Buying your first home is a major life change. This type of purchase lets you set down roots but can have a profound effect on your finances. These first-time home buyer tips will help you through the home-buying process and maximize the chances you'll get the right house -- and home loan -- for your needs.
If you're looking for more in-depth information, check out this comprehensive Home Buyer Checklist.
Taking time to save up can help you prepare for some of the costs associated with buying a home, including the down payment.
A down payment is money you put down when buying a home. Some lenders allow as little as 3% down or even no down payment. But you'll have more choice of lenders with at least 10% down. If your down payment is below 20%, you will probably have to buy mortgage insurance. This insurance protects lenders -- not you -- in case of foreclosure, although you pay for it.
A larger down payment can also help you qualify for a loan at a lower interest rate. And it will reduce the chances you'll end up owing more than your home is worth. Since it takes time to save up that much, start working on your saving early on. Our guide to home down payments can help you learn more.
Good credit can help you qualify for a mortgage loan at a competitive rate. To help raise your credit score before applying for a loan, make sure you:
If you have a low credit score, it doesn't mean you can't buy a home. Check out our guide to the best mortgage lenders for poor credit to see what options are available to you.
Your mortgage lender will most likely approve you for the maximum loan amount they feel you can repay. But you may not want to borrow that much, especially if doing so will interfere with other financial goals. So it's important to know how much you want to borrow before you apply for a loan.
When deciding how much to spend, look at both monthly payment and total loan costs. Experts recommend keeping total housing costs below 30% of income. You may not want to spend even this much if you don't have to. If you're trying to keep your monthly costs low for your first mortgage, it may be a good idea to look at starter homes. These homes are typically less expensive.
Consider how the payment will fit into your budget, and review this article on "how much house can I afford?" to help you decide.
Loans with favorable terms keep borrowing costs and payments low. There are different types of mortgage loans for first-time buyers, including:
Also, decide on your loan term and whether you want a fixed-rate mortgage (with steady payments for the entire payoff period) or an adjustable-rate mortgage. ARMs only have a fixed payment for a limited time, after which rates adjust and could rise. Sometimes first-time buyers take the risk of an ARM if it provides a low starting rate.
Shop around with several lenders and compare loan offerings and rate quotes to find the most affordable loan. If you still need more help, look into these types of first-time home-buyer loans.
When you've found a mortgage lender offering the most competitive rate and terms, formally submit an application for pre-approval.
This involves providing financial information so your lender can evaluate your mortgage application, give you personalized rates, and determine loan eligibility.
Pre-approval doesn't guarantee a loan. But as long as the home is valued high enough to guarantee the loan and nothing has changed in your finances it does set you up for final approval once you've found a property.
Many home sellers also require pre-approval before accepting an offer. To get a pre-approval, check out our mortgage pre-approval page.
Most home buyers work with a real estate agent, especially first-time buyers. As your advocate throughout the home-buying process, they will help you in so many ways, including finding properties and negotiating a fair price.
When you're ready to find a real estate agent:
And make sure you ask about fees. As a buyer, you do not have to pay a real estate agent. The seller will pay the agent a commission that's usually equal to 3% to 6% of the value of the home you purchase. For more information, check out our guide to finding the best real estate agent.
Before you start looking for homes, make sure you know what's important to you. Research daily commutes. If you plan to start a family soon after moving in, research school districts. If you plan to use the property for a specific purpose, such as to run a home-based business, check zoning laws. The key is to be prepared. In addition to the price of a home, consider location, school district, home size, and other factors such as whether the property is in a homeowners association neighborhood.
It's up to you to decide how much to offer for a property you're interested in. In a seller's market with lots of competition, you may want to offer the asking price or even more. If the house has been on the market for a long time with no interest, you may decide to offer below asking price.
When you make an offer on a house, your offer will include details beyond price. Specify who pays closing costs and the date you want to close on the house. Consider including contingencies, too. These are conditions that must be met for the sale to be completed. The offer may be contingent on an inspection, your ability to get financing, and a home appraisal showing it's worth what you're paying. If you want to learn more, be sure to read our advice about how to make an offer.
There are transaction fees involved in buying a home. You'll usually pay them at closing, when you transfer money to the seller and the seller transfers ownership of property. Closing costs can add up to 2% to 5% of the value of your home loan. This guide to closing costs explains what's included in these fees.
Follow these tips and you'll give yourself a solid start to home ownership. If you'd like even more information on the home-buying process, look into local first-time home-buyer courses, which can walk you through the process and offer regional tips.
If you're a first-time home buyer, our experts have combed through the top lenders to find the ones that work best for those who are buying their first home. Some of these lenders we've even used ourselves!
We've compiled a first-time home buying guides to help you confidently take the next step to land your best mortgage deal. Check out The Ascent's first-time home buyers guide for essential education.
As a first-time home buyer, you will want to be armed with as much knowledge as possible.
To be financially prepared, you’ll want to know about what you should save up for, including the down payment. You’ll also want to know your credit score, what types of mortgages are available to you, and how much of a loan you can afford.
To get you into the home of your dreams, you’ll want to know the best strategies to make the home-buying process easier. This includes researching neighborhoods, finding a real estate agent, getting pre-approved, and knowing how to make an offer that protects your interests.
To avoid mistakes as a first-time home buyer, plan ahead and don't commit to anything you don't understand.
Don't make an offer on a home unless you understand the contract and what your rights and obligations are under it. And don't take out a mortgage loan unless you know the mortgage rate, the monthly payments, total costs over time, fees paid, closing costs, and whether interest or payments could change over time.
The best tips for first-time home buyers involve choosing an affordable property, researching your mortgage loan options carefully, and keeping your total monthly housing expenses below 30% of your income. Don't let the bank tell you how much is affordable, either -- consider how the monthly payments on your loan will affect your budget.
You should also avoid making too small of a down payment, which puts you at risk of owing more than the home is worth. And be sure you understand the terms of your mortgage, including your interest rate, monthly payment, and whether either could change over time.
Understanding your mortgage and buying an affordable house are essential because the home you're purchasing isn't just a place to live -- it's an investment and a big financial commitment.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team. The Motley Fool has a Disclosure Policy. The Author and/or The Motley Fool may have an interest in companies mentioned.