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The Essential Guide for a First-Time Homebuyer

The time has finally come – you’re ready to buy your first home. You may have heard that buying a home comes with unique challenges and tasks that, if you aren’t ready for them, can make the process much longer and more expensive. First-time homebuyers should indeed do as much research as possible before they commit to buying a home to avoid headaches and confusion. But it’s also equally important to investigate all of the benefits you can take advantage of as a real estate greenhorn.

So what can first-time homebuyers expect when they take their first steps into the market? This guide takes you through all aspects of buying your first home, giving you concrete tips to make the process smoother.

The Benefits of Being a First-Time Homebuyer

Real estate talk is riddled with discussions about how frustrating and puzzling a lot of the home-buying process can be. But fortunately, there’s a flip side to that: being a first-time homebuyer can often work in your favor.

First-time homebuyers can often get assistance from state programs and tax breaks, and it’s also much easier to get federally-backed loans to help fund your purchase. These benefits are all incredibly useful if you’re trying to get 20% of the purchase price, the ideal amount for conventional loans, locked in as a down payment.

It’s also possible that you could still qualify for many of these benefits in the eyes of the U.S. Department of Housing and Urban Development (HUD), even if you aren’t new to buying homes. If you fit any of the criteria below, the HUD would consider you a first-time homebuyer:

  • Any individual who hasn’t owned a principal residence for three years.
  • Any individual who has exclusively owned property that wasn’t compliant with local, state, or model building codes
  • A single parent whose only instance of home ownership was with a former spouse
  • Any individual whose sole principal residence was not affixed to a permanent foundation
  • A displaced homemaker whose sole home ownership was with a spouse

Keep these stipulations in mind – if any of these sound like you, then you’re technically a first-time homebuyer in the eyes of the HUD and may be eligible for certain benefits.

Essential Questions You Should Answer Before You Buy Your First Home

There are plenty of good reasons to buy a home. It’s a form of independence, a way to turn your rent into owning something tangible, and an excellent long-term investment. But jumping into a purchase before you’ve thoroughly thought it out will likely leave you with regret. So it’s important to ask a few questions as a litmus test to see where your head is. It can also help you narrow down your selection, something you’ll desperately need to do when shopping begins.

What Can You Afford?

Note that this question isn’t asking you, “how much will the bank lend you?” That’s a different question entirely and shouldn’t necessarily impact the house you should buy. A bank could lend you a few hundred thousand, but if you struggle to pay your mortgage or sacrifice other costs because of the higher loan, it’s probably not in your price range.

The Financial Audit

Auditing your finances will give you clear-cut numbers you can reference when making big decisions. Start by looking at your savings. Buying a home comes with upfront costs, both expected and unexpected. You should only entertain buying a home if you’ve managed to save around three to six months of living expenses. It’s even better if there’s more, as you could simultaneously need excess cash for home-buying expenses and emergencies.

If you’ve established how much you have in savings, go ahead and review your spending. Developing a budget can help determine what you can afford to spend on monthly mortgage payments. It’s also helpful in freeing up some extra cash to help increase your emergency fund or downpayment for your home. The more thorough you are with your spending analysis, the better, so don’t hesitate to go through everything with a fine tooth comb.

You’ll also want to check your credit. Your credit will be instrumental in securing you a home loan. To qualify for a home loan, you’ll want a maximum debt-to-income ratio of 43%, relatively good credit, and tangible history of paying your bills on time. Getting this in order before you go any further can also help you pay off some of your debt, increasing the chances of getting a better rate for your loan when you’re ready to apply.

What You Want Vs. What You Need

By establishing your needs first, you can narrow down your choices considerably. Needs are considered more unwavering and non-negotiable, so take the time to think about what you couldn’t do without in your home. It’s okay to be a bit inflexible with your decisions here; this is a substantial purchase, and you don’t want to sacrifice your requirements or lifestyle if you can help it.

In contrast, anything on your need list could range from “it’d be nice” to “highly preferred.” Figuring out what you want involves getting into the finer details of the home you’re buying. Remember that one person’s need could be another’s want and vice versa, so get specific about where you want to see yourself.

Sometimes you can easily meet your wants and needs when purchasing a home. However, if you’re struggling to find the right fit, you could also nab a fixer-upper and mold it into your dream home. Going this route could save you some upfront costs, but it’s not for the faint of heart. But be warned that, especially if you’re a new homeowner, this method varies wildly in both time and money spent. Frankly, you may decide by the end that it’s not worth the trouble.

Buying Your Home

If you’re feeling confident about where you’re at with your finances and clear about what you’re looking for, it’s time to talk about the home-buying process. There’s no way to know precisely how the process will shake out. But one thing is sure – it will feel like a whirlwind, so embrace the chaos and keep your focus squarely on your long-term goals.

There are plenty of ways to shop for your home, but you should try exhausting all of them. Search yourself for listing online, drive around and investigate homes and neighborhoods, reach out to your network of family and friends, and of course, work with a real estate agent. All of these avenues could bear some fantastic leads, so it’s worth the time to check everywhere you can.

Securing Your Financing

You’re in luck: first-time homebuyers have the pick of the litter when it comes to financing options. Quite a few options are geared specifically to novice buyers and could offer incredibly reasonable minimum down payments as low as 3%. Check the HUD’s resource list on their website, investigate any state programs, and even consider utilizing your IRA. With some light research, you’ll see there’s no shortage of avenues for financing for first-timers.

Mortgage Payments

If you’ve done your financial audit, you can start researching how much mortgage you’ll qualify for. You can estimate how much lenders will give you, but it may change based on certain factors, like how long you’ve worked at your current job or how much debt you have. It’s essential to get this information before you work with a real estate agent, as many will turn you away if you aren’t upfront about what you can afford.

You should also aim to get pre-approved for your home loan before considering placing an offer on a home. You can get pre-approved by applying for a mortgage, but before you do, feel free to shop around and compare interest rates between lenders to ensure you’re getting the best deal.

Make the Offer

After one last scouring over your budget and deciding on a good number with your agent, you can make your first offer. Work your estimated closing costs into your budget and leave some wiggle room for immediate repairs or installations you’ll need before you can move in. Note that the seller may issue a counteroffer, so be ready to react and respond to these swiftly if you’re still interested.

If you and the seller have reached an agreement, you’ll make a deposit and head into escrow. Escrow is when the seller takes the house off the market for thirty days, under the condition that you’ll buy it from them.

Home Inspection

During the escrow process, you’ll want to schedule a home inspection. An inspection can reveal glaring issues that may complicate the process or even make you change your mind about buying the home. If you find a serious problem the seller didn’t forewarn you about, you can often get your deposit back and withdraw your offer without consequence.


If the inspection reveals little to no issues, then it’s time to close on your first home. Closing is essentially a lot of paperwork, waiting, and hoping nothing changes last minute. At this point, you could be shelling out extra cash for mortgage insurance, title insurance, taxes, credit report charges, or a home appraisal. Closing is another excellent time to triple-check your finances to ensure you’re prepared for the future.

After Closing and Beyond

You’ve closed on your first home – the hard part’s over! But you’ll still want to ensure you’re ready for continuous homeownership costs so they don’t creep up on you. Keep saving for unexpected costs, especially if you’ve depleted your emergency fund. You’ll also want to save some money to perform routine maintenance and avoid expensive repairs.

If you’ve researched and budgeted appropriately, you should be confident in buying your dream home. Remember to keep your financial health in check and stay educated about each step of the process. You can turn a typically stressful, confusing process into a smooth and simple one through helpful guides like this. Hopefully, you feel empowered to start the process in earnest, determined to take those first steps into real estate with tenacity and calmness.

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