Thinking about buying your first home?
Here’s what you need to know to make the process smoother, including steps to take, loan options, and the benefits available for first-time buyers.
Who Counts as a First-Time Home Buyer?
You may qualify for special programs if:
- You’ve never bought a single-family home before, or
- You haven’t owned a home in the last three years (even if you co-owned one), or
- You’re a displaced homemaker or single parent and haven’t owned a home (except with a spouse) in the past three years
- You’ll also need to show you have a steady income and can manage your debts.
Steps to Buying Your First Home
1. Figure Out What You Can Afford
Start by understanding your budget. A good rule is to keep your monthly home costs (including mortgage, taxes, and insurance) around 28% of your gross (before-tax) income.
Divide your monthly income by four to get a rough idea of a comfortable payment.
Remember to save for closing costs, which are extra fees paid when you buy a home (usually 2% to 5% of the price). For example, on a $500,000 home, closing costs will be $10,000–$25,000.
Shopping around with different lenders can help lower these costs.
2. Compare Mortgage Lenders
Most buyers now check with several lenders, which is smart! Don’t just go with whoever your real estate agent suggests. Look at interest rates, fees (like the origination fee), and total closing costs.
Get each lender to give you a clear, easy-to-compare offer.
3. Look for a House
Think about what you really need in a home versus what would be nice to have. Visit homes, check out neighborhoods, and make a list of top choices. Your agent can help you make offers and negotiate.
4. Pick Your Mortgage Lender
Once your offer is accepted, finalize your lender choice. Ask for offers with no “discount points” (fees that can lower your interest rate) so you can make fair comparisons. Decide if you want to buy points to get a lower rate.
5. Prepare to Close
You’ll get a final statement three days before closing showing what you’ll pay. On closing day, sign the paperwork—and the home is yours!
Benefits for First-Time Home Buyers
- Lower Down Payments & Credit Requirements
- You usually don’t need 20% down. Many first-time buyers put down as little as 3%. Some programs and lenders even accept 1% down.
- First-time buyers may also qualify for down payment grants (money you don’t have to repay), help from the government or nonprofits, or special programs for teachers, first responders, and others.
- Lower Credit Scores Accepted
- FHA loans require only a 580 credit score (or 500 with 10% down), and some conventional loans start at 620.
- To get the very best interest rates, you’ll need a score of 760 or higher.
- Home Buyer Education
- Free or low-cost classes can help you understand the process and make informed decisions.
Challenges First-Time Buyers Face
- High Mortgage Rates: Rates are higher than in recent years, making it tougher for many to afford a first home.
- Low Housing Supply: There aren’t enough homes for sale, pushing prices up and making competition tough.
- Saving for a Down Payment: Rising prices, high inflation, and slow wage growth make it harder to save.
Popular Mortgage Options for First-Time Buyers
- FHA Loans: Good for those with lower credit or less money saved. Only 3.5% down with a score of 580, or 10% down with a score of 500.
- VA Loans: For military members and families—no down payment needed.
- USDA Loans: For rural buyers—no down payment required.
- HomeReady and Home Possible Loans: Programs with as little as 3% down and flexible credit requirements.
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