To have a successful homebuying experience, it’s important to pay attention to all the details from beginning to end. If you’re a first-time home buyer, we have compiled some tips to help you through the process, save you money, and finalize the purchase. The tips are grouped into four categories:

• Preparing to buy tips
• Mortgage selection tips
• Home shopping tips
• Home purchasing tips

Preparing to buy tips

1. Start saving early

Consider the following costs when saving for a home:

• Down payment: The amount of down payment you need to make will vary depending on the type of mortgage you opt for and the lender you select. There are certain conventional loans meant for first-time home buyers who have exceptional credit and these may require only a 3% down payment. However, saving up for even a small down payment can be difficult. For instance, a 3% down payment on a house worth $300,000 would be a sum of $9,000. You can use a down payment calculator to determine your goal and then set up automatic transfers from your checking to savings account to begin saving.
• Closing costs: Finalizing your mortgage involves paying fees and expenses that usually range from 2% to 6% of the loan amount. In the case of a $240,000 loan, your closing costs could range from $4,800 to $14,400. These costs are added to your down payment. If you’re buying in a market that favors buyers, you may be able to ask the seller to cover some of your closing costs. Additionally, you may be able to save money on certain expenses, such as home inspections, by comparing prices.
• Move-in expenses: After buying the house, it’s important to have funds available for any necessary repairs, upgrades, and furniture. Consider setting aside some cash for these expenses.

2. Decide how much home you can afford

Figure out how much you can safely spend on a house before starting to shop. There are loan calculators you can find using a simple search that 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 strengthen your credit

To purchase a house, your credit score plays a vital role in determining your eligibility for a mortgage and the interest rate offered by lenders. You will typically receive a lower interest rate if you have a higher credit score. Follow these steps to improve your credit score and increase your chances of buying a house:

• Obtain free copies of your credit reports from the three primary credit bureaus – Experian, Equifax, and TransUnion. Review them thoroughly and challenge any inaccuracies that may negatively impact your credit score.
• To maintain good credit, ensure that you pay your bills promptly and try to keep your credit card balances low.
• It is recommended to avoid closing your current credit cards as closing a card can decrease the amount of available credit you have, resulting in a higher utilization rate and potentially lowering your credit score.
• Find a free credit tracking app that allows you to get free updates weekly/monthly

Mortgage selection tips

4. Explore mortgage options

There are different types of mortgages available that have different down payment and eligibility requirements. The following are the main categories.:

• Conventional mortgages 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%.
• USDA loans are guaranteed by the U.S. Department of Agriculture. They are for rural home buyers and usually require no down payment.
• VA loans are guaranteed by the Department of Veterans Affairs. They are for current and veteran military service members and usually require no down payment.

Home buyers have different options for the mortgage term, including a 30-year fixed-rate mortgage, which has a steady interest rate and is generally paid off in 30 years. Some people prefer a 15-year loan, which usually has a lower interest rate but requires larger monthly payments.

If you’re facing rising interest rates, you could think about opting for an adjustable-rate mortgage (ARM). Compared to fixed rates, ARM rates are usually lower, which means the same monthly payment could let you afford a more expensive home. Nonetheless, keep in mind that they can fluctuate (either upwards or downwards) over time.

5. Research first-time home buyer assistance programs

First-time home buyers can consider looking into programs provided by states, cities, and counties. These programs can offer low-interest-rate mortgages along with assistance for down payment and closing costs. Some programs also provide tax credits for first-time home buyers.

6. Compare mortgage rates and fees

To compare the costs of a particular type of mortgage, the Consumer Financial Protection Bureau suggests asking multiple lenders for loan estimates that include interest rates and origination fees.

If you want to lower your interest rate, lenders may give you the chance to purchase discount points by paying extra fees upfront. This can be a good choice if you have the money and plan on living in the home for a long period. To make a decision on whether to buy points or not, you can use a discount points calculator. In a buyers’ market, some sellers may be willing to pay some or all of the buyer’s points to motivate the sale.

7. Get a preapproval letter

Getting a preapproval letter for a mortgage means that a lender is willing to offer you a specific loan amount with certain terms. This letter can show home sellers and real estate agents that you’re a committed buyer, giving you an advantage over those who haven’t obtained preapproval yet. You should apply for preapproval when you’re ready to start shopping for a home. During the process, a lender will check your credit and verify your income, assets, and debt. It’s possible to apply for preapproval from multiple lenders to compare rates without negatively impacting your credit score, as long as you do so within a short timeframe such as 30 days.

Home shopping tips

8. Choose a real estate agent carefully

To find a reliable real estate agent who can assist you in finding your dream home and assist you with the negotiation and closing process, consider seeking referrals from recent home buyers and interviewing multiple agents while requesting references. During the interview process, inquire about their experience working with first-time home buyers in your area and their approach to helping you find suitable homes. Additionally, ask about their ability to uncover off-market properties, which can be helpful in competitive markets.

9. Pick the right type of house and neighborhood

Consider the advantages and disadvantages of various housing options based on both your budget and lifestyle. While a single-family home may provide more privacy, a condo or townhome might be a more cost-effective option. However, keep in mind that shared walls with neighbors in condominiums and townhomes may result in less privacy. Additionally, don’t overlook the potential cost of homeowners association fees when shopping for homes in planned or gated communities.

You could also think about purchasing a fixer-upper, which is a single-family home that requires updates or repairs. Fixer-uppers are typically sold for a lower price per square foot compared to move-in-ready homes. However, you should be prepared to set aside additional funds for repairs and renovations. Renovation mortgages can cover both the cost of the home and the expenses of improvements in a single loan.

Consider your future needs and decide whether a starter home or a forever home would be more suitable. If you have plans to have children or to increase the size of your family, purchasing a house that has extra space would be wise.

Make sure to research neighborhoods you are interested in thoroughly. Look for amenities that are important to you such as schools and entertainment options. Also, test out the commute to work during rush hour.

10. Stick to your budget

If a lender offers you more money than you can handle or if you feel compelled to overspend in order to outbid another buyer, it’s important to establish a price range that is within your budget and stick to it to prevent financial strain in the future.

If you’re in a competitive market, it may be beneficial to consider looking at properties that are priced lower than your limit to have more flexibility for bidding. However, in a buyer’s market, you might be able to view homes that are slightly above your limit. Your real estate agent can advise you on the price range for your offer.

11. Make the most of open houses

With advancing technology, online 3D home tours have gained popularity. They offer virtual walk-throughs of a potential home, allowing users to observe details that regular photos may miss. While certain details like the smell of carpets cannot be experienced through online tours, they serve as a helpful tool in narrowing down the list of properties to visit in person.

When you visit homes in person, use your senses to observe the surroundings. Listen carefully for any sounds, be aware of any smells, and inspect the overall condition of the house, both internally and externally. Inquire about the electrical and plumbing systems, as well as the roof’s age and type.

Home purchasing tips

12. Pay for home inspections

A home inspection is a detailed evaluation of a property’s structure and mechanical systems. Trained professionals search for any possible issues, allowing you to make an informed decision when considering purchasing 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.
• It’s usually helpful if the buyer attends any inspections. 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.

13. Negotiate with the seller

If you want to save money, you can request the seller to either pay for repairs upfront or reduce the price to match the repair costs that you’ll have to incur later. Another option is to ask the seller to cover some of the closing costs. However, be aware that the amount of closing costs the seller can cover might be subject to certain limitations by lenders.

The strength of your bargaining position is influenced by the conditions of the local market. If there are more buyers than available homes, it becomes more challenging to negotiate. To develop a plan of action, collaborate with your real estate agent to grasp the local market.

14. Buy adequate home insurance

Before closing the deal, your lender will ask you to purchase homeowners insurance. This insurance covers repairing or replacing your home and belongings in case of damage caused by an event stated in the policy. Additionally, it includes liability insurance if you are liable for an accident or injury. Ensure you purchase adequate home insurance to cover the cost of rebuilding your home in case of destruction. If you have a need to cover your home, cars, and other major assets, you might consider purchasing an umbrella policy.