How to Prepare to Buy Your First Home (14 Tips)

Buying your first home is an exciting experience. When people think about owning their own place, they often skip to the part where they are decorating and settling in. However, you shouldn’t underestimate the impact that buying a home will have on your finances. Purchasing a home is a major financial and emotional commitment. It’s important to take time to prepare your finances and adjust your lifestyle for homeownership. Here are 14 helpful tips to prepare for buying a house as a first-time homebuyer.

1. Start saving early

Buying a house is likely one of the most significant purchases you will make in your lifetime. Therefore, it’s important to save as much as possible for this financial milestone. If you know you are going to want to be a homeowner one day, starting to save early can allow you to gradually set aside funds without disrupting your daily routine. With time on your side, you can benefit from compound interest to boost your savings over time.

There are many ways to kickstart your house savings fund. You can find more money by picking up a side job or cutting back on existing expenses. Similarly, adopting a minimalist lifestyle could help you earn some extra money and declutter your stuff before the move. However you decide to save for your house, starting early will allow you to experience less money stress down the road. 

2. Lower your existing debt

Before beginning the home-buying process, you should consider reducing your existing debt. This could include credit card balances, car loans, or student loans that you are actively repaying. Reducing your debt is important because your debt-to-income (DTI) ratio can impact the mortgage rate you receive. Your debt-to-income ratio is calculated by dividing your total debt by your total income to see what percentage of your income is allocated towards debt repayment. A lower DTI can potentially reduce your projected monthly mortgage payments.

Deciding whether to pay off debt or save money can be challenging. In the context of home buying, reducing your debt can free up money for other house-related expenses, like saving for your down payment or moving costs. All things considered, you don’t have to be debt-free to buy a home, but having less debt can improve your purchasing power.

3. Allocate funds for a down payment

While saving for the future may be challenging, you don’t have to have the total house price saved up before you take action. A good place to start is by saving for a down payment, which is generally around 20% of the total house cost. For example, if you want to purchase a home around $180,000, setting a savings goal of $36,000 would be a good starting point. However, your required down payment can be lower if you qualify for other specific mortgage options.

Ultimately, the larger the down payment you can make, the less you'll need to borrow. Borrowing a smaller loan can potentially lead to better loan terms and lower monthly payments. To keep yourself accountable for your down payment, you could create a separate savings account and automate a portion of each paycheck to go directly into that account. 

4. Check and polish your credit

It's crucial to present yourself in the best financial light possible when considering buying a house. You’ll want to give yourself enough time to check your credit report before you even think about applying for a home loan. There’s a chance that everything will be correct, but it’s better to be safe than sorry. If there are any inaccuracies, you can dispute them to each credit bureau that shows the error.

Because your credit score plays a large role in your ability to receive a home loan, you need to make sure that your score is as high as possible. It takes time for the changes to reflect on your report, but removing any inaccuracies from your credit report could improve your credit score. Checking and polishing your credit will make you more appealing to lenders and assure them that you have responsible financial habits. 

5. Know what you want in a house

Finding the “perfect” home is a process. Before you start house hunting, you will likely have a list of features and qualities that you would desire. Be sure to separate your list into preferences and non-negotiables. A preference is something that is desirable, but not a dealbreaker if it’s unavailable, like an in-ground pool or a walk-in shower. Non-negotiables are features that you aren’t willing to compromise on, such as the number of bedrooms, bathrooms, or distance from work or school.

You may need to sit down and seriously consider what you want in a house. Take the time to evaluate which features are essential and which are flexible. This will help you narrow down houses and identify what you truly need now versus what can be adjusted over time. While finding a home that ticks all your boxes may be challenging, you can at least ensure that it meets all your non-negotiables. 

6. Be realistic about what you can afford

A crucial step when purchasing a new house is determining how much you can afford, especially for first-time buyers. It can be easy to let your eyes be bigger than your wallet, but it’s critical to think about your budget. If you’re buying a house with someone else, you need to have a conversation about money with your partner to make sure you’re on the same page about what you can afford.

You’ll need to consider your monthly income to determine which mortgage payments you can comfortably make while still paying for all your existing expenses. A typical mortgage can range from several hundred dollars to a couple thousand dollars each month. Plus, homeownership often includes more costs compared to renting, like lawn care, increased utility bills, home insurance, property taxes, and more. Try to stay grounded and be realistic about what you can afford. 

7. Find a good real estate agent

A good real estate agent is important when buying or selling a property, especially when the housing market is very competitive. You can ask for agent recommendations from friends or family who have recently bought or sold a property. If someone close to you had a positive experience with a real estate agent, then you might too. However, you should meet with multiple agents to see who you naturally connect with. 

Since you’ll likely be chatting back and forth with this agent for a couple of months, you need to find an agent who communicates clearly and offers regular updates throughout the buying process. You’ll also want an agent that has good market knowledge and addresses any concerns promptly. Before you commit to one, make sure you understand what services are included with the agent’s fees and that you are comfortable with the agreement.

8. Explore your mortgage options

Before viewing any potential homes, you’ll need to discuss with a mortgage lender which option will fit you best. There are a variety of mortgage options available, particularly for first-time homebuyers. You can opt for a conventional loan from a private lender or look into payment assistance programs. Depending on your circumstances, you may qualify for an FHA loan from the U.S. Federal Housing Administration, if you have a lower income; a VA loan from the U.S. Department of Veterans Affairs, if you are a current military service member or veteran; or a USDA loan from the U.S. Department of Agriculture, if you live in a rural area. 

You also have options when it comes to mortgage terms. One common option is a 30-year fixed-rate mortgage, where you pay off the loan over 30 years and have an interest rate that stays the same. Alternatively, a 15-year loan typically has a lower interest rate than a 30-year mortgage, but it requires larger monthly payments. Take time to explore your mortgage terms and options to choose the best one for you. 

9. Obtain a pre-approval letter

Getting pre-approved for a mortgage loan is vital, especially when looking to buy a home in a competitive market. A pre-approval letter demonstrates that you are serious about making a purchase, showing how much a lender has already agreed to provide you. To obtain pre-approval as a homebuyer, you’ll need to gather your documents, such as your Social Security number, proof of income, banking information, and tax forms. You will also want to have already completed your credit check and disputed any incorrect data. 

A lender will review your financial information and determine the maximum amount they are willing to lend you for a mortgage. This loan amount will give you a clear understanding of your budget and help you narrow down your home search to properties within your price range. Keep in mind that being pre-approved does not guarantee you will be approved for a mortgage loan once you find a home, but it can give you an advantage over other buyers.

10. Shop for homes in your price range

Before you even begin looking at houses, you should have a set price in mind of how much you are willing to spend. This price range should include the house price, renovations, or other costs. By establishing a clear budget from the start, you are better equipped to narrow down your options and focus on properties that align with your long-term financial goals.

It may be tempting to exceed your budget when you see a nice home, but try to stick to it as closely as possible. If you were pre-approved, going over in price can cause problems with your lender and potentially cause you to have a larger down payment and closing costs. Staying within your predetermined price range not only helps you stay on track financially but also allows room for unexpected expenses that may arise during the home-buying journey.

11. Do some research on the neighborhood

Sometimes people forget to consider the neighborhood when they buy a house. Yet, purchasing a home also means investing in the surrounding area. When exploring a potential new neighborhood, take the time to walk around to see what the neighborhood is actually like. Pay attention to the upkeep of the houses, the cleanliness of the streets, and the overall vibe of the community.

Safety should always be a top priority, so look up crime rates in the neighborhood. Additionally, you could check for the presence of local amenities like parks, shops, and restaurants. Don’t forget to consider the commute time to your workplace and the quality of nearby schools if you have children or plan to have a baby in the future. Finding the right neighborhood is almost as important as finding the right house. It's all about creating a space where you feel safe, happy, and at home. 

12. Prepare for other normal expenses

First-time homebuyers may not be aware of the expenses associated with purchasing a home and closing on a home. One of the expenses you need to prepare for is closing costs. According to Zillow, buyers will typically pay between 2-5% of the total purchase price for closing costs. These costs go toward home inspections, appraisals, homeowner’s insurance, private mortgage insurance (PMI), and more. 

You should also consider other costs, like maintenance, moving expenses, furnishing costs, and potential renovations when budgeting for your new home. If you have questions about potential expenses, seek advice from your real estate agent. Experienced real estate agents can provide valuable insights and guidance to help you navigate the financial aspects of buying a home. 

13. Avoid major financial changes

Maintaining financial stability when you are saving to buy a new home is crucial. It's easy to feel financially pressured to splurge on a new car or compare yourself to others who have recently purchased a house. However, you should worry about your own finances and avoid making any major money moves. 

By resisting the urge to change jobs, buy a new car, or apply for additional credit cards, you can protect your credit score from any negative impacts. Keeping your financial habits consistent will ensure a smoother path toward your goal of homeownership. It's all about staying focused on your goal and making wise financial decisions along the way. While it may seem challenging at times, staying disciplined and avoiding unnecessary risks will pay off in the long run.

14. Consider the future

When exploring potential listings for your new home, ask yourself questions about the future. Would you want to build a family there? Can you see your family living there long term? While there may be more opportunities to change houses or cities, think about how often you may want to move. If you don’t see yourself at a location long-term, consider renting or finding another option until you know your ideal location. A house is a large investment, and it's not advisable to frequently sell and buy homes. 

It's important to envision the future when choosing a place to call home. Imagine the memories you could create and the milestones your family could celebrate in that space. Take the time to explore your options and consider what truly feels like the right fit for you and your loved ones. Finding the perfect home is not just about the physical structure, but also about the comfort and peace of mind it offers. Trust your instincts and choose a place where you can see yourself thriving for years to come.

Buying your first home is a monumental step towards financial security and personal fulfillment. By following these tips, you can navigate the difficulties of homeownership with confidence, ensuring a rewarding and sustainable investment in your future. Remember, the more prepared and informed you are, the smoother the home-buying process will be.