16 tips for first-time homebuyers

Quick insights

Buying a home for the first time can be exciting. But there are a lot of new processes you’ll experience and people you’ll need to work with, too. Here are our top first-time homebuyer tips to help guide you through your journey from start to finish.

1. Identify your needs and non-negotiables

You may have always dreamed of a two-story house with a grand staircase and a large yard, but have you considered what you truly need in a home? Where you are in life right now and where you’re planning to go in the future may not be the same as where you thought you would be when you first dreamt of buying a home.

Do you need a separate bedroom for each of your kids, or does it make more sense to find a home where your children can share a bedroom, and you can have space for a home office or playroom? Are you willing to travel farther for work if it means buying a home in a specific neighborhood, community or school district? Does a townhouse or condo make more sense than a single-family home for your family's needs and lifestyle?

Take the time to consider what your current needs are and what your needs may be in the future. Then make a list of the things you need and want in your new home. Having a clear understanding of your housing needs helps you identify the most important things to look for when viewing homes.

2. Compare mortgage rates

Interest rates and fees can vary between loan providers. Comparing mortgage options from banks, credit unions and online loan providers can help you secure a lower mortgage rate and save thousands over the life of your loan. A difference of even half a percentage point can significantly impact your monthly payment and total interest paid.

3. Know the true cost of owning a home

Make sure you know what your new home will really cost. The true housing cost includes more than your mortgage payment. A good first start is to use a mortgage calculator to estimate your monthly payment.

You also need to add in the costs of any property taxes and homeowner's insurance. In addition to your monthly payment, you should also consider the cost of home maintenance, such as taking care of the lawn and yard, maintaining appliances, unplanned repairs or replacements and any Homeowners Association fees if applicable. Do not forget to consider utility costs like electricity, gas, water and sewer, which could drive up your monthly costs. You can use our affordability calculator to help you determine how much you can comfortably afford based on your income and debt.

4. Know the true cost of buying a home

Purchasing and owning a home involves more than just the monthly mortgage payment. To make a smart decision, first understand all of the upfront and ongoing costs you will likely face.

Upfront costs when buying

Ongoing costs of home ownership

Once you own the house, your costs don’t stop:

By laying out both the buying-phase costs and the long-term ownership costs, you will have a better idea of what it truly takes to afford a home.

5. Build your savings now

Don't wait until you've found the house you want to buy—start saving now. You can start by setting up an automatic transfer to your savings account from each paycheck. You can also use your savings account to set aside bonuses you earn at work and tax refunds.

Then, look for areas in your current spending where you can cut costs. For example, packing a lunch to bring to work can cut down the amount of money you spend on food every month.

Building your savings early also prepares you for expenses after you move in like moving costs, new furniture, decorating or unexpected repairs. A strong savings cushion can give you peace of mind as you settle into your new home.

6. Build your credit wisely

When you’re preparing to buy a home, you need to be smart with your credit. Lenders use your credit score as a key factor to determine whether or not to approve you. They also use it to determine the interest rate and loan terms they’ll approve you for.

Avoid common credit mistakes that many first-time homebuyers make, such as:

7. Research your mortgage loan options

While many people think a conventional loan is their only option for buying a house, you have several different mortgage loan options available to you. These include:

Most lenders also offer the option of choosing between a Fixed Rate or an Adjustable Rate (ARM) Loan. Each mortgage loan option has its pros and cons. Consider working with a home lending advisor to find the home lending option that best fits your unique circumstances.

8. Explore first-time homebuyer programs in your state

Many state and local housing agencies offer grants or low-interest loans to help first-time homebuyers with down payments or closing costs. These programs can make homeownership more affordable, especially in high-cost areas. Check your state’s housing website for eligibility and application details.

9. Get preapproved before you begin shopping

Did you know you can find out what you can qualify for before you even begin looking for a house? You can get preapproved for a home loan with a simple conversation with your mortgage lender about your income, credit, employment and asset information. Getting preapproved for a mortgage loan can help narrow your search because you’ll already know how much you can finance.

10. Make the decision in your own time

You might feel like you need to quickly put in an offer on a home, or to accept rates or terms without knowing what other lenders might offer. It's okay to take your time to understand how everything works. Know what your options are and carefully think things through before you make any decisions.

Rather than deciding based on emotion, make sure you’re well-informed and take your time to carefully consider any decision you make about buying a home.

11. Stick to your budget

It can be tempting to stretch your budget for your dream home, but overextending can lead to financial stress later. Stay within your preapproved range and remember to include taxes, insurance, utilities and maintenance in your calculations. Owning a home should feel comfortable, not burdensome.

12. Aim to put down 20%

While some loan programs allow for smaller down payments, putting 20% down can help you avoid private mortgage insurance (PMI) and may secure a better interest rate. If 20% isn’t realistic for your unique situation, aim to put down as much as you can to reduce your long-term costs.

13. Hire a real estate agent

Hiring a real estate agent means you don't have to go through the homebuying process alone. As a valuable partner, they’ll work with you to ensure your needs and best interests are met throughout the purchasing process. Choosing an experienced agent who will represent you as the buyer helps ensure they’ll work in your best interest when finding homes and negotiating purchasing terms.

14. Make the most of walkthroughs and open houses

When touring homes, take notes and ask questions. Look for signs of needed repairs, test light switches and faucets and check appliances. During the final walkthrough, confirm that agreed-upon repairs are completed and that everything is in the expected condition before closing.

15. You don't have to pay the seller's asking price

You don't have to make an offer for the full asking price on the home you want to buy. As a first-time homebuyer, rely on your real estate agent's advice to determine how much you should offer. Ask your agent to help you make an offer that’s competitive but also within your budget and reflective of the home's value.

There may also be room for negotiation when making an offer to buy a home. Your real estate agent may be able to help you negotiate terms where the seller agrees to pay closing costs or cover costs of repairs found during the inspection.

16. Prepare for closing

Once the seller accepts your offer, there’s still a lot to be done before you close, like getting a home appraisal, completing a home inspection, doing a final walk-through and completing paperwork related to your loan. Your mortgage lender normally orders the home appraisal. 

On closing day, you’ll complete the legal and financial paperwork needed to complete the transfer of your funding to the seller and of the home's title to you. You should prepare to pay between 2% and 6% of the home's purchase price in closing costs, unless you (or your agent) have negotiated for the seller to cover all or some of these costs. Your lender will provide you with a breakdown of all costs prior to closing.

It’s important to make sure there are no changes to your financial status during this time to help the closing process move more smoothly. As you go through the process, make sure you carefully read any documents you receive and ask your real estate agent or attorney to explain anything you don't understand.

In summary

There's a lot to keep in mind when buying a home, but it's all worth it in the end. Knowing what the process involves, and how to handle whatever comes up, is a great way to arm yourself for this exciting journey. For more homebuying tips, or to find out whether you qualify for a mortgage, speak to one of our expert Home Lending Advisors.