20 Steps to Buying a House for the First Time

The financial burden of buying a home can seem daunting. You want to buy a home, but it seems like there are too many things to think about, including saving up enough money for a down payment, paying off existing debts, and building an emergency savings account. But once you start thinking about what you really need to do to make sure you’re ready to buy a home, it becomes easier to figure out how much you can afford.

Here are some tips to help you save money and avoid getting into trouble when you buy a home for the first time.

1. Find Out How Much Money You Need – Before you even begin looking at houses, take the time to find out exactly how much money you’ll need to put toward a down payment. Even if you plan to rent for now, you still need to know how much money you’ll spend each month on housing. If you don’t already have an idea of how much you can comfortably pay for rent, use our Rent vs. Buy Calculator to determine whether renting makes sense financially.

2. Get Your Credit Scores In Order – Once you’ve figured out how much you’ll need to put down, you’ll need to find out where you stand financially. This includes knowing your credit scores and making sure your credit reports are free of errors. Take advantage of the resources offered by Experian, TransUnion, and Equifax to track your progress.

3. Build Up Emergency Savings – Having an emergency fund set aside lets you cover unexpected expenses without dipping into your paycheck. Start saving today by setting up automatic transfers from your checking account to an online savings account. For example, transfer $5 per week from your checking account to your savings account.

4. Pay Off Debt – One way to reduce your monthly payments is to pay off high-interest debt such as credit cards, student loans, and auto loans. While it might be tempting to keep spending money you could otherwise apply to a down payment, doing so won’t give you the security of owning a home.

5. Shop Around For Mortgage Rates – After you’ve paid off your high-interest debt, you’ll probably want to consider refinancing your current mortgage. Refinancing allows you to lower your interest rates and potentially save thousands of dollars over the life of your loan. Shop around for the lowest possible rates and remember that shopping doesn’t mean signing a contract immediately. Make sure to shop around several lenders to get the lowest rate.

6. Save For A Home Inspection – When you’re ready to look at homes in person, you’ll need to schedule a home inspection. The cost of this service varies depending on the size of the house and the area. However, most inspections run between $200-$300.

7. Set Aside Enough To Cover Closing Costs – Another thing to budget for is closing costs. These fees typically range from 1% to 3% of the purchase price and include legal fees, appraisal fees, government fees, and more.

8. Consider Buying With No Down Payment – Some people prefer not putting any money down because they can spread their payments out over 30 years instead of 20 or 15. Of course, this means that you’ll owe more than someone who puts 10% down. It also means that you’ll likely have a higher interest rate.

9. Don’t Forget About Insurance – Finally, make sure you have adequate insurance before you buy a home. Many people assume that homeowner’s insurance covers them for anything that happens to their property while they own it. That’s not always true. Be sure to check with your insurer about what you do and don’t need coverage for.

10. Find Out How Much House You Can Afford – Before you start looking at houses, you should know how much house you can afford. Use our calculator to determine if you can comfortably fit your needs within your budget. If you can’t, you may want to reevaluate your plan.

11. Avoid Getting Pre-Approved Too Early – Most real estate agents recommend getting pre-approved for mortgages before starting your search. This gives you a sense of whether you can actually afford a home. But many experts say that you shouldn’t get approved until you see multiple properties.

12. Know Your Credit Score And Report – Your credit score affects your ability to qualify for a mortgage. In fact, some lenders require scores of 700 or above. Get your free credit report from each of the three major bureaus through annualcreditreport.com. Check for errors by calling one of the agencies directly or visiting the FTC’s website.

13. Start Looking At Homes As Soon As Possible – Once you find a home you like, contact the listing agent right away to set up an appointment to view it.

14. Negotiate Like Crazy – Don’t be afraid to negotiate when you go to sign a contract. Ask the seller to reduce the price or extend the term to help you pay less.

15. Hire An Agent Who Is Experienced – While it’s important to hire a licensed realtor, it’s even more important to hire an experienced agent. They will know which neighborhoods are best suited for your needs, and they will be able to guide you through the entire process.

16. Have A Backup Plan – Even though you might feel confident that you can handle all aspects of buying a home, there’s no guarantee that things won’t go wrong. Having a backup plan will give you peace of mind.

17. Make Sure You Understand All Documents – Read every document carefully so you know exactly what you’re signing.

18. Do Your Homework On The Area Schools – When choosing where to live, consider the schools in the area. Are they good? What kind of commute does the school district offer?

19. Look For A Home With Room For Kids – If you’re planning on having kids someday, look for homes with room for them.

20. Choose A Mortgage Lender You Feel Comfortable With – There are several different types of lenders out there, and most companies offer loans for both purchase and refinance. Shop around until you find a lender who understands your situation. 

Avoiding Debt as a First-Time Home Buyer

I’ve been writing about personal finance since 2008 — long enough to see the economy go from boom to bust four times. And each time, I’ve seen people struggle with the same problems: too much credit card debt, too little savings and no emergency fund.

There are several ways to avoid becoming one of those people. One is to start saving now, even if you don’t think you’ll ever buy a home. Another is to pay off your debts rather than continuing to pile up interest charges. Yet another is to build an emergency fund. Here are my tips for avoiding debt as a first-time buyer.

Choosing a Mortgage

If you’re looking for a place to live, now is the perfect time to start saving money for a down payment. “The best time to buy is when interest rates are low. “That way, you’ll pay less in monthly payments.”

Jessie Chauhan from finance valley suggests setting aside 10% to 20% of your household income for a down payment. This amount should cover closing costs and the cost of buying a property.

When looking for a home, consider what features matter most to you, such as proximity to work, schools, grocery stores, parks, etc. When choosing a lender, look for one that offers competitive rates and flexible terms.