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15 First-Time Home Buyer Tips

Lauren Nowacki18-minute read
March 18, 2021

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The first time you do anything is a learning experience – and sometimes you learn the hard way. Buying a home is no different. Luckily, you don’t have to learn everything about buying a home from firsthand experience. We’ve got 15 helpful tips for buying your first home, so you know what to expect and how to master each step of the process all the way to the closing table.

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Tips For First-Time Home Buyers

Here’s a rundown of our best advice for first-time home buyers.

1.    Prepare For Buying A Home

2.    Build An Emergency Fund

3.    Determine If It’s The Right Time To Buy A Home

4.    Learn About The Home Buying Process

5.    Shop Around For A Mortgage and Get Preapproved For A Loan

6.    Figure Out How Much House You Can Afford

7.    Understand That Your Monthly Payment May Change

8.    Enlist The Help Of Professionals

9.    Think About Your Dream Home

10.  Find Your Home

11.  Read Disclosures Carefully And Ask For Clarification

12.  Make An Offer

13.  Get An Appraisal An Attend The Inspection

14.  Get The Right Homeowner’s Insurance

15.  Know What To Expect At Closing

 

Buying a home is complex, so if you’re looking for more information than what’s listed above, keep reading. We go in-depth for each of these tips, so you can be equipped with the right tools and know-how from the get-go.

1. Prepare For Buying A Home

The best advice for first-time home buyers is to prepare for buying a homeThis may take a few months or a few years, but doing so will set you up for success as you go through the home buying process and move onto homeownership.

To qualify for a mortgage, you’ll need to meet a few eligibility requirements. While these requirements depend on the type of loan you get and the lender you choose, they typically include:

  • A debt-to-income ratio (DTI) of 50% or less
  • A down payment of at least 3%
  • A minimum credit score requirement (580 for an FHA loan or 620 for a conventional loan)

One way to prepare for buying a home is to make sure you meet these requirements and surpass them. The lower your DTI and the higher your down payment and credit score, the better your rates and the more money you’ll save.

Work on paying off your debt. DTI is a major factor in determining if you qualify for a mortgage because a high DTI could indicate that you do not have enough money to pay all of your debts, including your mortgage. DTI is the percentage of monthly income you spend on debt payments each month. These debts may include credit cards, auto loans, student loans and any personal loans you may have. To find your DTI, add up the minimum payment for each of your debts (do not include other expenses like groceries, gas and utilities), then divide the total by your gross monthly income.

By paying down your debt, you’ll decrease your DTI and give yourself more available money each month. You’ll also decrease the other negative side effects of debt, like limits on your lifestyle and feelings of stress, frustration and regret.

Save for a down payment. Three percent may not sound like a lot, but when you’re dealing with a purchase price of five or more figures (six figures, on average), that 3% can total several thousand dollars. Affording a mortgage payment is one thing, affording the down payment to get the mortgage is another. Coming up with a large sum of money can be difficult, so take some time to save for a down payment so you can avoid dipping into your savings.

Depending on the type of mortgage you get, you may have a different required down payment. No matter the minimum, you should try to save as much as you can for your down payment. The more money you put down, the less you’ll have to borrow and the more equity you’ll start out with. If you put down 20% or more, you’ll also avoid having to pay private mortgage insurance (PMI), a payment that goes to the lender and doesn’t benefit you at all.

Build your credit. A credit score helps paint a picture for lenders of the type of borrower you’ll be. There are five factors that go into determining a credit score, each with its own weight:

  • Payment history/on-time payments – 35%
  • Amounts owed/utilization – 30%
  • Length of credit history – 15%
  • Credit mix – 10%
  • New credit – 10%

 

A low credit score tells lenders that you may not make payments on time, you’re desperate for credit, you have too much debt or you have little experience using multiple sources of credit. To help improve your score, make all of your payments on time, refrain from opening new credit accounts, pay down your debt and avoid maxing out your credit cards. Since lenders also review your credit history, check your credit report to see if there are any mistakes to fix before moving forward in the process. To review your credit score, sign up with Rocket Homes.

2. Build An Emergency Fund

Having an emergency fund is not a requirement for getting a mortgage, but it’s essential when you own a home. True to its name, this money is there for the sole purpose of funding an emergency or unexpected expense so you don’t have to dip into your life savings or take on more debt. Think of it as a financial safety net.

Typical unexpected expenses people use their emergency fund for include medical emergencies, car accidents or job loss. Someone who owns a home could incur additional costs from things like damage to the home, a broken appliance or busted pipes, to name a few.

When determining how much you should have in your emergency fund, a good rule of thumb is about 3 to 6 months’ worth of living expenses. That way, if you or your spouse lose your job, you’ll have enough money to cover the bills until you find a new one.

Don't let water surprise you.

Connect with a pro to install a sump pump to remove water from under your house.

3. Determine If It’s The Right Time To Purchase A Home

Even if you meet the qualification requirements, have a hefty down payment saved and a healthy emergency fund, you still might not be ready to purchase a home. Buying a home isn’t just a financial endeavor, it’s also a big responsibility. You’ll need to make sure you’re up for maintaining the home, handling utility bills, taking care of landscaping, maintaining your appliances, and performing home repairs. These types of responsibilities may require you to sacrifice your weekends and after-work hours. When determining if it’s the right time to purchase a home, see if you are both financially and emotionally ready.

4. Learn About The Home Buying Process

When you know what the process is like, you’ll know what to expect when buying your first home. This can help reduce your stress and minimize any surprises along the way. While every situation is different, here is the basic process you can anticipate. These will be further explained throughout this article.

Step 1: Save for costs and fees. As mentioned above, you’ll want to make sure you have money for a down payment. However, you will also need to have money for closing costs, which are typically around 3 – 6% of the purchase price.

Step 2: Get preapproved for a loan. This is the first step in the mortgage process. If you’re approved, your lender will tell you how much money they could lend you to purchase a home. This estimate is based on a surface review of your credit, income and assets. However, just because you are approved, that doesn’t mean you have the loan just yet.

Step 3: Find a real estate agent. They will help make the process of finding a home and making an offer easier. They’ll also be there to offer support and knowledge of the market throughout the process.

Step 4: Go house hunting. Browse online listings, work with your real estate agent and attend open houses to find your next home.

Step 5: Make an offer on the home and put down an earnest money deposit.

Step 6: Have the home inspected by a professional. They’ll be able to spot any red flags or repairs needed.

Step 7: Close your loan. You’ll sign the final paperwork, have the title transferred to your name and get the keys to your new home.

5. Shop Around For Your Mortgage And Get Preapproved For A Loan

Different lenders structure their loans in different ways and may have slightly different rates and fees. A half-percent difference in interest rate may seem insignificant, but it could save you thousands of dollars over the years. Some lenders may offer lower closing costs with a higher interest rate. Some may offer higher closing costs with a lower interest rate. Determine which is best for your situation. If you plan to refinance or sell the home in the near future, you may want to go with a loan that has lower closing costs. If you plan on holding onto that mortgage for a long time, a loan with a lower interest rate may be a better option.

Cost isn’t the only factor to consider when comparing lenders. You’ll also want to look for a lender that has great customer service, responds swiftly, answers any questions you have and has a seamless mortgage process.

By shopping around for your mortgage, you’ll be able to compare and save. 

You’ll want to get preapproved for a loan before you begin looking for homes for a couple of reasons:

  • It helps you determine how much home you can afford, which will narrow down your search.
  • It tells sellers and real estate agents that you’re a serious buyer and you’ll have an easier time securing funding for your home purchase.

Remember there is a difference between prequalification and preapproval. Prequalification carries less weight than a preapproval does. This is because the lender doesn’t verify all of your information to prequalify you. However, during preapproval, the lender will check your credit and verify your income and assets.

If you’re ready to take this step or want to learn more, visit Rocket Mortgage®  to get started.

Don't let water surprise you.

Connect with a pro to install a sump pump to remove water from under your house.

6. Figure Out How Much House You Can Afford

Before you start searching for big, shiny, new homes with all the amenities in all the posh neighborhoods, be realistic with how much house you can really afford. Keep in mind that, while your lender may have approved you for a certain amount, that doesn’t mean you’ll be able to afford the monthly payment. The approved amount is for the home itself; it may not include the other fees tacked onto the monthly payment, including interest, private mortgage insurance (PMI) and escrow.Interest This is what the lender charges you for borrowing money. There are several factors that determine the interest rate on your mortgage. These include your credit score, the type of loan you get, your lender and your loan term.PMI – If you don’t put at least 20% down on the home, you’ll need to pay  PMI. This helps protect the lender in case you default on your loan.Escrow – If your lender requires you to have an escrow account, they will charge you a certain amount of money that they will keep in the account and use to pay your property taxes and insurance each year.To get an estimate of the maximum price you can afford, use this handy Home Affordability Calculator from Rocket Mortgage®.When determining how much house you can afford, don’t just look at the monthly mortgage payment. Think about your other monthly living expenses including groceries, gas, utilities, entertainment and other debts. You’ll also want to factor in the costs that come with homeownership. These may include maintenance and repair costs, landscaping expenses, HOA fees, furniture, and more. You know your lifestyle and finances best, so it’ll be up to you to figure out what you can reasonably afford. It could also be helpful to speak to a financial advisor.

7. Understand That Your Monthly Payment May Change

Here’s the thing you need to know about escrow: it is an estimated amount of money that the lender determines based on your homeowners insurance policy and the property’s previous taxes. Since it is an estimate, the lender could be off and you could either end up owing the lender money or the lender could end up owing you money at the end of the year. Don’t get excited just yet. When a house is sold, the property can be reassessed for tax purposes. Because of this, property taxes usually go up from the previous years. When that happens, you’ll end up owing the lender. Whether the taxes go up, down or stay the same, your escrow will be evaluated every year. This will cause your monthly payment to go up or down, since your escrow is included in your monthly payment.

Here’s an example of how this works:

Your lender estimates that your taxes will cost a total of $2,000 for the year. However, the taxes end up costing $2,600. That means your escrow account is $600 short. In this case, you’ll owe your lender $600. When your loan is evaluated later in the year, the lender will collect more money for your escrow account in an attempt to avoid a shortage next year. If they increase it by $600, you could have an additional $50 added to your monthly mortgage payment.

On the flip side, if your taxes end up costing less than the lender estimated, they will pay you back the difference and next year’s monthly mortgage payment could go down. This is less common in the mortgage world, but it does happen.

8. Enlist The Help Of Professionals

Buying a home involves a lot of paperwork and a lot of legal jargon. It also deals with the real estate market and your finances. Because of this, you’ll want to make sure you’re doing everything by the book. By hiring professionals, you can ensure you’re doing everything right from a legal and financial standpoint. They’ll even take some of the burden off you.

A professional real estate agent will use their knowledge of the market and their connections to help you find a home and make a competitive offer. They’ll be able to offer support along the way and work in your best interest to find the right home and deal for your specific needs. We also recommend working with your financial advisor to ensure you can afford the home and costs of homeownership and to learn the tax implications and benefits of owning a home. You could also consider hiring a real estate lawyer to ensure you understand the terms of the loan and your real estate agreement.

Don't let water surprise you.

Connect with a pro to install a sump pump to remove water from under your house.

9. Think About Your Dream Home

You’ve likely already envisioned your new home, with its vaulted ceilings, open floor plan and stainless-steel appliances. But have you really thought about what you need? Before you get down to the cosmetic parts of the home, consider the bigger picture. How many bedrooms and bathrooms will you need? Do you need a multicar driveway or a big backyard?

Don’t just consider the home itself. Consider location too. Do you want a shorter commute? Do you want to be in a good school district? Do you want to be within walking distance of a downtown area? Do you care about crime rates?

Think about your future. If you plan on living in the home for a few years, what will happen in that time? Will your family grow? Will you take on a new job or hobby? Will you be getting roommates? Will you ever get used to having to climb stairs?

As you ask yourself these types of questions, make a list of must-haves (your needs), your nice-to-haves (wants) and your absolutely-nots (deal breakers).

10. Find Your Home

Once you know how much home you can afford and the type of home you need, you can start the process of finding your new home. Have a conversation with your agent about the type of home you want, need, and can afford. Give them your max budget, provide your list of must-haves and deal breakers and put them to work. On your own time, you can look through online listings within your price range. You can use filters on the site to narrow your search down even more. For example, if you want at least two bedrooms, you can filter out one-bedroom homes. Don’t limit yourself too much, though. If you think a four-bedroom home will be out of your price range, don’t automatically filter these homes out just yet. You may be able to find some hidden gems at the right price.

Send your real estate agent links to any listings that you love. It will give them a better idea of what you’re looking for. They can also set up a time to walk you through the ones you found online. Even if you think you found the perfect home, view it in person before making an offer.

Have you ever bought something online that looked amazing, but when you got it, it didn’t fit or looked completely different from the picture? The same goes for houses. Before buying a home, you should always look at it in person. Walk through each room and see if the home is a good fit, ask questions and get more information. Research red flags to look for and bring your list of deal breakers, so you can do an in-depth review of the home while you’re there.

11. Read Disclosures Carefully And Ask For Clarification

Real estate disclosures will reveal any issue with the home that can have a negative impact on its value or how you’ll experience living in it. Real estate disclosures will better help the buyer make an informed decision on whether to buy it. Disclosures can also protect the seller from being held liable for any issue the buyer encounters after purchasing the home. That’s why it’s important for them to list any and all factors that can cause issues for future homeowners. There are several things a seller must legally include on the disclosures and some that are optional. What’s required and what’s optional will depend on the state. A few common issues you may find listed on a disclosure include:

  • Paranormal activity
  • Lead paint
  • A leaky basement
  • Work that was done without a permit
  • Boundary line disputes
  • Renovations and upgrades
  • Asbestos
  • Radon 

Read disclosures carefully and ask for more information on anything of concern. Watch out for subjective words that can be hard to dispute in court. For example, if the disclosure says there’s a “small leak” in the basement, the seller is technically telling you there’s a leak in the basement. And even if that “small” leak actually causes big puddles, the seller could argue that the size of the leak is subjective and that, to them, it’s small.

You’ll need to decide what you’re willing to put up with when it comes to living in the home. If you’re fine with living in a haunted house or don’t believe that stuff anyway, that’s one thing. If you’re debating whether to continue with the purchase because a foundation issue is listed, that’s another. Here are a few red flags that, if listed on the disclosure, may make you want to reconsider purchasing the house:

  • Any foundation issues
  • Any indicators of foundation issues (basement leaks, exterior cracks, bowed walls)
  • Flood damage
  • Liens on the property
  • Work done without permits
  • Environmental hazards

12. Make An Offer

When you find a home you love, it can be hard not to do – or offer – anything to have it. But you don’t want to make the mistake of offering too much, especially when you can’t afford it. Yes, you’ll want to make a competitive offer; but you’ll also want to make one that’s in your price range and sensible for you. Your real estate agent can help with that. Once you make an offer, the seller has three options:

  1. Accept the offer and continue on with the sale of the home.
  2. Reject the offer.
  3. Propose a counteroffer.

If the seller counters, you can work with your real estate agent to negotiate a fair price with the seller. If you’re unable to reach an agreement with the seller, you may have to walk away from the home.

Once an offer is accepted, you’ll also make an earnest money deposit. This deposit is typically equal to 1 – 3% of the purchase price of the home. If you end up purchasing the home, the money is applied to your down payment or closing costs. If you end up backing out of the deal for an acceptable reason – like a failed home inspection or low appraisal – you’ll get that money back. However, if you back out of the deal for something like a simple change of heart, you will not get the money back.

13. Get A Home Appraisal And Attend The Inspection

If you’re getting a mortgage, you’ll be required to get an appraisal on the home. That’s because the lender cannot lend more than the appraised value of the home. It will also keep you from paying more on the home than what it is worth. If the appraisal comes back lower than what you offered on the home, you have a few options:

  • You can renegotiate the price with the seller. Chances are, they will have a hard time selling above the appraised value to anyone else anyway.
  • You can pay the difference with a larger down payment and borrow less money.
  • You can request another appraisal, which you or the seller will need to pay for.
  • You can walk away from the deal and start looking for another house.

While it may not be required, you’ll also want to get an inspection on the home. This is something you’ll have to pay for, but it’ll benefit you greatly to have one done. An inspection will help uncover any issues with the home that the seller may have tried to cover up or didn’t even know about. It’ll allow you to get a better idea of the internal operations of the home and get into the nooks and crannies you won’t typically get to see during an open house. The inspector should test the electrical work and plumbing and examine important parts of the home, including the roof, basement, attic and foundation.

To get the most out of your inspection, walk through the home with the inspector so they can point out and explain any issues they see. This is your opportunity to have some of those inner workings explained to you and to be aware of any problems or potential issues that could arise in the future. If you have concerns about anything you read on the disclosures, make sure the inspector pays attention to those issues.

If the inspector does list any red flags or repairs that are needed on the home, you can take these to the seller to have them fixed before the sale. Or, you could use these findings to negotiate a lower sale price. If the home fails the inspection, you may want to consider backing out of the deal.

14. Get The Right Homeowner’s Insurance

Before closing your loan, you’ll be required to get homeowner’s insurance. Just like a mortgage, you’ll want to shop around for your homeowner’s insurance as different agencies offer different rates. Make sure you fully understand what is covered and how much your deductible will be if you need to file a claim. Often times, cheaper insurance means less coverage and higher deductibles. You’ll also want to consider where you live in terms of what you need covered. For example, if you live in a floodplain, you’ll need to get flood insurance. Or, if you live on the coast, you may want to consider windstorm insurance to cover hurricane damage.

15. Know What To Expect At Closing

Closing on your home is the last part of the home buying process and one of the most exciting steps you’ll take as a first-time home buyer. At closing, you’ll sign a lot of paperwork and take ownership of the property. Before you close, make sure that you take the following actions: 

  • Purchase homeowners insurance, which we explained above.
  • Read and acknowledge your Closing Disclosure. It provides a summary of the final costs of your loan. You must acknowledge that you received this document to move forward with your closing.
  • Attend a final walk-through of the home to make sure the property is in the condition that was stated in your purchase agreement. Make sure all repairs were completed, the property was not damaged and the appliances that were sold with the home are still there and in working order.

On the day of your closing, make sure that anyone who is on the loan is present. You can also expect someone from the title company to be there. In some states, the presence of an attorney or witness will be required, too. Depending on the state, the seller may be present at the closing or may have a separate closing of their own.

Make sure you bring the following items to your closing:

  • Photo identification in the form of a driver’s license, passport or government-issued ID
  • A cashier’s check to cover the final closing costs, explained in your Closing Disclosure
  • A copy of your homeowners insurance policy 

Once all of the paperwork is signed and the title is transferred over to your name, you’ll get the keys to your brand-new home. As soon as that happens, you’ll become an experienced home buyer and transform into a first-time homeowner.

The Bottom Line

No matter what kind of home you end up in, a great place for first-time home buyers to start is with a mortgage preapproval. Preapproval can help you figure out what you can afford and make an enticing offer to sellers. You can get preapproved online to make the process even easier.

Don't let water surprise you.

Connect with a pro to install a sump pump to remove water from under your house.

*Participation in the Verified Approval program is based on an underwriter’s comprehensive analysis of your credit, income, employment status, debt, property, insurance, appraisal and a satisfactory title report/search. If new information materially changes the underwriting decision resulting in a denial of your credit request, if the loan fails to close for a reason outside of Rocket Mortgage's control, or if you no longer want to proceed with the loan, your participation in the program will be discontinued. If your eligibility in the program does not change and your mortgage loan does not close, you will receive $1,000. This offer does not apply to new purchase loans submitted to Rocket Mortgage® through a mortgage broker. Additional conditions or exclusions may apply.

Lauren Nowacki

Lauren Nowacki is a staff writer specializing in personal finance, homeownership and the mortgage industry. She has a B.A. in Communications and has worked as a writer and editor for various publications in Philadelphia, Chicago and Metro Detroit.