Buying your first home is a huge undertaking and one that can easily become overwhelming— especially if you don’t know what to expect. From the very beginnings of shopping around for your dream home, all the way to setting a budget, going under contract, and closing on the deal, there’s a lot that goes into this life-changing investment.
After chatting with expert real estate agents from all over the country (and recently buying my first home) I’m here to give you all the details on what you can expect as a first-time homebuyer. So whether you’ve just started looking for that perfect house, or you’re already knee-deep in paperwork, this list should help. Here’s a high-level summary of everything that goes into buying your first home, plus all the details on what to expect.
What To Expect When Buying Your First Home
There are almost too many steps to name when it comes to buying your first home. After all, it's a pretty big investment, and one you’ll likely only make a few times in your life. Buying a home isn’t like buying a car or even renting an apartment. The process is much more involved, especially because of the sheer size of the investment. Many people spend 30 years (if not more) paying the mortgage on their homes, so it’s important to be sure you’re choosing the right one, as well as to take your time while making the decision.
This list will be most helpful for first-time homebuyers who have already begun their home search online — using sites like Zillow or Trulia to see what homes are available in their desired locations. Once you’ve got a rough idea of the kinds of properties you like, keep reading to find out what comes next and how you can get the most out of your home buying experience.
Set a budget
One of the most important (and often overlooked) first steps to take when buying a home is to set a budget
. Does this mean you need to know exactly how much you want to spend right down the last dollar? Nope, but it does mean you should have a rough idea of how much house you can afford, and what your monthly payments might look like at various price points.
“First-time homebuyers should actually set two budgets,” says real estate agent Chuck Vander Stelt of Quadwalls. “The first is the total out-of-pocket amount they’re willing to spend to get the deal closed. Secondly, buyers should determine their monthly budget for the house payment.”
This is especially sound advice if you find yourself in a competitive sellers’ market (a housing market that benefits sellers) like I did, where homes often sell for higher than listing price. In setting your monthly budget, keep in mind that buying a home comes with several hidden expenses as well. This can include things like home repairs and property taxes, but also the more immediate expense of hiring a home inspector, and paying the closing costs on your home.
A good rule of thumb that Vander Stelt recommends is to account for a monthly payment that is 1x larger than the mortgage payment to compensate for any necessary repairs and maintenance that may come up. If you’re unsure how much of a house you can afford, work backward. Use an affordability calculator, or simply settle on a rough number of how much you can comfortably afford in monthly payments. Be sure to take any down payment you may have saved up into account as this will be deducted from your mortgage and therefore decrease your payments.
Once you have these numbers in mind, you might consider contacting a lender to get pre-approved for a mortgage
. It can be hugely beneficial to get pre-qualified and have this information ready whenever you decide to make an offer on a home— since this ultimately shows the seller you’re able to afford their home. Sellers often hesitate to go with buyers who don’t have a pre-approval letter from a lender, so getting yours ready ahead of time might just give you an advantage over other buyers.
While it might sound crazy to do all this calculating upfront, knowing just how much house you can afford is a great way to narrow down your search and avoid wasting time on houses that are out of price range.
Research your top neighborhoods
Now that you have a better idea of your budget, it’s time to start researching neighborhoods. You’ve probably already done a bit of this in your house hunting, but there’s no such thing as too much research when it comes to the place you’ll be living. Narrowing down the neighborhoods you like from the ones you don’t is also a good way to keep your search focused on the places you see yourself living. That way, when a house in your favorite locations does come on the market, you can be one of the first buyers to see it and make an offer.
“We always tell buyers to focus on the neighborhood first and then the home,” says real estate broker James McGrath of Yoreevo. “It helps narrow down the search and generally makes for an easier decision. If you aren't sure which neighborhood you'd prefer, do some online research, ask friends, walk around to get a feel for it, or even rent an Airbnb in the neighborhood for a few days and see what it's like actually living there.”
Spend some time driving around your chosen city or town at different times of day to see what various areas are like, then follow up by taking walks in the neighborhood or even, as McGrath suggests, spending a few days renting in an Airbnb. You may even want to drop by for a few open houses, or schedule home tours to get a sense of what you can get for your money. Beyond the overall feel of a neighborhood, you’ll also want to consider things like crime rates, school systems (if you have or plan on having children), the lifestyle, transportation, and any associated challenges or fees that may come with that neighborhood.
For example, if you don’t have a car or a way of getting around, you’ll want to look into neighborhoods where public transportation is possible. Similarly, if you end up falling in love with a neighborhood that’s part of an HOA
, you should make yourself aware of any HOA fees associated with that location. Spend some time as well considering what kind of lifestyle you’re looking for. Do you want to be somewhere rural and own a bit of land? Or would you rather be close to town where you can easily go out for a drink or dinner? All of these things are worth taking into consideration before getting too deep in your house search. By narrowing down your search to only the locations that make sense for your needs and lifestyle, you’ll be able to hold out for the perfect house and avoid settling for anything less.
Find a real estate agent
Armed with your budget and desired neighborhoods, it’s time to find a real estate agent who can represent you when it comes time to buy a home. While some buyers choose not to work with a real estate agent, there’s no reason to skip this step— especially since most sellers end up paying your buyer’s agent fees. Working with a good real estate agent is your best bet at making sure the entire process of buying a home goes as smoothly as possible.
There are a lot of administrative tasks and paperwork that go along with buying a house, and a realtor can make sure you stay on track with all of these items, while also representing your best interests to the seller’s agent. Another thing to keep in mind about working with a real estate agent is that they can help you if (and more likely when) there are any negotiations, counteroffers, or important discussions to be had between you and the seller. Because of their experience in this kind of work, they can help ensure that negotiations are done fairly, and efficiently— without any hurt feelings or misunderstandings. But your real estate agent won’t just help you through the long and treacherous paper trail that comes with buying a home. They’ll also help you secure the home in the first place, by advising you on how to make the most compelling offer to your seller.
One thing to keep in mind is that every seller wants something slightly different. For some, it’s simply a matter of taking the highest offer. But for others, they may want to sell the house quickly, sell it to someone they like, or some combination of those things. Your real estate agent will work as a liaison between you and the seller to determine what it is that’s most important to them, then help you craft a compelling offer to secure your dream home.
A good way to find the best real estate agents is by going off recommendations. If you have friends who worked with someone they liked, reach out for that agent’s information. You might also just do your research on a local real estate website and scout out who you’d like to work with. “All agents provide the same services on paper, so you need to find out what it's really like working with them day to day,” says McGrath. “Do your homework. Whether that's by speaking with a friend who had a good experience or looking at reviews online, you want to make sure someone can vouch for the agent's service.”
Whoever you end up going with, try and pick someone with a keen knowledge of your local market, ie. someone who’s lived and worked in the area for a while. Make sure your agent understands exactly what it is you’re looking for every step of the way, and you’ll have a much easier time throughout the entire home-buying process.
Get your new home “under contract”
Once you’ve made an offer on a home and it’s been accepted in writing, you’re now considered to be “under contract” or “in escrow” with that seller. A lot happens in this stage, and you’ll be grateful to have your agent (and that you really love the house) once things get rolling. Most contractual periods begin with the buyer receiving a checklist of items that need to be done by certain dates. The period between signing the initial contractual agreement to closing on the home typically lasts anywhere from four to eight weeks, and you’ll likely have to-do list items for every single one of those weeks. Many of these to-do items are built-in protections for the buyer that allow you to take the necessary steps to learn more about the home you’re buying, and resolve any issues that may come up promptly.
Make an earnest money deposit
One of the first things you’ll do when your home is under contract is to send your seller something called an earnest money deposit (EMD). This is an amount of money (chosen by the seller) that’s built into your contract and will be deposited into their account almost immediately after signing the initial contract. This deposit is also sometimes referred to as a good-faith deposit, which is essentially what it is.
By offering some money upfront towards the purchase price of the home, you’re showing the seller that you’re serious about your intentions to buy it. This extra cash can also be helpful for sellers who may be working through a transition phase of their own and offer a helpful buffer to their finances while their house is being sold.
EMDs typically amount to anywhere between 1% to 2% of the home’s listing price, meaning that if you were to buy a home that’s listed for $350k, you might expect to pay anywhere from $3,500 to $7,000 for an EMD. Again, the seller determines this number, so it might be lower or higher than the average. That being said, this money ultimately comes off the price of the home itself, so it isn’t an extra expense you need to worry about when calculating your initial budget.
Hire a home inspector
Not long after your EMD has reached the seller’s bank, it will be time for you to hire a home inspector. This is a hugely important step during the escrow period and not one you’ll want to skip. Home inspectors are a great resource in combing over every nut and bolt in your new home and making sure nothing is amiss.
If it is, they’ll highlight what they’ve found in an official report, which you and your real estate agent can then bring back to the seller as a bargaining chip. You’ll want to go through this step no matter how much you like the house or the seller since inspectors can often save you hundreds or even thousands of dollars in repairs based on what they find. Their work often pays for itself, since many inspectors only charge a few hundred dollars— a fee that you as the buyer will be expected to pay. Some of the major things your home inspector will look at include the entire outside of the home including the walls and roof, the septic system (if you have one), the interior of the home, and all plumbing, electric, and HVAC properties of the house.
As far as finding the right home inspector for the job, residential mortgage broker Julie Aragon gives some sound advice. “Definitely talk to your real estate agent for referrals, but don't stop there,” says Aragon. “Inspectors should provide transparency without regard for whether the property gets sold or not. Look at online reviews and see which home inspectors seem to be the most thorough, based on reviews from other home buyers. Also, pick someone local to where your property is since they'll have a lot of intel specific to the typical construction for homes in that area and any potential effects of weather.”
In addition to hiring someone local with good reviews, you’ll also want to be sure whoever you hire has the required local licensing and accreditations. These change from state to state, so look up what your local ones are and then be sure your inspector has them. It’s also a good idea to hire someone willing to speak with you about anything they find, or even have you along during part of the inspection. Understanding the ins and outs of your home is not only an important part of negotiations but will also be extremely helpful as a new homeowner.
Shop for the best mortgages
Although this technically happens in escrow, it’s an important enough step to stand out on its own. Finding the right mortgage for your needs can be a time-consuming and challenging ordeal, especially if you don’t yet have that prequalification letter. Even if you do have a pre-approval from a lender, it doesn’t mean you have to borrow from that lender. Now’s the time to start shopping around for mortgages — both in the types of mortgages you may qualify for, as well as trying to find the best possible interest rates.
One type of home loan to be aware of as a first-time homebuyer is something called a Federal Housing Administration (FHA) loan
. FHA mortgages are provided by the Federal Housing Administration for borrowers with lower credit scores or down payments. While both FHA loans and conventional loans (aka standard loans provided by mainstream lenders) require a debt-to-income ratio
under 43%, FHA loans are more forgiving when it comes to the other requirements to borrow — like credit scores and down payments. For example, while most conventional loans require a minimum credit score of 620, FHA loans only require a minimum credit score of 580.
Similarly, FHA loans require a down payment of 3.5%, while many conventional loans require up to 20% or that buyers who don’t meet their minimum pay for something called private mortgage insurance (PMI) — which can cost as much as an additional 0.05% to 1% of your loan amount each year. If you plan on taking out a mortgage for $300k, PMI could cost you an additional $15k to $30k per year.
Since these numbers are nothing to scoff at, it’s worth it to take the time and find the best possible fixed-rate mortgage and mortgage rates available to you, based on your qualifying financial information. One way to do this is by shopping around with various online lenders, or by working with a mortgage broker. Mortgage brokers can help you shop around for the best rates based on your profile. Lenders and brokers alike will take a variety of things into account when reviewing your profile for a loan. This will include things like your credit score, debt-to-income ratio, and of course—your loan amount.
If you’re worried about qualifying for a loan, you might consider doing your research and trying to improve your financial standing. You can easily do this by pulling up your credit report and checking your score. You can also calculate your debt-to-income ratio (and verify it's under the required 43%) by adding up all your monthly debt payments and dividing them by your total (pre-tax) monthly income. Once you’ve found a loan you’re happy with, you’ll be ready to learn more about how to apply for a mortgage.
Close on your home
With all of these steps under your belt, you’ll be fast approaching the last few days under escrow when you can finally close on your home with the title company. This final step will have you sign all the required paperwork to transfer the ownership of the home from the seller to you, the buyer. Your real estate agent will walk you through how this works, but here are a few key takeaways to keep in mind.
Hire an appraiser
At some point after your home inspection and before your loan application is submitted to the lender’s underwriting team, you’ll need to hire a home appraiser. This essentially guarantees your lender that the home is indeed worth the amount of money they’re lending you, and acts as a fail-safe on their investment should you ever default on your loan. Home appraisals are typically the buyer’s responsibility to schedule and pay for, and usually cost a few hundred dollars depending on the size of the home. This expense can be included in your closing costs or paid for upfront.
Get homeowners insurance
Towards the end of your contractual period, you’ll also want to secure homeowner’s insurance
. This will protect your home in the event of a natural disaster, fire, or even theft. It will also insure the property in and around your home — including everything from laptops to expensive tools and machinery. While not required, getting homeowners insurance is an affordable way to protect your home from the unexpected, and is highly recommended. Depending on what insurance companies you already use for auto or life insurance, you might also be able to get discounted coverage by bundling your insurance coverage under the same provider.
Be prepared for underwriting
Once you’ve applied for your mortgage, it will go to the lender’s underwriting team. This process might only last a few days or depending on how busy the lender is — could take longer. It’s normal for this period to feel stressed since this is the final step in getting your loan approved. Be sure to keep your phone on hand and make yourself available to your loan officer in case they need any last-minute paperwork or details from you while finalizing the details of your loan.
Complete a final walkthrough
Just before your closing day (or possibly even that morning), you’ll want to do a final walkthrough of the property with your real estate agent. This step essentially guarantees the home is still in the same condition it was when you last saw it. Although unlikely for anything to have changed, it’s still a good idea to make sure before closing on the deal.
Transfer your utility bills
Although not strictly part of closing on your home, you won’t want to forget about this step— unless you want to spend the first night in your new home without heat or electricity. Sometime before or not long after closing, be sure to call up your local utility companies and transfer any bills to your name. Your seller may have already notified them of the last day they’d be in the house, so things might already be turned off— or they may have forgotten and still be paying themselves. You can spare everyone (especially your family) some hassle by making this a priority around closing time.
Summary of Buyer Costs
Besides the cost of the home itself (including your mortgage and any down payments), here’s a summary of the other expenses to be prepared for throughout the home-buying process.
- Earnest money deposit: 1% to 2% of the home’s listing price
- Home inspection: $270 - $400 (or more) depending on the size of the home & where you live
- Appraisal: $300 - $400 depending on the size of the home & where you live
- Homeowners insurance: $1,200 per year on average*
This number varies depending on the property you buy and where you live.
The bottom line
There’s a lot that goes into buying your first home, and this list only scratches the surface. No matter where you are in the home buying process, it can be hugely helpful to work with great people who can provide the support you need along the way. Be sure to hire an agent (and inspector) you feel you can trust, and can also communicate with. You’ll have a lot of questions throughout this process, and you’ll need a good team, and a wealth of resources to get through it.