Everything You Need to Know About Buying a House for the First Time

13 Min Read | Sep 24, 2021

Being a outset-time habitation buyer is exciting! But I know it can also experience overwhelming—especially when you meet homes being purchased at a median of nearly $350,000 and available homes flight off the market in just over two weeks.¹

With real estate trends like those, y'all might be tempted to make an impulsive purchase that could hurt your financial goals and keep y'all paying a mortgage well into retirement.

No ane wants that! Trust me, you guys, it's worth buying your starting time home thecorrect manner. And that means buying a home that yous love and that doesn't injure your future money goals.

Yous may be thinking,Yeah, that would be slap-up, Rachel. Only where practise I even start?

I'm and then glad you lot asked! I've put together ten tips for offset-fourth dimension dwelling buyers as they tackle the abode-buying procedure. Put these into practice today so your start home is a blessing, not a brunt.

10 First-Time Domicile Buyer Tips

Pay Off All Debt and Build an Emergency Fund
Utilise the 25% Rule to Know How Much House Y'all Can Afford
Save a 10–xx% Down Payment
Don't Forget to Save for Closing Costs
Become Preapproved for a Loan Before House Hunting
Find a Home for Auction in Your Toll Range
Research Neighborhoods for Best Fit
Think Long Term
Make a Competitive Offer (That's Within Your Upkeep!)
Be Prepared for Endmost

1. Pay Off All Debt and Build an Emergency Fund

It may not be the outset-fourth dimension home-ownership tip you were expecting, simply information technology is easily down the most important. Why? Considering owning a home is expensive—much more than expensive than renting, even if your monthly house payment will be similar to or cheaper than your electric current rent amount. When you ain a home, you're responsible for everything. All the maintenance. All the mishaps. All the budget. And that tin add up fast! Before you even think about buying your first home, make sure you're debt-gratuitous and have an emergency fundof three to six months of expenses in identify.

See how much firm you lot can afford with our free mortgage calculator!

Buying a home debt-free (besides the mortgage) with a nice large emergency fund protects y'all from huge fiscal setbacks when things become wrong. And trust me, things volition become wrong. But because your money won't be tied up in payments and boatloads of interest, you'll take the cash to pay for whatsoever expenses that all of a sudden come your way. Talk nigh peace of listen.

Now, once you're debt-free, I want y'all tostaydebt-gratis. Then, as you lot're shopping for your first home and getting excited about decorating and filling it with new furniture, make these four words your mantra: Stick to the budget.

The spender in me knows that'due south easier said than washed. Especially if that means you might have some empty rooms for a piffling while. But your futurity cocky will thanks! And if you find yourself thinking,Oh well, I'll just put information technology on credit—stop right there! You want the expert money habits y'all learned while getting out of debt to stick, which means yous've got to stop repeating bad ones.

two. Use the 25% Rule to Know How Much Business firm Y'all Can Afford

Before you lot get emotionally fastened to a beautiful house, bank check your monthly budget to determine how much house you can afford. Make sure your monthly housing costs (including HOA fees, taxes, insurance, etc.) are going to exist no more than 25% of your monthly take-home pay.

For example, permit's say yous bring home $6,600 a calendar month. Multiply that by 25% to plant your maximum monthly house payment of $1,650. Just don't forget that property taxes and homeowners insurance gene into that monthly payment. So, based on a 15-year mortgage with a four% fixed involvement rate, a 1.14% property tax rate and a homeowners insurance policy that costs $1,200 per year, here are the dwelling house options yous can beget:

$195,000 abode with a 10% down payment ($19,500)
$225,000 home with a 20% down payment ($45,000)
$253,000 dwelling with a thirty% down payment ($75,900)
$288,00 abode with a 40% downward payment ($115,200)

Recall, these are just estimates. Use our mortgage computer to attempt other combinations and find the right mortgage amount, interest rate and down payment for your budget. And since property tax rates and the toll of homeowners insurance vary, check with your real estate agent and insurance company for estimates to calculate how much house you can afford.

3. Save a 10–20% Downward Payment

If saving up to pay cash for the full cost of a house isn't reasonable for buying your first domicile, at to the lowest degree salvage for a down payment of 10–20% or more. A 20% downward payment gets you out of paying for private mortgage insurance (PMI), which protects the mortgage company in example you tin can't brand your payments and stop upward in foreclosure. PMI normally costs one% of the total loan amount, and you'll be charged that 1% every twelvemonth. And so it can really add a lot to your monthly mortgage payment.

The Worst Mortgages for Beginning-Time Home Buyers

If a twenty% down payment seems out of reach, outset-time home buyer programs that offering single-digit down payments may sound tempting. But don't utilise them! These options will toll you lot more in the long run. And recollect—if it seems like a deal for you now, it'southward because it'due south an fifty-fifty better deal for your lender in the end.

Here are some low-to-no down payment mortgage options to avert:

Adjustable-Rate Mortgages (Arms): ARMs might seem corking with a low initial involvement rate, merely they permit lenders to suit the rate to transfer the hazard of rising involvement rates (and monthly payments) to you.

FHA Loans: You may exist able to get an FHA mortgage with as little as 3.5% down, just yous have to pay a mortgage insurance premium (similar to PMI) for the life of the loan. That'south thousands of dollars that won't go toward paying off your mortgage.

VA Loans: VA loans allow veterans to buy a home with no down payment. But if the existent manor market place shifts, you could easily owe more than than the market place value of your dwelling. These loans also bear a bunch of fees and usually charge involvement rates that are higher than those for conventional loans.

The Best Mortgage for Get-go-Time Dwelling Buyers

I simply recommend a fifteen-year, stock-still-rate conventional mortgage with a 10–xx% down payment. Here are the reasons why:

A fifteen-year term does create a higher monthly payment, but yous'll pay off your mortgage in half the fourth dimension. That means in 15 years, you completely own your dwelling and can put what you'd spend on the next xv years of house payments toward building wealth and giving. Not to mention, a 15-year term lets y'all take a lower involvement charge per unit and save tens of thousands of dollars in interest.

A fixed-charge per unit conventional loan keeps your interest charge per unit the same for the life of the loan, which protects you from the increasing expenses of rise rates.

How a 30-Year Mortgage Compares

If yous're considering a xxx-twelvemonth mortgage for your first home because of the lower monthly payment, please, don't do it. When you look at the math on a 15-yr versus a 30-year, you'll realize you pay a whole lot more money on a thirty-year mortgage in the long run. Like tens of thousands of dollars more.

Look at information technology like this: Let's say you desire to buy a $225,000 house with a 20% down payment. That means you demand a mortgage for $180,000. Hither's how the cost differences break down between your fifteen-year and the thirty-year mortgage options.

15-Year at iv%	Vs.	30-Year at 4.5%
180	Number of Payments	360
$i,608	Monthly Payment	$1,189
$59,658	Total Interest Paid	$148,334
$239,658	Total Amount Paid	$328,334

At present, that'south $88,676 in savings with a 15-year fixed-rate mortgage—not to mention you'll be payment-free15 years sooner. I mean, most $xc,000 in savings—hullo!

4. Don't Forget to Save for Endmost Costs

Along with your downwardly payment, you lot'll also need to pay for closing costs. On average, closing costs are about 3–4% of the purchase cost of your home.^two Your lender will give you lot a specific number so y'all know exactly what to bring on closing day. These fees pay for of import steps in the home-ownership procedure, including:

Appraisal
Home inspection
Credit report
Attorney
Homeowners insurance

Let's see how this plays out with our case of a $225,000 home. If yous multiply $225,000 by the college four% closing cost average, you'll find that y'all need $ix,000 for closing costs. Now, let's add that to your 20% down payment of $45,000. Together, the 2 equal $54,000, which is nearly what you'll need to save to pay for the down payment and the closing costs on your first house.

Tackle saving for your closing costs and down payment with the same amount of intensity I tell people to apply when they're getting out of debt and building a full emergency fund to get information technology done as fast as possible. In fact, it'south okay to put retirement savings on hold for a short period of time to save for a home—just you've got to hustle!

5. Become Preapproved for a Loan Before House Hunting

Once y'all're confident yous have plenty cash saved to pay for closing costs and 10–20% of your abode, you're ready to handle the residue by talking to a mortgage lender.

Become prequalified for a loan and take the extra time to become a preapproval alphabetic character before you start your home search. Preapproval shows sellers that you're a serious buyer, which is a cracking way for offset-time home buyers to become ahead in a competitive marketplace.

To go preapproved, your lender will demand to verify your financial information (proof of income, taxes, etc.) and submit your loan for preliminary underwriting. If you live a debt-free lifestyle like I teach, you may need to find a lender who believes in debt-free homeownership and will piece of work with showtime-fourth dimension home buyers who have no credit score.

6. Find a Domicile for Sale in Your Price Range

About start-time home buyers typically find the home they purchased online or through a existent estate agent. Doing both sets y'all upwards for success!

Notice homes you like online and send them to your real manor amanuensis so they accept a good thought of what yous're looking for. Then they can use a multiple listing service (MLS) to observe homes that meet your criteria in your desired areas.

An MLS is created, maintained and paid for by real estate professionals, and it can really aid first-time home buyers like yous to view the largest pool of properties for sale in the marketplace. Existent manor agents also provide valuable market expertise and can help you lot detect smashing deals on homes every bit soon as (or before) they're listed.

7. Enquiry Neighborhoods for Best Fit

Be careful not to buy a home based on the belongings and cost alone. According to an NAR survey, abode buyers are more than willing to compromise on a home'southward condition (20%) and size (18%) than on the quality of its neighborhood (6%) and distance from a school (2%).ⁱⁱⁱ Then make certain you factor neighborhood quality and location into your decision.

Inquire your real estate agent for information on offense rates and the quality of schools around your prospective neighborhoods. Summate your new commute times to run into if they seem manageable. Visit the neighborhood at different times and days to check for traffic atmospheric condition and noise levels and to meet if people are comfortable existence outdoors. Merely choose a neighborhood that you and your family feel good nigh.

One time you've narrowed down the neighborhoods, attend a few open houses. Looking at homes that are for sale—even if they're not a perfect fit for you—is a not bad manner to learn more most the surface area. When you practise eventually find a house yous love, you'll know how your identify compares to better or worse homes in that neighborhood.

8. Think Long Term and Exist Patient

When it comes to buying, a good strategy is to find the almost affordable firm in the best neighborhood. If you lot buy at the lesser of the price range in a adept neighborhood, y'all'll have more than room to build home value. Time to come buyers who are shopping in a $200,000 neighborhood won't be looking for a $300,000 home.

For instance, let'due south say yous find a abode that'due south the only one on the block without woods floors and granite countertops. If y'all have the cash to make those upgrades, you'll be able to add instant value to your home!

Make sure to pay attending to habitation values and economic action in the surface area. Are home prices rising or failing? Are businesses booming or closing? You can tell a lot about how valuable a neighborhood is by what'southward happening in the community. Information technology may have a little longer to find a home that volition be a good investment in the long run, only peculiarly for your first home, it is so worth it.

9. Brand a Competitive Offer (That'south Within Your Budget!)

Permit'due south say you institute the home you desire and tin can beget. Since yous're already preapproved for a loan, you're prepare to brand an offer. If you're a start-time home buyer, it may be hard to know how much you should offer. That's when you tin can rely on the expertise of your existent estate agent.

Ask your agent to aid yous make sure your offer is competitive only also inside your upkeep and the dwelling house's value. Be conscientious not to make an impulsive offer that'south college than you can afford just to knock out the competition. A personalized letter might help your offering stand out among multiple bids in a hot market.

10. Exist Prepared for Closing

Once a seller accepts your offer, the closing process will brainstorm. Keep things running smoothly by knowing what to await when endmost on a house. The average closing procedure takes 53 days, which gives you plenty of fourth dimension to tackle endmost items.⁴ A existent manor agent will schedule the remaining steps from habitation inspection to final walkthrough, and they'll keep you informed about whatever roadblocks.

Equally you prepare for endmost, make certain y'all read every document and ask your existent estate agent to explain anything you don't sympathise—especially before yous sign the official contract for the home transaction. Information technology'll beyour signature on the documents, so yous'll be the i responsible for anything yous sign.

Set to Get Started?

Your first domicile is a big purchase—maybe even the biggest one you'll have always made up to this point in your life! Because of that, yous don't desire to risk messing this upwardly. A real estate professional volition take the weight off your shoulders by helping you observe a dwelling, negotiate a deal, and see the process through until closing.

Need help finding an expert you can trust with such an important buy? Check out our RamseyTrusted Endorsed Local Providers (ELP) program. We only recommend real manor agents who close at to the lowest degree 35 dwelling transactions per year or close more domicile transactions than 90% of the agents in their market. Non to mention our agents must maintain excellent levels of customer service and are personally coached by our Ramsey team.

Trust me, these pros are the best! Discover an amanuensis at present!

Rachel Cruze

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