First-Time Homebuyer Guide: 12 Steps to Buying Your First Home
Buying your first home is exciting, but it can also feel overwhelming. You may be wondering how much you can afford, how much money you need, which type of mortgage is best and what happens after your offer is accepted.
The process becomes much easier when you have a plan and a mortgage professional who explains the numbers before you begin shopping. This guide walks through the major steps so you can prepare, avoid common mistakes and move forward with confidence.
First-time homebuyer checklist
- Review your credit
- Choose a comfortable monthly payment
- Estimate your cash needed at closing
- Learn about available mortgage programs
- Complete a mortgage application
- Get pre-approved before shopping
- Avoid major financial changes
- Choose an experienced real estate agent
- Make a competitive offer
- Complete inspections and the appraisal
- Prepare for closing
- Stay in contact with your mortgage professional
1. Review your credit before applying
Your credit history is one of the factors used to determine which mortgage programs may be available, how much you may qualify for and what interest rate or mortgage insurance pricing you may receive.
Before applying, review your credit reports for inaccurate balances, unfamiliar accounts, duplicate collections or late payments that may have been reported incorrectly. You can request your reports from Equifax, Experian and TransUnion through the official AnnualCreditReport.com website.
Keep in mind that free consumer credit websites may display a different score than the mortgage-specific FICO scores used by lenders. A mortgage professional can review the correct scoring models and explain what, if anything, may help improve your loan options.
2. Decide what monthly payment feels comfortable
A pre-approval may show the maximum payment you can qualify for, but that does not necessarily mean you should spend the maximum. Your ideal payment should leave enough room for your regular expenses, savings goals, maintenance and unexpected costs.
A complete monthly housing payment can include:
- Principal and interest
- Property taxes
- Homeowners insurance
- Mortgage insurance, when applicable
- Homeowners association or condominium dues
- Flood insurance, when required
Property taxes and insurance can vary greatly from one home to another. Two homes with the same price may have noticeably different total payments. This is why it is important to request an updated payment estimate before making an offer on a specific property.
3. Understand how much cash you may need
Your down payment is only one part of the money needed to purchase a home. Buyers may also need funds for closing costs, prepaid expenses and escrow deposits.
Common cash-to-close items include:
- Down payment
- Lender and underwriting fees
- Appraisal and credit-related fees
- Title and settlement charges
- Recording fees
- First-year homeowners insurance premium
- Initial property-tax and insurance escrow deposits
- Prepaid interest
Earnest money already paid with your contract is normally credited toward the amount due at closing. Seller-paid closing-cost credits, lender credits, gift funds and eligible assistance programs may also reduce the amount you need, depending on the loan program and transaction.
4. Compare the main mortgage options
There is no single loan program that is best for every buyer. Credit, income, property type, military eligibility, location, available assets and long-term plans all affect which option makes the most sense.
| Loan type | Potential advantages | Items to consider |
|---|---|---|
| Conventional | Low-down-payment options may be available, mortgage insurance can eventually be removed when requirements are met, and pricing may be attractive for borrowers with stronger credit. | Interest-rate adjustments and private mortgage insurance can become more expensive when credit scores or down payments are lower. |
| FHA | Down payments may be as low as 3.5% for qualifying borrowers, with flexible credit and debt-to-income guidelines. | FHA mortgage insurance applies, and the property must meet FHA appraisal and condition requirements. |
| VA | Eligible veterans, active-duty service members and certain surviving spouses may qualify for no-down-payment financing and no monthly private mortgage insurance. | Eligibility, entitlement, occupancy and property requirements apply. A VA funding fee may apply unless the borrower qualifies for an exemption. |
| USDA | Eligible buyers purchasing in qualifying areas may receive no-down-payment financing. | Household-income limits, property-location requirements and program eligibility rules apply. |
| Renovation financing | Certain programs can combine the purchase price and eligible repair costs into one mortgage. | Contractor approval, repair estimates, inspections and additional underwriting requirements may be involved. |
Learn more from the official FHA, VA and USDA program pages.
5. Work with a mortgage broker who can compare options
A bank or direct lender generally offers its own products, pricing and underwriting rules. An independent mortgage broker can review options from multiple lending partners instead of being limited to only one source.
This flexibility can be especially helpful when comparing:
- Fixed-rate and adjustable-rate mortgages
- Conventional, FHA, VA and USDA programs
- Interest rates with and without discount points
- Mortgage insurance costs
- Down-payment assistance options
- Renovation, construction and specialty programs
- Different lender guidelines for unique borrower situations
The lowest advertised interest rate is not always the least expensive option. Some quotes include discount points, higher lender charges or assumptions that do not match your situation. Compare the rate, annual percentage rate, lender fees, points, monthly payment and total cash needed.
6. Complete an application and get pre-approved
Before touring homes seriously, complete a mortgage application and provide enough information for a preliminary review. A strong pre-approval helps determine a realistic price range and lets sellers know that your financing has been reviewed.
At All Home Mortgages, LLC, the process generally begins with a soft credit pull, which allows for an initial mortgage review without creating a hard mortgage inquiry. A full credit report may be required later in the process.
Documents commonly requested include:
- Recent pay stubs
- W-2 forms or tax returns, depending on the income type
- Recent bank and asset statements
- Government-issued identification
- Employment and housing history
- Documentation for retirement, Social Security or other income
- Gift-fund documentation, when applicable
Self-employed buyers, commission earners, landlords and borrowers with variable income may need additional documentation. Supplying complete information early can help prevent delays after you are under contract.
Ready to Find Out What You May Qualify For?
Start with a preliminary mortgage review and soft credit pull. We can discuss your price range, estimated monthly payment, down-payment choices and available loan programs before you begin making offers.
Start Your Mortgage Application7. Avoid major financial changes before closing
Mortgage approval is based on the information reviewed during the application. Lenders may verify credit, employment, assets and debts again before closing.
Until your loan has closed and funded, avoid:
- Opening or co-signing for new credit
- Financing furniture, appliances or a vehicle
- Running up credit-card balances
- Closing established credit accounts
- Changing jobs without discussing it first
- Making large undocumented deposits
- Moving money between accounts unnecessarily
- Spending funds set aside for closing
8. Choose the right real estate agent
Your real estate agent helps locate properties, arrange showings, research comparable sales, prepare offers and guide negotiations. Look for someone who understands the neighborhoods and property types you are considering and who communicates well with both you and your lender.
Before choosing an agent, consider asking:
- How familiar are you with my preferred areas?
- How do you help buyers decide what to offer?
- How do you handle inspection and appraisal issues?
- How quickly are you available when a home is listed?
- Have you worked with my type of mortgage before?
9. Separate your needs from your preferences
Very few homes check every box. Before shopping, create three categories:
- Must-haves: Items the home truly needs to have
- Preferences: Features you would like but can compromise on
- Dealbreakers: Issues that would prevent you from purchasing
Consider the location, commute, school district, number of bedrooms, layout, yard, parking, age of mechanical systems, future maintenance and resale potential. Visit the neighborhood at different times of the day when possible.
10. Make a smart offer—not just the highest offer
An offer includes more than the price. The seller may also consider the proposed closing date, inspection terms, earnest money, financing type, appraisal language and requested seller-paid costs.
Before submitting an offer, ask your loan officer for an estimate based on that specific property. This can uncover differences in taxes, insurance, homeowners association dues and cash needed at closing.
Avoid waiving important protections simply to make an offer appear stronger unless you fully understand the financial risk.
11. Complete inspections, appraisal and underwriting
Home inspection
A home inspection is primarily for the buyer. It can identify concerns involving the roof, foundation, plumbing, electrical systems, heating and cooling equipment, moisture and other components.
Depending on the contract and findings, the buyer may negotiate repairs, request a seller credit, accept the home as-is or use another remedy allowed by the agreement.
Appraisal
The appraisal is ordered for the lender and provides an independent opinion of value. It may also identify property-condition issues that must be addressed before closing, depending on the loan program.
An appraisal is not the same as a home inspection. Buyers should not rely on the appraisal to identify every possible defect.
Underwriting
During underwriting, the lender reviews the borrower, property, title, appraisal and transaction documents. It is normal for an underwriter to ask for updated bank statements, explanations or additional supporting documents.
Responding quickly and providing complete, legible documents helps keep the closing on schedule.
12. Review your final numbers and prepare for closing
Before closing, review the final Closing Disclosure and confirm:
- Loan amount
- Interest rate
- Principal-and-interest payment
- Estimated taxes and insurance
- Mortgage insurance, if applicable
- Seller and lender credits
- Total amount needed at closing
- Instructions for sending closing funds
After signing, the loan must fund and the transaction must be completed according to the title company and lender's process. Once confirmed, you receive the keys and officially become a homeowner.
Common first-time homebuyer mistakes
- Shopping for homes before getting pre-approved
- Focusing only on the purchase price instead of the total payment
- Draining savings to make the largest possible down payment
- Comparing interest rates without comparing points and lender fees
- Opening new credit before closing
- Underestimating property taxes, insurance and maintenance
- Making large bank deposits without documenting the source
- Waiving inspections without understanding the risk
- Assuming a bank's first offer is the only available option
- Waiting until after making an offer to discuss financing
Frequently Asked Questions
How much do first-time buyers need for a down payment?
It depends on the mortgage program. Certain conventional programs may allow qualifying buyers to put as little as 3% down, while FHA financing may allow 3.5% down. Eligible VA and USDA borrowers may qualify for no-down-payment financing. Closing costs and prepaid expenses should also be included when estimating the total cash needed.
Do I need perfect credit to buy a home?
No. Available programs and pricing vary based on the complete borrower profile. Credit score, recent payment history, income, debt, assets and the selected property can all affect approval. A preliminary review can help identify realistic options and potential areas for improvement.
Does getting pre-approved hurt my credit?
All Home Mortgages, LLC generally begins with a soft credit pull for the preliminary review. A soft pull does not create the same type of hard mortgage inquiry shown to other creditors. A full credit report may be required later for formal loan processing.
Should I put 20% down?
Not necessarily. Putting 20% down can eliminate mortgage insurance on many conventional loans, but using all available savings may leave too little for repairs, moving expenses and emergencies. Compare several down-payment options before deciding.
Can someone give me money for the down payment?
Many mortgage programs allow properly documented gift funds from eligible donors. The donor, transfer and source of funds must meet the chosen program's requirements. Speak with your loan officer before the money is transferred.
How long does it take to close on a home?
Timing varies based on the loan program, appraisal, title work, inspection negotiations and how quickly documents are provided. A well-prepared buyer with a responsive team can often avoid many common delays.
Why use a mortgage broker instead of one bank?
An independent mortgage broker can compare products and pricing from multiple lending partners. A bank or direct lender generally offers only its own programs and guidelines. Having more than one option can be valuable when comparing rates, fees, mortgage insurance and qualifying requirements.
Take the First Step Toward Homeownership
Seth Stefanko and All Home Mortgages, LLC help buyers understand their options in straightforward terms. We can review your credit, estimated payment, down payment and price range before you begin shopping.
Apply for a Preliminary ReviewAbout the author: Seth Stefanko is the owner and mortgage broker of All Home Mortgages, LLC. He has more than 15 years of mortgage industry experience and assists borrowers with conventional, FHA, VA, USDA, construction, renovation and specialty mortgage programs.
Seth Stefanko | NMLS #347217
All Home Mortgages, LLC | Company NMLS #1714399
Phone: (513) 470-9939
Email: seth@allhomemortgages.com
This article is provided for general educational purposes and is not a commitment to lend. Loan approval, interest rates, terms, down-payment requirements and program availability depend on borrower qualifications, property eligibility, applicable guidelines and lender approval. Program requirements are subject to change.
