Buying your first house is a monumental milestone of adulthood. Whether you intend to purchase a home on your own or with a partner, you’ll find there are numerous steps involved. Luckily, as a first-time buyer, you have access to various benefits that aren’t offered to people who have been down this road before.
To qualify as a first-time home buyer, you must meet certain eligibility requirements. These requirements differ depending on your area’s down payment assistance (DPA) program. Generally, a first-time home buyer is anyone who hasn’t owned a home in at least three years. If you’re married, but only your spouse’s name is on a mortgage, you can still qualify. However, you must be at or below a specific income level and be able to afford the home you apply for.
Hopeful homeowners should treat the house-buying process far differently than any other purchase. There are upfront and ongoing costs to consider, and the process can take anywhere from a couple of months to years. This timeline will help you conceptualize how long the process will take and how to tackle the many facets involved.
Before you begin: Know first-time buyer benefits
The biggest fear of first-time buyers is taking on substantial debt to become a homeowner. To ease the financial burden, multiple programs are aimed at first-timers that are unavailable to current or recent homeowners. Several of these programs require no downpayment to take out a loan, while many only require around 3%. In contrast, traditional mortgage loans require at least a 10% downpayment, though most average from 20 to 25%, as per Rocket Mortgage.
In addition to the small downpayment, you are eligible for financial assistance through several platforms. Local DPAs may offer grants, forgivable loans, and deferred-payment loans. Depending on your state of residence, you can get a mortgage credit certificate. This certificate is a tax credit and deducts a portion of paid mortgage interest from your income taxes, reducing what you owe when tax season rolls around.
Although purchasing your first home can be intimidating, the government provides valuable aid to make it more feasible for people of varying income levels. Remember, applying for these financial aid programs also puts you in contact with real estate professionals who can help guide you on the path to home ownership.
Financially prepare yourself
Even with DPA programs on your side, you need to be financially prepared to take on a mortgage. Factor in your credit score, current savings, job stability, and monthly income to determine whether now is the time to take out a mortgage. Start by checking your credit score through all three credit bureaus: Equifax, Experian, and TransUnion. According to USA.gov, you can request free credit reports from the bureaus once per year. Check your scores for any inaccuracies or places for improvement, and make changes as you see fit. Keep in mind that most loans, even those for first-time buyers, require individuals to have credit above the 580 to 620 range depending on where they are. You may need to build credit by increasing your credit card utilization, adding more cards to your name, and keeping up with payments (via Credit Karma).
Most mortgage lenders require that you be employed for three years or more to use that source of income in your loan application (which is one of the future steps in this process). If you’re an independent contractor or self-employed, you must have proof of tax payments via your returns from the past three years. Verifying your income isn’t to make the home-buying process harder — it’s to ensure a lender that you can engage in a long-term agreement with them.
Week 1: decide where you want to live
The beginning of the home-buying process is one of the best parts — it’s when you decide where you want to establish your roots. You may want to stay close to where you are now or be interested in a cross-country location. Just remember that where you choose to live can affect your DPA eligibility.
When looking at neighborhoods, there are a lot of factors to take into account. If you have children, consider school zones and your proximity to local parks and playgrounds. Families and individuals alike see the importance of evaluating local crime rates and commute times to their workplaces and stores. You can check how walkable an area is through a unique rating system, which determines its “walkability score.”
Try to be realistic about where you want to live. While moving to an entirely new place has the allure of adventure, it isn’t always a practical decision. You’ll need stability in the coming months as you adjust to having a mortgage. Uprooting to a strange new area can bring on a whole new set of challenges, especially if you’re unfamiliar with the place you’re moving to. Rocket Mortgage recommends renting when first moving to a new city because of the associated flexibility. Signing onto a monthly lease enables you to get to know the city without fully committing. You can learn the area and which parts are the best options. This extends the overall home-buying process but increases the likelihood you’ll be satisfied with your decision.
Decide what kind of home you’re looking for
In addition to determining where you plan to live, you should decide what type of structure you want to live in. People who prefer isolation should consider a house, while people who like a tight-knit community should opt for a condo. If you want an option that isn’t as isolated as a house or as compact as a condo, there are manufactured homes and townhomes.
Houses are often associated with “The American Dream” because you own the building and property fully. Still, most maintenance and repairs fall to you — no building staff is present for assistance. However, depending on your neighborhood, you may have a community center with additional amenities. Many suburban and urban areas charge you a Homeowner’s Association (HOA) fee that keeps your community in line through rules. HOA rules can be strict or lax, including an assortment of mandates. The best way to learn more about your HOA is to ask other residents in the area.
Manufactured homes are more affordable houses for those with lower budgets, as per Forbes. These homes are not as structurally sound as constructed homes, but they are good options for people who don’t need as much space or have other financial obligations. When you buy a condo or townhouse, you own an individual unit and are responsible for the maintenance and upkeep of that space. However, your yard and shared spaces are typically covered by the building through an HOA.
Week 2: Reach out to lenders
Before you get too excited about the prospect of a new home, you must ensure you’re pre-approved for a mortgage. Reach out to at least three mortgage lenders for pre-approval quotes. You want to explore your options because different lenders will offer you different rates. The initial process is free, so you don’t have to worry about any costs at this stage.
Although you won’t be dishing out any money just yet, your financial readiness will play an important role. Hopefully, you have a stable work history and a good credit score — these factors will determine the loan amount offered. Lenders usually act quickly and respond in less than a day, especially if you have the documents they need. Make sure you’re contacting a reputable firm because you will send them personal information. Most lenders will request your basic info, social security number, proof of income, previous tax forms and returns, credit report, driver’s license, and bank information. Make sure you’re following the best practices for contacting a reputable firm by checking out Rocket Mortgage’s list of common lender scams. Never communicate with an individual that doesn’t use their firm’s domain to email you or their firm’s phone number to call you. They should be using company communication platforms to ensure your safety.
Request your pre-approval letter
When lenders access your credit report, they perform “hard inquiries,” which lower your score. According to the Consumer Financial Protection Bureau, you can request additional lenders to check your credit (and provide you with pre-approval offers) for up to 45 days after the first report without any additional points being docked. After this period, every hard inquiry will count, which can significantly diminish your credit score if you aren’t careful.
First-time home buyers have multiple pre-approval options. You may qualify for a mortgage through a traditional lender, bank, or credit union. Once you have your responses, choose the best offer and request a pre-approval letter. You can request digital and physical forms of this document for your records. These letters tend to expire within 60 to 90 days, meaning you’ll want to start shopping for homes as soon as possible (via American Family Insurance). If your letter expires during your house search, all you must do is re-apply to the same lender. The process will be just as quick the second time around.
Week 3: Connect with a real estate agent
Once you have your pre-approval letter in hand, you can start searching for a real estate agent to guide you through the rest of the home-buying process. You can find one by googling agents near you, or by taking references from friends, family, and even your mortgage lender. Depending on how hard you want to vet your potential partner in house searching, this could take up to a week or longer.
A buyer’s agent will be extremely helpful in the coming weeks or months of your search. They’ll help you find quality homes that fit your specifications, including new listings that aren’t publicly posted on popular sites like Zillow and Realtor.com. They’ll also provide advice when making initial offers and assist in negotiating prices with the seller or the seller’s agent.
Make sure you communicate exactly what you’re looking for with your chosen agent. The more they know about your housing and location preferences, the better results you’ll have when working with them. Freedom Trail Realty School recommends sharing both aesthetic and functional house preferences with an agent. They should be privy to your budget, preferred home style, bedroom and bathroom requirements, and other requested amenities. Don’t neglect to share details, no matter how trivial you may believe them to be. If it’s important to you that you find a home with a gorgeous kitchen or a great street view, your agent wants to know.
Months 1-3: Explore your options
House searching is one of the most exhilarating but exhausting parts of home-buying. This is when you’ll be driving from place to place and touring homes. You aren’t required to visit houses in person, but buying agents highly recommend it to get a feel for the area and the home itself. Your agent will do most of the searching and inform you of potential homes as they find them, but you can continue to do your own searching too.
You want homes that have been previously appraised, which guarantees the condition of a building and what it’s worth. Your agent will search for appraised homes that fit your specifications, including your requested square footage, property size, home amenities, and overall cost. They’ll help you to avoid common scams, like fake listings, using their resources and real estate knowledge to make your search as safe as possible.
Don’t be dismayed if the house search goes on longer than expected. Realtor.com claims that the average buyer tours 10 houses or more before finding a place worthy of making an offer. The longer you search, the more you may find you’re willing to budge on what might have previously been a non-negotiable.
Month 4: Make your offer
Once you find the one — the house you see yourself living in — it’s time to think about making an offer. This takes logical deliberation, and Rocket Mortgage recommends considering the listed price, nearby home prices, appraisal notes, and how long the house has been on the market. You need to think about your own budget and whether you can make a decent offer on the home without spending beyond what you’re comfortable with. Even if you get approved for a very high home loan, it does not necessarily mean you should utilize the maximum amount. Remember that the more expensive your home is, the higher the monthly mortgage payments.
Remember that sellers tend to favor offers made in cash, which is not always feasible for first-time home buyers. If competition is high for the home you want, you should consider offering a higher downpayment to outbid potential competitors. If you have little to no money for a downpayment, it may be difficult to compete with other buyers on the market. Again, this process is made simpler with the assistance of a real estate agent. They’ll help you comply with state and local laws and craft a formal letter outlining all the necessary elements of making an offer.
Month 5: Start the closing process
If the buyer accepts your offer, you can move on to the next step and begin the closing process. Both you and the home seller face evaluations at this time. A loan processor investigates your application and approves whether or not you can buy the home, while a title company checks that the home seller has the right to transfer ownership of the said home to you.
According to Rocket Mortgage, the closing process can take anywhere from 30 to 45 days, assuming everything goes well. Since first-time buyers typically utilize federal loans and financial assistance programs, they should expect the process to take even longer. Federal Housing Administration (FHA) loans are notorious for taking longer than average since they require inspections and appraisals to ensure the designated home fits their guidelines. The Balance reported that these loans took an average of 51 days in August 2021.
Have the home inspected
While you’re waiting on the loan processor and title company, hire a home inspector to do one final look around the interior and exterior of the property. Their completed report should include safety concerns and other major and minor issues that may give you room to negotiate the price of the house.
HomeLight claims that some of the most common issues are structural damage, pest infestations, and appliance issues. Ultimately, it’s up to you, but many buyers prefer that the seller fix the problems and make a counteroffer. Other buyers choose to purchase the home as is but discounted, agreeing that resolving those issues is up to them once the property is transferred over. The inspection report belongs to the individual who paid for it. The only part of a report that the home seller will see is a list of repairs if the buyer requests them, unless they choose to share the full findings.
Once again, your real estate agent will provide personalized advice depending on your situation. In some cases, a shocking inspection report might make it in your best interest to simply walk away.
Month 6: Close on the house
The final step in the home-buying process is the official closing, which takes hours to complete. You’ll be expected to pay your down payment and all closing costs, as detailed in a Closing Disclosure form. The closing costs, which include inspection fees, real estate agent costs, and taxes, range from $2,000 to $12,000, depending on your state of residence, as per Rocket Mortgage. To ensure all payments and signings go through without any hiccups, Better Money Habits recommends preserving your finances and keeping your credit score stagnant. Making a large investment, especially one that takes out a loan, can complicate your current financial status and disrupt the process.
You should also be careful to keep up with monthly payments, resist taking on any other loans, and avoid opening new credit cards. Missing payments and taking actions that require hard inquiries could undermine your credit score and cause your intended financer to drop you (via Investopedia). Once you finish closing and everything is officially completed, the property is yours. After many months of tedious work, you can move into your new home and make the place your own.