How to buy a house for the first time

When buying a home for the first time, you'll need to know how much house you can afford, where you want to live, what kind of home you want to buy, and how you plan to pay for it. You'll then need to start the steps to buying a house, including getting pre-approved, finding an agent, making an offer, and closing.

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What do you need to buy a house?

Well before you find the house you want to buy, start familiarizing yourself with the information, qualifications, and resources you'll need. Here's what you need to buy a house:

  • A credit score that qualifies you for a mortgage
  • Proof of reliable income and savings
  • The cash required to close on the house
  • A home-buying budget
  • Pre-approval for a mortgage
  • Mortgage loan approval
  • Real estate agent

Pro tip:

When budgeting for your monthly mortgage payment, account for homeowners insurance and property taxes. Your monthly payment might also be higher than expected if your lender requires private mortgage insurance (PMI). Charging PMI is customary if you put down less than 20% of the home's value.

Steps to buying a house for the first time

Once you're ready to start the process, follow these steps to buying a house for the first time:

  1. Get your finances in order

    • Assess your financial situation: Analyze your income compared to your spending. If you'll be financing the home, prospective lenders may require a certain debt-to-income ratio, which means your monthly debt payments shouldn't exceed a certain percentage of your monthly earnings. You'll need to maintain a steady income to qualify and pay for your mortgage.
    • Determine how much home you can afford: Progressive has an online mortgage affordability calculator, which will give you an estimate of how much house you can afford based on your income, debts, and expected mortgage rate.
    • Work on your credit score: Get a copy of your credit score from the major credit bureaus from AnnualCreditReport.com and clear up any errors you find. According to Experian, a fair rating of 620 will qualify you for a conventional mortgage with most lenders. If you apply for an FHA loan, you can get approved with a 500 score. A higher credit score may get you a better mortgage interest rate. ConsumerFinance.gov has a credit report checklist to help you review your scores.
  2. Establish your budget

    • Down payment: Knowing how much house you can afford will help you determine if you've got enough money for a down payment, typically 20% of the home's value, but many people pay less — as little as 3% sometimes. However, the more you put down, the lower your monthly payments.
    • Earnest money deposit: An earnest money deposit is a check that will accompany your offer, typically between 1% to 2% of the home's value. This money is held in escrow and shows the seller you're committed to purchasing the home, and later applied to your closing costs or down payment. Learn about private mortgage insurance and how escrow and homeowners insurance works.
    • Closing costs: Ensure you'll also have sufficient funds to cover closing costs. You'll receive a Closing Disclosure from your lender listing the closing costs, which include items such as loan origination fees, discount points, title searches and insurance and more.
  3. Get pre-approved for a mortgage

    When you're ready to start house hunting, getting pre-approved for a mortgage will let you know how much of a mortgage you qualify for and show sellers that you're a serious buyer. Some real estate agents require a pre-approval letter before working work with you. It can also give you an advantage over someone who hasn't yet taken that step. Work with a mortgage loan officer or your bank to find out your pre-approval options.

  4. Get your documents in order

    Your lender will request financial records when you apply for a home loan. These can include recent pay stubs, two years of tax returns, bank statements, rental history, and a copy of your driver's license. Having these documents ready when you apply for a mortgage can make the process go smoothly.

  5. Determine what you need and want in a house

    Would you prefer a new home so that you don't have to deal with the maintenance issues of older homes? If you're handy with tools and don't mind putting in the physical effort, a fixer-upper is one way to reduce costs. Learn about buying a fixer upper and building vs. buying your first home.

  6. Hire a real estate agent

    Preparing to buy a house can be stressful, but a real estate agent can help you navigate the home-buying process more efficiently, find houses that have what you what, navigate what to look for when you're buying a house, and negotiate with the buyer. It's their job to do everything in their power to find you a home that fits your desires within your budget.

  7. Start house hunting

    Check your local real estate listings, attend open houses, and tour homes privately with your real estate agent. As you get familiar with the market, identify your deal breakers. You might not find a house with everything you want, but you can make sure it has everything you need.

  8. Make an offer

    Once you find a house that ticks your boxes, consult with your agent and consider what amount you're comfortable with to make an offer on the home. You'll put in an offer, typically with an earnest money deposit (usually 1-10% of your offer, depending on the market). Consider including a home inspection contingency in your purchase agreement, which allows you to negotiation further or back out if major issues are found during the inspection. The seller may negotiate with you before you settle on a final purchase price and terms.

  9. Get a home inspection

    After the house is under contract (meaning the buyer accepted your offer), you may want to find a home inspector and schedule a home inspection. You'll pay for the home inspection out of pocket rather than as part of the closing costs. Reference this home inspection checklist to get the most out of yours.

  10. Buy homeowners insurance

    Homeowners insurance is required by most home lenders, and while they may refer you to an insurer, you can also compare homeowners insurance rates to find the right one for you. Get answers to your questions about homeowners insurance as a first-time homebuyer.

  11. Secure your financing

    To finalize your mortgage financing, your lender will likely require an appraisal, which they will handle. You will typically pay for the appraisal out of pocket.

  12. Close on the home

    Your last step is the real estate closing, where the buyer and seller finalize the home purchase. Before closing, resolve any issues raised in the inspection, finalize the mortgage with your lender, and review the list of closing costs in the closing disclosure. At the closing, you'll sign your title transfer and mortgage documents and take possession of your new house.

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