Buying your first home is exciting – but it can also feel overwhelming. This friendly guide breaks down the process for first-time homebuyers. We'll cover everything from figuring out your budget to the moment you get the keys.
WHAT CAN YOU AFFORD
Buying a home starts with knowing what you can comfortably afford. Before you fall in love with a house, take a look at your finances so you know your real price range.
A good rule of thumb is to keep your monthly housing costs around 25–30% of your income. Lenders also look at how much of your income goes toward all your debts (this is called debt-to-income, or DTI), and most prefer it to stay under about 40%.
Your monthly payment is more than just the loan. Be sure to include property taxes, homeowners insurance, HOA fees (if any), utilities, and basic maintenance when you're estimating costs.
Getting pre-qualified with a lender can help you understand what price range to shop in—but don't feel pressured to spend the maximum they approve. Choose a payment that still leaves room for everyday expenses, savings, and fun. The goal is to enjoy your home, not feel stressed by it.
QUICK TIP Use an online mortgage calculator (many are free online) to estimate a comfortable monthly payment before you start house hunting.
CREDIT SCORES
Your credit score plays an important role in buying a home because it helps determine your interest rate and loan options. In general, the higher your score, the better the loan terms you're likely to receive.
Lenders use your credit score to measure risk. Strong credit (often around 740 or higher) can qualify you for lower interest rates, while lower scores may result in higher rates or require a different loan program, such as FHA. Even a small difference in rate can add up to thousands of dollars over the life of a mortgage.
Your credit score also affects which loans you can qualify for. Conventional loans typically require higher scores, while FHA and many first-time buyer or down payment assistance programs are more flexible, often starting around 640.
If your score isn't where you want it to be, don't worry—there's often time to improve it. Even a 20–30 point increase can make a difference. Focus on:
➜ Paying all bills on time
➜ Paying down credit card balances (aim to keep usage under 30%)
➜ Avoiding new credit or big purchases before applying
➜ Checking your credit report for errors
➜ Keeping older accounts open when possible
Improving credit takes time, so starting early—ideally 6–12 months before buying—can really pay off. Bottom line: a higher credit score can save you serious money over time, and a little effort now can mean a lower monthly payment later.
PRE-APPROVAL VS. PRE-QUALIFICATION
These terms sound similar, but they're very different—and knowing the difference can give you a big advantage when buying a home.
Pre-qualification is a quick estimate. You share basic, often self-reported information about your income, debts, and credit, and the lender gives you a rough idea of what you might afford. It's fast and helpful for early planning, but it's not verified and doesn't carry much weight with sellers.
Pre-approval is a more formal step. You complete a mortgage application and provide documentation like pay stubs, bank statements, and tax forms. The lender verifies your finances and runs a credit check, then issues a pre-approval letter for a specific loan amount. This shows sellers you're a serious, qualified buyer—and many won't consider an offer without one.
The key difference is that pre-qualification is based on information you provide, while pre-approval is based on verified documentation. This matters because in competitive markets, a pre-approval can make your offer stand out and help you avoid surprises later. It sets a more realistic budget and shows sellers that you're ready to move forward.
If you're just starting to explore the idea of buying a home, pre-qualification can be a helpful first step. But once you're serious about house hunting, moving to pre-approval is usually the smarter move. Most pre-approvals are valid for about 60–90 days and can be updated if needed.
DON'T FORGET After getting pre-approved, avoid making big purchases or opening new credit. Lenders often recheck your finances right before closing.
DOWN PAYMENTS
Despite popular belief, most homebuyers don't need a 20% down payment. While a larger down payment can lower your monthly costs, many buyers purchase with much less
Many loan programs offer low down payment options. Some conventional loans allow as little as 3% down, FHA loans require 3.5%, and VA or USDA loans may offer 0% down for eligible buyers. In fact, most first-time buyers put down closer to 5–10%.
If you put down less than 20%, you'll usually pay private mortgage insurance (PMI). This is a monthly fee that protects the lender, but the good news is that it's temporary. With conventional loans, PMI typically drops off once you reach about 20% equity in your home.
If saving for a down payment feels challenging, you may have help available. Many state and local programs—and some lenders—offer down payment assistance through grants or low-interest loans. These programs can cover part of your down payment or closing costs and may make buying a home much more attainable.
MORTGAGE TYPES
Not all home loans are the same. As a first-time buyer, you'll have several mortgage options, each with its own benefits depending on your credit, savings, and long-term plans.
Fixed-Rate Mortgage: This loan has an interest rate that stays the same for the life of the loan, so your monthly payment remains predictable. It's simple, stable, and easy to budget for—especially if you plan to stay in your home long term.
Adjustable-Rate Mortgage (ARM): An ARM starts with a lower interest rate for a set period (often 5–10 years), then adjusts based on market rates. This can mean lower payments upfront, but there's a risk your payment could increase later. It's best for buyers who plan to move or refinance before the rate changes.
Conventional Loan: Conventional loans aren't government-backed and typically require decent credit and stable income. Down payments can be as low as 3–5% for some buyers, though PMI is required if you put down less than 20%. The upside is lower long-term costs and the ability to drop PMI once you reach enough equity.
FHA Loan: FHA loans are designed to be more flexible with credit and down payments. They allow as little as 3.5% down and are often a good option for buyers with lower credit scores. The trade-off is mortgage insurance that usually lasts longer than with conventional loans.
VA Loan: VA loans are available to eligible veterans, active-duty service members, and some surviving spouses. They often require no down payment and no PMI, making them one of the most affordable loan options if you qualify.
USDA Loan: USDA loans offer 0% down for buyers purchasing in eligible rural or suburban areas and who meet income limits. They come with competitive rates and lower mortgage insurance costs than FHA loans.
Every loan type has pros and cons. The right choice depends on your credit, savings, and how long you plan to stay in the home. A lender can help you compare options and choose a mortgage that fits your goals.
DID YOU KNOW “The biggest difference in loans often comes down to your needs: one size doesn't fit all.” For example, a first-time buyer with a 760 credit score might snag a low-rate conventional loan, whereas a buyer with a 620 score might save money with an FHA loan approval.
FIRST-TIME BUYER PROGRAM
As a first-time homebuyer, you may qualify for special programs designed to make buying a home more affordable. These programs can help reduce upfront costs, lower monthly payments, or even provide tax savings.
Many state and local agencies offer down payment and closing cost assistance, often in the form of grants or low-interest loans that don't need to be repaid right away—or at all. These programs commonly provide a few thousand dollars toward your purchase, though income and price limits usually apply and a homebuyer education course may be required.
Some areas also offer Mortgage Credit Certificates (MCCs), which provide a tax credit for a portion of the mortgage interest you pay each year. This can lower your federal tax bill and make homeownership more affordable over time.
In addition, there are special loan programs created for first-time buyers or certain professions. Programs like Fannie Mae HomeReady or Freddie Mac Home Possible allow low down payments, while others support teachers, first responders, or buyers in specific neighborhoods. Some lenders even offer their own first-time buyer incentives.
Many programs include homebuyer education courses, which may be required but are also extremely helpful. They cover budgeting, the mortgage process, and what to expect as a homeowner.
Ask your lender or real estate agent what's available in your area—you might be surprised how much help exists.
WHAT SELLERS LOOK FOR
When you make an offer on a home, sellers look at more than just the price. Most want the deal that feels most likely to close smoothly and on time. Here are a few ways to make your offer stand out:
A pre-approval letter shows sellers you're serious and qualified. Cash is ideal, but for most buyers, a solid pre-approval and a reasonable down payment go a long way in building confidence.
Sellers prefer clean offers with fewer conditions that could derail the deal. While you should always protect yourself, avoiding unnecessary contingencies or keeping inspection requests reasonable can make your offer more appealing.
Being able to match the seller's preferred closing timeline—whether fast, slow, or including a short rent-back—can be just as valuable as a higher price.
A larger earnest money deposit (often 1–3%) signals commitment and reassures the seller that you're unlikely to walk away without good reason.
In some cases, a short, thoughtful letter about why you love the home can help—though this isn't appropriate in all markets, so follow your agent's guidance.
Sellers often consider the full package. A slightly lower offer with strong financing, fewer hurdles, and flexible timing can beat a higher offer that feels risky. Work with your agent to present the strongest offer possible.
CLOSING DAY
Closing day (also called settlement) is when you sign the final paperwork and ownership of the home officially transfers to you. It's exciting—but expect a lot of documents.
Closings usually happen at a title company or attorney's office. You'll need a photo ID and to bring (or wire) your remaining down payment and closing costs. You'll sign several documents, and your closing agent will walk you through them.
On closing day, you'll also submit your final payments, which usually total 2–5% of the purchase price in closing costs. Funds are typically delivered by wire transfer or cashier's check—always confirm wire instructions directly with the title company to avoid fraud.
Before closing, you'll do a final walk-through to confirm the home's condition and have proof of homeowners insurance ready. Once everything is signed and recorded, you'll receive the keys. Congratulations—you're officially a homeowner!
HIDDEN COSTS & GOTCHAS
Even after budgeting for your loan and down payment, there are a few costs that can still surprise first-time buyers if they're not planned for.
Property tax increases: The seller's current tax bill may be lower than what you'll pay. Many areas reassess property value after a sale, which can increase taxes within the first year. It's smart to estimate taxes based on your purchase price—not the seller's old bill.
Utilities and energy costs: Larger homes and older properties often come with higher utility bills than apartments or rentals. Heating, cooling, water, trash, and internet can add up quickly. Asking for average utility costs can help you budget realistically.
Maintenance and repairs: Unlike renting, all upkeep is now on you—things like lawn care, appliance repairs, plumbing issues, and unexpected fixes. A good rule of thumb is to save 1–2% of the home's value each year for maintenance.
HOA fees and assessments: If the home is part of an HOA, monthly dues increase your housing cost and can rise over time. Special assessments for major repairs can also pop up, so reviewing HOA documents is important.
Moving and setup costs: Movers, trucks, boxes, new furniture, window coverings, tools, and small upgrades can add up fast. These aren't part of your loan, but they still hit your wallet right away.
These costs aren't deal-breakers—but they can be stressful if you're not expecting them. Planning ahead and keeping a small financial cushion will make homeownership far more enjoyable.
HAPPY HOME HUNTING!
The information provided in this blog is for general informational purposes only and is not intended as tax, legal, or financial advice. We are not tax professionals. Readers should consult their own tax advisor or accountant for guidance specific to their circumstances.
