"Building equity in a home can be a good way to grow your wealth, but it's important that you do so in a way that doesn't stretch your finances too thin," he cautions. "Things can get really ugly when the housing market declines, so it may be a good idea to take out a 30-year mortgage but accelerate your monthly payments as if you had a 15-year mortgage. If you ever need to lower your payment in the future, you'll still have that option."
A lender or broker will assess your credit score and the amount you can qualify for on a loan. He or she will also discuss your assets (savings, 401(k), etc.) and debt, as well as any local programs that might be available for down payment assistance. That's where your homework on first-time homebuyer programs can help. If you think you qualify, look for a lender that handles the program you hope to get.
If your available cash doesn't cover your needs, you have several options. First-time homebuyers can withdraw up to $10,000 without penalty from an Individual Retirement Account, if you have one, though you must pay taxes on the amount. You can also receive a cash gift of up to $15,000 a year from each of your parents without triggering a gift tax.
Down payment: Unless you’re getting a loan backed by the U.S. Department of Veterans Affairs or U.S. Department of Agriculture, you’ll probably need to put some money down. While there are benefits to putting down at least the old standard of 20% of the home’s purchase price — one of them often being a lower interest rate — some lenders now offer conventional loans for as little as 3% down, and Federal Housing Administration (or FHA) loans allow as little as 3.5% down.
Find out how familiar the agent is with the areas you want to look at. If they have little expertise and no network in the neighborhood, then you won’t get the agent advantage of being the first to see a house (sometimes even before it’s listed) or getting expert advice on price. Plus, neighborhood knowledge saves the buyer time because an agent will likely know exactly where to look and what houses to show based on your needs.
And, sure, Jarvis is speaking from the perspective of an agent who has often been close to a sale, only to have a well-meaning relative sabotage it. But chances are, if you start talking to friends who are homebuyers, they'll tell you stories of how a parent or in-law once talked you out of buying a home, and how ever since they've wistfully wondered if they made the right decision.
Once the seller accepts your offer, it’s time to apply for a mortgage. You typically have 45 to 60 days to fulfill your purchase contract, so you need to move fast. Within three days of submitting your application, your lender sends you a loan estimate, including your approximate interest rate, monthly payment and closing costs. Review this document carefully. To move forward, you need to verify your income and assets. This requires extensive documentation, which is necessary for the lender to ensure you’ll be a successful homeowner who can handle loan payments over the long term.
If you want the smallest mortgage payment possible, opt for a 30-year fixed mortgage. But if you can afford larger monthly payments, you can get a lower interest rate with a 20-year or 15-year fixed loan. Use our calculator to determine whether a 15-year or 30-year fixed mortgage is a better fit for you. Or you may prefer an adjustable-rate mortgage, which is riskier but guarantees a low interest rate for the first few years of your mortgage.
Fixer-uppers are all the rage these days, as many homebuyers are willing to take on renovation projects in exchange for a slightly lower price tag. But when budgeting for your renovations, leave plenty of room for the discovery of existing problems once your contractor looks behind the walls. The HomeAdvisor survey found 51 percent of homeowners spent more time on home projects than they expected. “Even if you have a fully vetted, well-reviewed contractor … they still might uncover issues that maybe a previous contractor left incomplete,” Hunter says. He recommends leaving around 10 percent extra space in your budget for surprise problems of any kind.

Speaking of defects, now is also the time when you'll get the home inspected, which typically costs between $200 and $500. If there are issues, such as a non-functioning fireplace or an old boiler, you may be able to ask for a price reduction to help cover the cost of repairs. And if you find any deal breakers, such as an unstable foundation or serious mold, you have the option of backing out now.
This experience happens to many first-time homebuyers. Say that you need a new pair of red shoes, so you go to the mall. At the first shoe store, you find a fabulous pair of red shoes, and they fit perfectly. Do you buy them? Of course not! You go to every other store in the mall trying on red shoes until you are ready to drop from exhaustion. Then you return to the first store and buy those red shoes. Do not shop for a home this way. When you find the perfect home, buy it. 

As a part of active approval, such contingencies must be removed in writing by certain dates which should also have been stated in your purchase offer. However, in some purchase agreements, contingencies are passively approved (also known as constructive approval), if you don't protest them by their specified deadlines. It therefore becomes important for buyers to understand the approval process and abide by taking necessary actions by the mentioned dates.
Although it may not always be feasible if you live in an expensive real estate market, try to keep your total housing payment under 30 percent of your gross monthly income. When you spend much more than that on your mortgage, you risk becoming “house poor” — you might live in a beautiful home but find it difficult to save or even cover other monthly expenses.
Living in the city of your dreams might be a nightmare if you can’t afford to live the way you would like. To help determine the Best Places to Live in the U.S. rankings, U.S. News broke down affordability in the 100 largest metro areas in the country. We examined what portion of the median blended annual household income went to the average cost of owning or renting a home, as well as the average cost of utilities and taxes. Read on for the 25 Best Affordable Places to Live in the U.S. in 2017.
Having bad credit is not an uncommon problem for Americans, and it should not discourage you from the home buying process. Saving up for a larger down payment of 20 percent or more will be required with anyone with a credit score below 580, to help demonstrate that you will be able to manage a mortgage. Those with a credit score above 580 can qualify for a Federal Housing Administration (FHA) loan, with a down payment requirement of 3.5 percent. Home buyers can also consider taking out a private loan, but should be prepared to pay high fees and interest rates. Finally, taking out a conventional loan is still possible if you are able to demonstrate financial stability, and that you will be able to manage mortgage payments.

So what is a good credit score? You can expect a good mortgage rate at anything above 720. Home buyers who pursue an FHA loan can usually secure a loan if their credit is 580 or over. FICO scores are available at www.myfico.com for a one-time or monthly fee. Once you know your score, you can find out what interest rate you will likely qualify for by researching interest rates on Zillow.
Previously, she served as a researcher of commercial real estate transactions and information, and is currently a member of the National Association of Real Estate Editors. Thorsby studied Political Science at the University of Michigan, where she also served as a news reporter and editor for the student newspaper The Michigan Daily. Follow her on Twitter or write to her at [email protected]

When you’ve found a local lender, you’ll have to submit your financial information to get pre-approved, including tax forms and W-2s, recent pay stubs, savings, retirement accounts, and debt obligations. After reviewing all of this information, the lender will let you know the size mortgage for which you can qualify and provide a letter that shows you’re pre-qualified. In the meantime, keep track of all those financial forms and add new pay stubs and bank statements to the file, as you’ll need them again. That pre-approval letter usually expires after 60 or 90 days, so if you haven’t found your home before it expires, you’ll just have to resubmit the paperwork.
McDonald recommends working with a local lender rather than an online or non-local lender, even if the online lender is offering a better rate. "Working with a local lender that's knowledgeable of the local market ensures you a smooth transaction right through to closing," he says. "Local lenders are typically also more readily available to their clients, and many local lenders will match the rates their competitors are offering."
This is also a prime time to decide whether you'll hire a real estate agent, if you haven't already. While you're under no obligation to do so, there are several potential benefits to working with one. First of all, an agent can provide access to more home options than you'll likely find yourself, as well as set up viewing appointments. Since home-buying can be an emotional process, an agent can also act as a mediator between you and the seller.
Many first-time buyers wait until they’ve found a home they want to buy before taking to a lender, but there are many benefits to getting pre-qualified early. Pre-qualification can help you shop in your price range, act fast when you find a house you want to make an offer on, and catch — and correct — any errors on your credit report before they cause a problem with your loan. This could help save you thousands in the long run because an error on your credit report could result in a lower credit score, leading to a higher interest rate.

1) Get your credit in as good shape as possible. Your credit score can make a big difference in your mortgage interest rate. You can use sites like creditkarma.com (which uses TransUnion and Equifax) and freecreditscore.com (which uses Experian) to get free credit scores from all three credit bureaus, free credit monitoring to alert you of any changes to your credit, and advice on how to improve your credit scores. The key things are to make sure you make your debt payments on time, pay off as much of your debt as possible (except perhaps car and student loans, which tend to have relatively low interest rates), and be careful of closing credit card accounts. If you have a credit card that is charging you an annual fee, see if you can convert the card into a no-fee card rather than close it.
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.
As a first-time home buyer, you’re probably accustomed to the monthly cost of renting, which usually includes your rent payment, some of the utilities, and your internet and cable bills. As a homeowner, you’ll be responsible for additional monthly costs that may have been covered by your landlord. That includes things like water, sewer and garbage bills, monthly HOAs (if you’re buying a condo) and the cost of lawn care. You’ll also be responsible for paying property taxes and homeowners insurance. And don’t forget the cost of maintenance. It’s recommended that you set aside 1-3 percent of the purchase price of the home annually to cover repairs and maintenance.
McDonald recommends working with a local lender rather than an online or non-local lender, even if the online lender is offering a better rate. "Working with a local lender that's knowledgeable of the local market ensures you a smooth transaction right through to closing," he says. "Local lenders are typically also more readily available to their clients, and many local lenders will match the rates their competitors are offering."
Note that if our home buyers had saved $60,000 for the down payment, their monthly bill would drop to some $1,600, eliminating the need for mortgage insurance. But in our model, mortgage insurance accounts for just $1,356 annually over 6.5 years in the $60,000-down-payment case -- or $8,800 total. Turns out that's a lot less than saving the additional $30,000 to hit the 20% down-payment mark. And so, if savings are an issue, first-time buyers might take on the insurance in exchange for a lower down payment.

Before you begin the home-search process, it’s crucial to get a good idea of how much house you can afford. Financial expert and author Dave Ramsey recommends multiplying your monthly take-home pay by 25 percent to determine what your maximum mortgage payment should be. You can then use a mortgage calculator to determine the ballpark home price that will keep your monthly payment under that amount.


Realize it will be an emotional process. This tip goes for first-time homebuyers especially, Lewis said. Your emotions in the process can range from the excitement of finding a home, the anxiety tied to making an offer or the disappointment of not getting that house. "When you go into the process knowing that you're going to have these huge emotional ups and downs, you can weather them more easily," Lewis said.
Once you’re ready to start home buying, it’s offer time. Here’s where you’ll thank yourself for working with a real estate agent. They’ll help you determine the right offer to make for a particular house, including things that go beyond the dollar amount. For instance, offering an accelerated closing date or to buy and lease back to the buyer if they can’t move right away may be a smart move in some situations. When you make an offer on a house, the seller may accept it or counter-offer, and then your agent will help you decide how and if to negotiate. Once you arrive at a deal everyone likes, you’re considered under contract to buy the house.
Before you even look at a single property, you need to know exactly how much you can afford. There are several online calculator tools you can use, but these tools are only estimates. Use these tools as a guide, but then adjust the amount based on your individual situation. How much is your current rent payment? Did you meet that payment each month with ease, or was it a bit of a struggle each month? The payment you can afford right now is a good indicator of what you'll be able to afford in your new home.
The type of home that a person prefers is another factor to take into consideration when determining where to live. Things to consider include buying a new home versus a resale home. Home types include single-family detached homes, semi-detached homes, duplex homes, town houses, or even condos. When determining what type of home is the best fit, a person should take into consideration the lifestyle that he or she lives, current needs - such as rooms - and future needs of the family if it should grow.

Arrange for a home inspector to look over the property. The real estate agent can help locate a reputable inspector for the task. A qualified inspector will check the foundation of the home, plumbing, electrical systems, the roof, walls, and visible insulation. An inspector will also look for signs of mold, asbestos, and pests. A home inspection is generally one of the steps to buy a house that is being resold.


Once all of the above steps are completed, you’ll be on your way to the closing table. This is when the deed to the home is transferred from the seller to the buyer. Every transaction varies, but plan to sign a ton of paperwork. An attorney or settlement agent will guide you through the process. Then you’ll officially be a homeowner and receive the keys to your new home. Congrats!
Homeowners insurance and property taxes very based on your geographic location. Florida has notoriously high homeowner's insurance rates, where they average $161.08 per month. In Idaho and Wisconsin, rates are a bit lower, averaging below $50 per month, according to Value Penguin. Property taxes average higher in New Jersey, New Hampshire, Texas and Wisconsin and they're lower in Louisiana, Hawaii, and Alabama.
FHA loan: Depending on property location and other, personal factors, you could qualify for a home loan from the Federal Housing Administration. In most cases, you'd be expected to make a down payment of approximately 3.5% (with a 1.75% insurance premium, and at a 4.25% interest rate). A down payment on our $300,000 model: $10,500. Together with closing costs and a buffer, savings required would be $26,916-$28,416. Notice, however, that you're paying a great deal more than in the non-FHA model when it come to the higher mortgage-insurance premiums -- some $43,485 over 103 months. Still, the FHA plan may be more manageable for some, as the initial down payment is smaller and insurance payments are spread out.
Because while house hunting for the first time can be exciting, tales of regretful home-buying mistakes and the not-so-distant housing market meltdown have also given it a bad rap for being a stressful and confusing process. It doesn't have to be—that's why we created this handy nine-step checklist, which helps explain how to prepare to buy a house—and help safeguard your finances in the process.

The home inspection is an added expense that some first-time homebuyers don’t expect and might feel safe declining, but professional inspectors often notice things most of us don’t. This step is especially important if you’re buying an existing home as opposed to a newly constructed home, which might come with a builder’s warranty. If the home needs big repairs you can’t see, an inspection helps you negotiate with the current homeowner to have the issues fixed before closing or adjust the price accordingly so you have extra funds to address the repairs once you own the home.

This is the day you get your house keys—but first, you have some serious paperwork to do. You’ll set an appointment for closing on your house, and you’ll need to bring your driver’s license, a cashier’s check for your down payment and closing costs (which range from 2 to 5 percent of the home’s purchase price) — and a lot of patience. You will sign and initial dozens of papers.
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There are rules lenders follow to determine what you can borrow, such as the 28/36 rule, which says that a homeowner should spend no more than 28 percent of their gross monthly income on housing expenses, and no more than 36 percent on overall debt. But buying a home also comes with significant upfront costs, such as the down payment and closing costs, so you’ll want to make sure you have savings left for emergencies and other unexpected expenses after you close on your new home.

The type of home that a person prefers is another factor to take into consideration when determining where to live. Things to consider include buying a new home versus a resale home. Home types include single-family detached homes, semi-detached homes, duplex homes, town houses, or even condos. When determining what type of home is the best fit, a person should take into consideration the lifestyle that he or she lives, current needs - such as rooms - and future needs of the family if it should grow.
Even when your purchase offer has already been accepted, if inspections reveal any problems, you may want to renegotiate the home's purchase price to reflect the cost of any repairs you will need to make. You could also keep the purchase price the same but try to get the seller to pay for repairs. Though you may not have much scope to demand for repairs or a price reduction in case you're purchasing the property "as is," there is no harm in asking. You can also still back out without penalty if a major problem is found that the seller can't or won't fix it.
If you already own a home, simply call your insurance agent and let them know you’re buying a new home. They will handle writing a new policy. If you don’t have an insurance agent, now’s the time to find one because your lender will require homeowners insurance. Even if you don’t have a mortgage, insurance is a critical part of protecting your investment. You’ll also want to give utility companies your move-in date to establish service. There’s nothing like moving into a cold, dark house because you didn’t get an account with the power company!
Now that you’ve found a home you want to buy, it’s time to agree on a price and sign a contract. Depending on the market you’re in, you might be able to negotiate with the seller on the price or extras, like appliances and other goodies. If there are multiple offers on the house, then your negotiating powers are all but nil. This is where you can rely on a trusted, knowledgeable real estate agent to guide you.
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