How Can I Buy a House for the First Time?

Buying your first house involves more than finding a property and applying for a mortgage. You need to decide what fits your budget, prepare your credit and savings, compare loan options, protect yourself in the purchase contract, and review the final costs before closing.

The process can feel complicated, but you do not need to figure it out all at once. Take it one decision at a time, beginning with what you can comfortably afford.

How can I buy a house for the first time?

Most first-time buyers move through these basic steps:

1. Review your budget, credit, and savings.
2. Research mortgages and homebuyer-assistance programs.
3. Request preapproval when you are ready to shop.
4. Find a home and make an offer.
5. Complete the inspection, appraisal, and underwriting process.
6. Review your final loan documents.
7. Close on the home.

Some steps may overlap, and the exact process can vary by lender, loan program, purchase contract, and location.

1. Decide how much home you can afford

A lender may preapprove you for more than you want to spend each month. Set your own budget before using the lender’s number as a shopping target.

Include the full monthly housing cost:

• Mortgage principal and interest
• Property taxes
• Homeowners insurance
• Mortgage insurance, if required
• Homeowners association fees
• Utilities
• Routine maintenance
• A cushion for unexpected repairs

You will also need cash for expenses that occur before or at closing. These can include the down payment, inspection, appraisal, closing costs, moving expenses, and initial repairs or furnishings.

Estimate your debt-to-income ratio

Your debt-to-income ratio, or DTI, compares your required monthly debt payments with your gross monthly income. Mortgage lenders use it to evaluate whether you can manage the proposed payment alongside your existing debts.

DTI is not part of your credit score because credit reports do not contain your income. Acceptable DTI limits vary by lender, mortgage program, and the rest of your application.

Paying off a debt may reduce your DTI if it eliminates a required monthly payment. Before using a large portion of your savings to pay down debt, ask a lender how the change might affect your application. Cash available for closing and emergencies can also matter.

Explore down-payment assistance

State and local governments, housing finance agencies, employers, and nonprofit organizations may offer down-payment or closing-cost assistance. Programs can have income, purchase-price, property, location, education, or occupancy requirements.

Do not assume you qualify based only on being a first-time buyer. Each program can define “first-time buyer” and set eligibility differently.

Get independent guidance: A HUD-approved housing counselor can help you review your budget, mortgage options, and local assistance programs. Counseling may be free or available for a reasonable fee.

2. Review your credit and mortgage options

Get your credit reports from AnnualCreditReport.com and check all three for errors. If you find inaccurate information, dispute it with each bureau showing the error.

The score you see in a credit-monitoring app may not match the score a mortgage lender obtains. Your scores can vary based on the scoring model, credit bureau, loan type, and date they are calculated.

There is also no universal score required for every mortgage:

• FHA loans: FHA policy permits scores of 580 or higher. Scores from 500 to 579 may qualify with at least 10% down. Individual lenders may require higher scores.
• VA loans: The Department of Veterans Affairs does not set a minimum credit score, but participating lenders may. Eligibility requirements apply.
• USDA guaranteed loans: The USDA program does not set a minimum score. Income, property-location, and lender requirements still apply.
• Conventional loans: Requirements vary. Fannie Mae’s Desktop Underwriter no longer requires a minimum third-party credit score, but lenders and other conventional programs may set their own standards.

Meeting a program’s minimum requirements does not guarantee approval. Lenders also review your credit history, income, debts, assets, property details, and ability to repay.

Compare more than the down payment and interest rate. FHA, USDA, and some conventional loans include mortgage insurance or program fees. VA loans may include a funding fee unless you qualify for an exemption.

Read more >> How to Buy a House With Bad Credit

3. Request mortgage preapproval

A preapproval letter is a lender’s tentative statement that it may lend you up to a certain amount. It can show sellers that you are likely to qualify for financing, but it is not a final approval or guaranteed loan offer.

Lenders use the terms “preapproval” and “prequalification” differently. Some review detailed documents and credit information, while others rely more heavily on information you provide. Ask each lender:

• What documents will you review?
• Will you check my credit?
• Will the check be hard or soft?
• How long will the letter remain valid?
• What assumptions are included?
• What could change the amount or terms later?

Getting preapproved does not commit you to using that lender. Once you have identified a property, request official Loan Estimates from multiple lenders offering the same loan type and features.

A Loan Estimate shows the expected interest rate, monthly payment, closing costs, and other loan details. For most mortgages, the lender must provide it within three business days after receiving the required application information.

Compare:

• Interest rate and APR
• Fixed or adjustable rate
• Monthly principal and interest
• Mortgage insurance
• Origination charges
• Lender credits
• Estimated taxes and insurance
• Cash needed at closing
• Five-year borrowing cost

Read more >> What Is Mortgage Amortization?

4. Find the right home

Your preapproval amount is a ceiling, not a spending target. Look for a home that fits the monthly budget you created before applying.

Consider more than the purchase price:

• Property taxes
• Insurance costs
• Association fees and rules
• Expected maintenance
• Flood, wildfire, or other location-specific risks
• Commute and transportation costs
• Needed repairs or renovations
• Future space requirements

A real estate agent can help you find properties and prepare an offer, but you are not required to hire the first agent you meet. Ask about the agent’s experience, services, compensation, and any agreement you will be expected to sign.

Be clear about your must-haves, preferences, and maximum budget. A home that uses every dollar of your preapproval may leave too little room for repairs and other priorities.

5. Make a careful offer

An offer is more than the price you are willing to pay. It can also address the closing date, earnest-money deposit, seller credits, included property, and conditions that must be satisfied before the sale closes.

Depending on your contract and local law, common contingencies may cover:

• Mortgage financing
• The home inspection
• The appraisal
• Title issues
• The sale of another property

Waiving a contingency may make an offer look more competitive, but it can also put your deposit or finances at risk. Do not waive inspection, appraisal, financing, or other protections without understanding the consequences.

Your agent or a qualified real estate attorney can explain how the contract works in your state. The person advising you should understand your interests, not only the goal of closing the sale.

6. Complete the inspection and appraisal

A home inspection and an appraisal serve different purposes.

Home inspection

An independent inspector evaluates the home’s condition and may identify problems involving the roof, foundation, electrical system, plumbing, heating and cooling equipment, or other components.

Schedule the inspection quickly enough to meet the deadline in your purchase contract. There is no universal seven-to-ten-day inspection period or automatic right to cancel.

If your contract includes an inspection contingency, its terms determine whether you can request repairs, renegotiate, or cancel without losing your deposit. Attend the inspection if possible and ask questions about any major concerns.

Appraisal

The lender generally orders an appraisal to estimate the property’s value. An appraisal is not a substitute for an inspection and does not guarantee that the home is free from defects.

If the appraised value is below the purchase price, your options may include:

• Asking the seller to lower the price
• Challenging the appraisal with relevant information
• Paying some or all of the difference
• Changing the financing
• Canceling the purchase if your contract allows it

Do not assume you must cover an appraisal gap. Review the contract and discuss your options before committing more cash.

7. Review the final documents and close

For most mortgages, you must receive a Closing Disclosure at least three business days before closing. Use that time to compare it with your most recent Loan Estimate.

Check the:

• Loan amount
• Interest rate and APR
• Monthly payment
• Mortgage insurance
• Taxes and insurance
• Closing costs
• Lender credits
• Cash to close
• Prepayment penalty, if any

Ask about differences before signing. Do not let the excitement of closing keep you from questioning a changed fee, rate, or loan term.

Your closing agent will tell you whether to bring a cashier’s check or send a wire transfer. Confirm payment instructions in person or by calling a trusted phone number you already have. Do not rely on last-minute wiring instructions sent by email because mortgage-closing scams can look convincing.

Depending on your location, closing may take place with a title company, escrow officer, or attorney. Bring the requested identification and take the time you need to read the documents.

Bottom line

Buying your first home starts well before the house hunt. Build a budget around the complete cost of ownership, review your credit, compare mortgage programs, and preserve enough savings for closing and unexpected repairs.

A preapproval helps you shop, but it does not guarantee final approval or tell you which lender offers the best deal. Compare official Loan Estimates, protect yourself in the purchase contract, and review the Closing Disclosure before signing.

If buying a home is still a future goal, Kikoff’s Credit Account reports your on-time payments to all three credit bureaus. It is a free revolving credit line used only in the Kikoff Store, and no hard credit check is required to sign up.

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