Understanding the home-buying process
For many, buying a first home represents the realization of a dream—stability, putting down roots, and creating a space that’s truly your own. It’s often the biggest purchase a person will make. While the process can feel detailed and overwhelming, understanding what to expect at each stage will help you move forward with confidence.
5 Steps that could help you buy your first home
The home-buying process could be divided into five main stages:
- Step 1: Preparing for home ownership
- Step 2: Getting preapproved
- Step 3: Looking at potential homes
- Step 4: Making an offer
- Step 5: Closing the deal
Understanding the requirements and decisions that come with each stage will help you stay organized and remove much of the uncertainty.
Preparing for home ownership
The home-buying journey begins long before you tour your first property. This stage is all about preparing your finances and understanding your budget.
- Start saving for a down payment: It’s never too early to start saving for home ownership. The typical down payment is 10%–20% of the purchase price. Making a larger down payment may help you get better terms on your mortgage.
- Check and monitor your credit score: Your credit score has a large impact on whether you can secure financing and on what terms. Check your rating with the three top credit agencies, Experian, Equifax, and TransUnion, and notify them if there are any inaccuracies.
- Access your financial readiness: Make sure a home is something you can handle financially. You should be able to make a down payment, maintain an emergency fund, save for retirement, and make your mortgage payments in addition to your regular monthly expenses. While tightening your belt may be necessary, you don’t want to be in a position where you and your budget are overly stressed.
- Set a budget: Determine how much house you can comfortably afford. The 50 | 30 | 20 rule can help you decide how large a mortgage you handle, and online calculators can help you estimate mortgage payments on potential properties.
- Start gathering documentation: As part of the vetting process, lenders will want to see proof of income like recent W-2s and paystubs in addition to your credit score and other information to determine your eligibility for a loan. Finding out which documents are needed and gathering them early on can help prevent delays and make the process smoother.
- Find a local real estate agent: You’ll want to work with someone who understands the local market, can guide you through the home-search, and provide valuable information about the other steps in the purchasing process.
Getting preapproved
The next step could help you move on the house of your dreams faster and show potential sellers that you are ready.
- Shop around for lenders: Each lender will have its own terms, interest rates, and requirements for eligibility. It’s important to find the best terms to suit your circumstances.
- Get preapproved: Get preapproval from a reputable lender. The process lets you know the mortgage amount a lender is willing to offer, and it shows the seller that you will be able to finance the purchase of their property. Preapproval can make the actual mortgage application easier and faster since you’ve already provided most of the information they require.
Looking at potential homes
This is the step that many consider to be the fun part of the process—looking at homes. During this stage, you can match your lifestyle and budget with the right property.
- Be clear on your non-negotiables vs. nice-to-haves: Make a list of the things that you must have. These are things that will cause you to walk away from a property. Then make a list of the things that you’d like to have but are willing to compromise on. Having this list beforehand will help you evaluate properties more objectively.
- Location, location, location: Location can greatly affect both your lifestyle and the resale value of the property. Is the house in a thriving or up-and-coming area? Is it close enough to the things that are most important to you like work, schools, or medical facilities?
Making an offer
Now that you’ve found “the one,” it’s time to put together an offer and prepare to negotiate.
- Look at comparable properties: An experienced real estate agent can help you find out what similar properties are selling for in the area so you can make an informed offer.
- Decide on the offer amount: Once you’ve decided on a property, work with your real estate agent to present an offer to the buyer. It’s OK to offer less than the asking price if the offer is reasonable considering the home’s condition and comparable listings.
- Be ready to negotiate: It’s common for sellers to make a counteroffer if your offer is below their asking price.
- Consider adding a nice note to your offer: The housing market can be competitive, particularly for first-time homebuyers. If multiple offers are made on a home, a note about your family and goals can help sway a seller to your offer over others.
Closing the deal
The last stage of the process involves underwriting and closing. This time offers the last chance to perform due diligence before finalizing the sale.
- Home inspection: You or your real estate agent will arrange for a home inspection. This is an important step that’s designed to reveal any serious flaws that could require major repairs in the immediate or near future. Often, more negotiations between buyer and seller will happen after inspection if there are things that need to be fixed.
- Home insurance: You’ll need to purchase home insurance to protect your investment. Along with protecting the physical structure, safeguarding your family’s ability to stay in the home no matter what happens is a smart decision. One way to do that is to use life insurance to protect your mortgage if something unforeseen happens to you.
- Home appraisal: The lender will order an appraisal as part of the underwriting process to ensure the home’s actual value matches the mortgage amount.
- Underwriting: The lender finalizes their verification of your finances and the property value and gives the OK to issue the mortgage.
- Closing: During closing, you are presented with the final mortgage terms and costs including fees for the real estate agent, title search, deed preparation, and filing. After being given an opportunity to review the documents, you and the seller will sign the necessary documents, which will also be signed by witnesses and a notary. This usually happens at an attorney’s office. Once the transfer of money (usually by wire transfer) to the seller is confirmed, the house is all yours.
Home-buying tips for first-time buyers
Although home buying is an involved, multi-step process, there are things you can do to help it go smoothly:
Maintain your credit
It’s important to consistently pay bills on time and maintain your credit rating because lenders will use this information to evaluate your loan eligibility. For a conventional loan, the minimum score needed is around 620, but a higher score will help you secure more favorable mortgage terms. Leading up to a home purchase, you will want to avoid taking on additional loans to prevent a negative impact on your debt-to-income ratio.
Shop around—for everything
Whether looking for a real estate agent, financing options, an insurance provider, a home inspection company, or the perfect two-bedroom bungalow, it’s important to shop around. Try to get two to three quotes for everything that will cost you money and be sure to mention you are getting other quotes as well, as this may help you bring costs down as they compete for your business. Working with a real estate agent who understands the local market is crucial, and getting the best terms on financing—even at a rate that’s 1% lower—can add up to big savings over the life of your mortgage. Also check into whether you qualify for any first-time home buyer programs that provide assistance to first-time home buyers (more on that later).
Prioritize pre-approval
Preapproval is an important step that can give you an advantage in a competitive market. It shows sellers that you are serious about your offer and that a lender is willing to back you. This may make your offer more attractive than one coming from a buyer that’s not preapproved. Also note that preapproval does not mean that you must use that lender for your mortgage.
Stick to your budget
It’s easy to get caught up in the excitement of seeing the home of your dreams and competing against other buyers, but it’s essential to decide your budget beforehand and stick to it, so you don’t end up going over your budget and being in a situation you can’t afford.
Don’t skip the home inspection
It may be tempting to close quickly and get into your new home, but a professional house inspection is well worth the time and money. It helps reduce surprises caused by unexpected issues. Unless you’re planning to demolish the structure and start from scratch, you’ll want to know what condition it’s in so that the seller can tend to any major repairs before the sale or reduce the selling price so you can take care of them after the purchase.
First-time home-buyer programs
Coming up with a 10%–20% down payment can be a significant challenge for many first-time buyers with low-to-moderate income. Some potential buyers may have less-than-stellar credit, or more debt than lenders consider ideal. In these cases, several government programs offer assistance to help to make home ownership more attainable for a wider range of buyers. Some programs allow lower minimum downpayments and provide help with closing costs among other incentives to help make home ownership more attainable for a wider range of buyers.
Some programs include loans for first-time buyers backed by these government agencies:
- Federal Housing Administration (FHA)
- Veterans Affairs (VA) loans
- U.S. Department of Agriculture (USDA)
- Federal National Mortgage Association (Fannie Mae)
Each organization has its own process, and the requirements to be considered a first-time buyer can range from someone who has never owned a primary residence to someone who has not owned a home in the past three years. It’s also worth noting that student loan debt may not necessarily prevent someone from qualifying for a mortgage. However, the amount and terms of the student loan may make it harder to secure a mortgage and may affect its terms.
Buying your first home: the bottom line
Home ownership can be a worthwhile and rewarding endeavor. Learning the process of how to buy a home, understanding the steps involved, and following useful tips can help make your journey to home ownership a smooth one.
