Complete First-Time Homebuyer Guide to Buying a House
7 minute read
May 10, 2023


Last year, first time homebuyers made up 34 percent of buyers in the market, up by three percent from 2021, according to the National Association of Realtors. 

With housing inventory and interest rates finally stabilizing after a turbulent period of a few years, there will likely be even more buyers entering the market for the first time. 

If you find yourself among that group who’s considering becoming a homeowner this year, keep reading for our complete guide for first-time homebuyers 

Advanced knowledge of the home buying process can be the difference between a successful transaction and one that you regret. With that in mind, it’s important to understand the steps to take and the mistakes to avoid.

Evaluate your financial situation

Before you search for your dream home, you must understand your financial situation. 

The first step is to calculate your monthly income, expenses, and any outstanding debts. This information will help you determine how much you can afford to spend on a home without compromising your other financial responsibilities.

Create a home buying budget that includes your mortgage payment, property taxes, insurance, maintenance, HOA fee (if applicable), and utilities. 

Remember to plan for a down payment, too. While a minimum of 20 percent is ideal for a conventional mortgage, you may be able to qualify for a low- or no-down payment option depending on the loan product.  

Check your credit report

Your credit score plays a crucial role in determining whether you’ll qualify for a mortgage and the interest rate you’ll receive. Simply put, the higher your credit score, the lower your rate usually. Even a slightly lower rate can save you thousands of dollars over the life of your loan.

For example, a $240,000 loan at seven percent for 30 years results in a monthly payment of $1,597 (without taxes and insurance).

Using the same loan amount and term, an interest rate of 6.5 percent is a monthly payment of $1,517. In other words, a half a percentage point saves you $80/month and $960/year. 

Get a free copy of your credit report from one of the three major credit bureaus — Equifax, Experian, or TransUnion — and review it for errors. Everyone is entitled to one free report from each bureau per year. 

If you find any discrepancies, such as closed accounts appearing open or large payments you didn’t make, contact the appropriate credit bureau to resolve the issue. 

If your credit score needs improvement, the following is recommended:

  • Pay off high interest debt first 
  • Make timely payments consistently
  • Don’t make any new credit inquiries
  • Don’t take on more debt before applying for a mortgage

Explore mortgage options

There are various mortgage options available for first-time homebuyers, including but not necessarily limited to:

  • Conventional loans: Conventional purchase loans are part of the standardized mortgage programs established by government-sponsored Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation). 
  • FHA loans: FHA-insured loans are backed by the U.S. Federal Housing Administration and provided by FHA-approved lenders. 
  • VA loans: VA loans are backed by the government through the U.S. Department of Veterans Affairs. 
  • USDA loans: USDA loans are provided to low- and very-low-income families living in rural areas. 

Research each type and determine which one best suits your needs based on your financial situation and the type of property you’re interested in purchasing. While you may not qualify for government-funded programs, such as an FHA loan, don’t assume anything.

If you’re unsure which mortgage option is right for you, consult a mortgage broker or experienced loan officer. They can help you compare options, answer your questions, and give you their recommendation on the best path forward. 

It’s also okay to shop around for lenders and find one that you trust, and who is likely to get you the best rate and loan terms. 

Get pre-approved for a mortgage

Before house hunting, it’s crucial to get pre-approved for a mortgage. 

This step shows sellers that you’re a serious and qualified buyer, which can give you an advantage when making an offer. It also shows you how much of a mortgage loan you could qualify for, which gives you a budget for your house hunt. 

Contact your lender and provide them with your financial information, including your income, assets, and debts. After reviewing your information, the lender will issue a pre-approval letter stating the amount you’re likely to qualify for. 

A pre-approval isn’t the same as an official approval, so you’ll have to officially apply once your offer is accepted. But if the lender already has all of your information, the process will be streamlined.

Hire a real estate agent

Working with a real estate agent, especially one experienced with first-time homebuyers in your local area, can make the homebuying process less stressful. 

Your agent can help you find homes within your budget, arrange showings, negotiate offers, and navigate the closing process. And of course, they can answer any and all questions that arise. 

Tip: Ask for recommendations from friends or family and speak with several real estate agents before making a final decision. 

Begin your home search

Now that you’ve laid the groundwork, it’s time to begin your home search (with the help of your agent). Make a list of your desired features and prioritize them based on your needs and wants. 

Think about things such as:

  • Location
  • Home size
  • Lot size
  • Layout
  • Amenities
  • School district
  • Commute times

Be prepared to adjust your expectations as you start visiting properties. You don’t want to get caught up in a bidding war and end up paying more than your budget. Remain flexible but don’t settle on just any home. This is likely to be one of your biggest purchases so determine what features are wants and which are must-haves. 

Make an offer

Once you find a home that checks all (or most) of the boxes, it’s time to make an offer. Your real estate agent will help you determine a fair offer based on comparable properties in the area and the current market conditions.

Your offer should include any contingencies, such as a home inspection or financing, as well as the desired closing date. This is also the step where your pre-approval will come in handy to prove that you’re qualified for financing. 

The seller is under no obligation to accept your offer, so don’t fret if you’re unable to come to terms right away. You may have to go through several rounds of negotiations before reaching an agreement. 

AAA Banking is your ally in homebuying 

As a first-time homebuyer, it’s natural to have concerns about the process. It’s natural to be excited, scared, and stressed all at the same time. Fortunately, the more information you have the more confident you will become.

At AAA Banking, we’re not just mortgage experts. We’re your ally in making home financing affordable, convenient, and personal. Count on us when you’re ready to purchase a home.

Contact us online or via phone at (844) 897-2265 to discuss our many loan products. We’ll help you secure the mortgage that’s best for you, your finances, and your future.

Photo by Kindel Media

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