Lastly, what's the market like in the neighborhood? Is it like New York City, where condos get snatched up with all-cash offers, or are you in a Las Vegas-esque location, where empty homes are a common site? In the former situation, it may be a good idea to start with a strong offer to beat out an army of other suitors, whereas you may have more leeway in a market like Vegas.
First-time home buyers are frequently surprised by high repair and renovation costs. Buyers can make two mistakes: First, they get a repair estimate from just one contractor, and the estimate is unrealistically low. Second, their perspective is distorted by reality TV shows that make renovations look faster, cheaper and easier than they are in the real world.
The winning bid isn’t always about price – the seller wants to feel confident about the entire transaction at the end of the day. If your bid includes your preapproval letter as opposed to a competing buyer’s prequalification, or you’re willing to let the seller take a little more time to move out, your offer might be the package the seller chooses.
Along with your down payment, you’ll also need to pay for closing costs. If you’re a first-time home buyer, you may be wondering how much it costs to close on a house. On average, closing costs are about 3–4% of the purchase price of your home.(2) Your lender will give you a specific number so you know exactly what to bring on closing day. These fees pay for important steps in the home-buying process, including:
Once a person knows how much he or she can afford in terms of a house, it is time to look at the details of where to live. Often people choose a location-based off of factors such as family and work. Although a person may have a general idea of where he or she would like to own a home, it is important to consider all of the options, including urban versus suburban locations. Urban areas are generally in the city while suburban areas are located at the outskirts of the city. People with families may appreciate the suburban areas, which generally have more schools and larger homes and yards. Urban areas are typically more expensive, but because they are at the heart of the city there are more activities, culture, and restaurants. Small towns and rural areas located outside of large cities are also an option and offer more sedate living than larger more urban areas. A person should visit potential locations keeping in mind his or her family's lifestyle and commute.
Your mortgage loan provider will want you to get your home fully appraised by a professional home appraiser. That's because the mortgage provider wants to make sure the home is valued near or above the sale price, thus ensuring a better chance that the loan will be repaid. You'll also want to get a home inspection, to ensure there are no defects like a leaky roof, mold in the home, or cracks in the infrastructure, among other cost-prohibitive issues.
After you’ve found some homes for sale in your price range, be careful not to make a decision based on the property alone. According to a NAR survey, 78% of home buyers believe neighborhood quality is more important than the size of a home. And 57% of buyers would opt for a shorter commute over a larger yard.(4) So make sure you factor neighborhood quality and location into your decision.
"Many first-time homebuyers will begin to look at properties prior to speaking with a lender, but this is a huge no-no," says Colin McDonald, a licensed real estate agent at Berkshire Hathaway HomeServices Blake, in Delmar, NY. "Most Realtors or sellers will not start to show houses to buyers until they've actually spoken with a lender and can provide a pre-qualification letter."

If a lender sees some late payments or other blemishes in your credit report, this can lower your odds of getting a loan with a great interest rate, or perhaps even jeopardize your chances of getting any loan at all. So, it's essential to know your score, and take steps now if necessary to bring it up to snuff. Here's more on how to check your credit score and what number is best to buy a home.


As a buyer, just keep in mind that mortgage pre-approval is different from mortgage pre-qualification. Pre-qualify, and you're undergoing a much simpler process that can give you a ballpark figure of what you can afford to borrow, but with no promise from the lender. Getting pre-approved is more of a pain since you'll have to provide tons of paperwork, but it's worth the trouble since it guarantees you're creditworthy and can truly buy a home.

The material provided on this website is for informational use only and is not intended for financial, tax or investment advice. Bank of America and/or its affiliates, and Khan Academy, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional and tax advisor when making decisions regarding your financial situation.
One of the ways your lender makes sure you and your house are a good bet is with a home appraisal. This is when someone does a professional evaluation of how much your home is worth. If the appraisal ends up higher than your offer, go celebrate. If it’s not, you may either have to make a larger down payment, get a second opinion, or renegotiate the price. Or you may decide to walk away from the deal.​
In a perfect world, I would love to get a 15 year fixed rate mortgage using a conventional loan where I put down 20% (avoiding PMI altogether) in a great neighborhood close to the city (but not too close) with a white picket fence, red door, and black shutters with a boatload of money in the bank to go with it. But here I am, writing about the process and not buying any homes – I’m just trying to pay off my student loans.
Now that you have a budget, you’re in a better position to meet with a lender and discuss loan options, current interest rates and how much you can borrow. Once you find a loan that fits your needs, get a prequalification letter, which estimates your borrowing power based on your financial information. Keep in mind prequalification is not a commitment to lend. You will need to submit additional information for review and approval. Still, having this letter in hand when you make an offer shows sellers you are serious and gives you some negotiating leverage.
Your agent may generally know which home you are going to choose, due to experience and intuition. However, make sure that you don't feel your agent is trying to steer you toward any specific property, and choose the home without interference from the agent because it's your choice as the buyer alone to make. Keep in mind, however, that real estate agents are required to point out defects and should help buyers feel confident that the home selected meets the buyer's stated search parameters.
With acute shortages of homes for sale in so many markets throughout the nation, getting a preapproval for a home loan is more important than ever. Cash buyers used to give sellers confidence that a deal would close quickly, but fewer cash buyers are shopping right now. And when houses weren’t in such short supply, buyers didn’t face the pressures of intense seller’s markets.
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