15 first time home buyer tips

It is exciting — and a little scary — to think about buying your first home. Even when you know you are ready to buy a house, you might not be sure where to begin. These tips for first-time homebuyers will help you navigate the process from start to finish.

1. Start saving early

When calculating how much money you need to buy a house, consider one-time expenses as well as new, recurring bills. Here are the main upfront costs to consider when saving for a home:

• Down payment: Your down payment requirement will depend on the type of mortgage you choose and the lender. Some conventional loans aimed at first-time homebuyers with excellent credit require as little as 3% down.  You can use a down payment calculator to decide on a goal and then set up automatic transfers from checking to savings to get started.

• Closing costs: These are the fees and expenses you pay to finalize your mortgage, which typically range from 2% to 6% of the loan amount. Your closing costs on a $300,000 loan could be between $6,000 and $18,000. That’s additional money you’d have to pay, on top of your down payment.

• Move-in expenses: Remember to budget for moving costs, which typically run up to $2,500 for most local moves. (Long-distance moves can be much pricier.) You'll need some cash after the home purchase for immediate repairs, upgrades and furnishings.

2. Decide how much home you can afford

Figure out how much you can safely spend on a house before starting to shop. A home affordability calculator can help with setting a price range based on your income, debt, down payment, credit score and where you plan to live.

3. Check and polish your credit

Your credit score will determine whether you qualify for a mortgage and affect the interest rate lenders will offer. Having a higher credit score will generally get you a lower interest rate so it is important to do the following:

• Pay all your bills on time, and keep credit card balances as low as possible.

• Keep current credit cards open. Closing a card will increase the portion of available credit you use, which can lower your score.

• Avoid opening new credit accounts while you’re applying for mortgages. Opening new accounts could put a hard inquiry on your credit report and lower the overall average age of your credit accounts, which could hurt your score. 
  
  

4. Explore mortgage options

A variety of mortgages are available with varying down payment and eligibility requirements. Here are the main categories:

• Conventional mortgages are the most common type of home loan and are not guaranteed by the government. Some conventional loans targeted at first-time buyers require as little as 3% down.

• FHA loans are insured by the Federal Housing Administration and allow down payments as low as 3.5%.

• VA loans are guaranteed by the Department of Veterans Affairs. They are for current military service members and veterans and usually require no down payment.

You also have options when it comes to the mortgage term. Most homebuyers opt for a 30-year fixed-rate mortgage, which is paid off in 30 years and has an interest rate that stays the same. A 15-year loan typically has a lower interest rate than a 30-year mortgage, but the monthly payments are larger.

5. Gather your loan paperwork

Before you are approved for a mortgage, your lender will ask you for financial records to verify your income, assets and debt, including:

• Proof of income and employment, such as tax returns, W-2s and 1099s.

• Statements for bank, retirement and brokerage accounts.

• Records of debt payments, such as student loans, auto loans or any real estate debt.

6. Get a preapproval letter

A mortgage preapproval is a lender's offer to loan you a certain amount under specific terms. Having a preapproval letter shows home sellers and real estate agents that you are a serious buyer and can give you an edge over home shoppers who have not taken this step yet.

Apply for preapproval when you are ready to start home shopping. A lender will pull your credit and review the documents you organized in the previous step. Applying for preapproval from more than one lender to shop rates should not hurt your credit score as long as you apply for them within a limited period, such as 30 days.

Home shopping tips

7. Choose a real estate agent carefully

A good real estate agent will scour the market for homes that meet your needs and guide you through the negotiation and closing processes. Get agent referrals from other recent homebuyers. Interview at least a few agents and request references. When speaking with potential agents, ask about their experience helping first-time homebuyers in your market and how they plan to help you find a home. 

8. Narrow down your ideal type of house and neighborhood

Weigh the pros and cons of different types of homes, given your lifestyle and budget. 

• An existing home generally costs less than buying new construction.

• A condo or townhome may be more affordable than a single-family home, but shared walls with neighbors will mean less privacy. 

• Single-family homes in need of updates or repairs, usually sell for less per square foot than move-in-ready homes. However, you may need to budget extra for repairs and remodeling.

• Research potential neighborhoods thoroughly, including property values, property taxes and safety considerations. Choose one with amenities that are important to you, including schools and entertainment options. 

Home purchasing tips

9. Don’t skip the home inspections

A home inspection is a thorough assessment of the structure and mechanical systems. Professional inspectors look for potential problems, so you can make an informed decision about buying the property. Here are some things to keep in mind:

• Standard inspections don’t test for things like radon, mold or pests. Understand what's included in the inspection and ask your agent what other inspections you might need.

• Make sure the inspectors can get to every part of the house, such as the roof and any crawl spaces.

• The buyer doesn’t have to attend the inspection, but it could be useful to be there. By following the inspectors around you can get a better understanding of the home and ask questions on the spot. If you can't attend the inspections, review the reports carefully and ask about anything that's unclear.

10. Negotiate with the seller

You may be able to save money by asking the seller to pay for repairs in advance or lower the price to cover the cost of repairs you’ll have to make later. You may also ask the seller to pay some of the closing costs.

Your negotiating power will depend on the local market. It's tougher to drive a hard bargain when there are more buyers than homes for sale. Work with your real estate agent to understand the local market and strategize accordingly.