ask for fewer concessions

An experienced real estate agent will help you identify ways to be competitive while also protecting your interests based on the unique circumstances surrounding your deal. 

Home inspections and appraisals

Once the seller accepts your offers, it's time to arrange home inspections and appraisals. The home inspection period is typically around 7-10 calendar days and occurs at the beginning of the contract. During that time, you can have the home inspected and have the right to withdraw your offer without any penalties. 

Hire an experienced home inspector so that you have better chances of uncovering any concerns with the home, such as an aging roof or unreliable HVAC system. If there are any issues, you can revisit the purchase price or discuss repairs with the seller. 

If you make it through the inspection period without any issues that kill the deal, your lender will schedule the appraisal. An appraiser will assess the home’s value. As long as the home is valued at or above the purchase price, you are good to go. If it appraises too low, you may have to bring cash to cover the difference or ask the seller to lower the price. 

Closing on your first home

You’ve finally reached closing day. You will either respond to a title office to sign your documents, or you can opt for a mobile closing. You will sign many documents. You will also have to wire funds a few days before closing, which includes money for your down payment and escrow deposit. 

Conclusion

Now that we’ve answered the question, “How can I buy a house for the first time?” it's time to make yourself a stronger mortgage applicant. That means adding positive activity to your payment history with solutions like Kikoff.

Kikoff credit accounts are free to open, and no hard inquiry is required. We also offer free verified rent payment reporting, dispute letter generation, and a variety of other paid and free services to help you take control of your financial history. 

Start building a positive credit history with Kikoff.