Owning a home is expensive—much more expensive than renting, even if your monthly house payment will be similar or cheaper than your current rent amount. That’s because when you own a home, you’re responsible for all the maintenance and upkeep costs. And those can add up fast! So, before you even think about buying your first home, make sure you’re debt-free and have an emergency fund of three to six months of expenses in place.
Many realtors will not spend time with clients who haven't clarified how much they can afford to spend. And in most instances, sellers will not even entertain an offer that’s not accompanied with a mortgage pre-approval. That's why – if you don't have all cash (how many first-time buyers do do?) – your next step is talking to a lender and/or mortgage broker.
Each month, part of your monthly payment is applied to the principal balance of your loan, which reduces your obligation. The way amortization works, the principal portion of your principal and interest payment increases slightly every month. It is lowest on your first payment and highest on your last payment. On average, each $100,000 of a mortgage will reduce in balance the first year by about $500 in principal, bringing that balance at the end of your first 12 months to $99,500.
One of the most crippling headaches to deal with is a monthly mortgage payment you find you can’t quite afford. Lysette Portales, a real estate agent with Century 21 Jim White & Associates in Treasure Island, Florida, says she stresses to clients that they should shop around for a mortgage with multiple lenders and inquire with each about different program options. “A lot of them might be able to do 100 percent [financing],” she says, noting that many homebuyers typically only know about a couple mortgage programs and settle for one without considering what would be most affordable option both now and down the line.

Preapproval is the second step in the mortgage process. You complete a mortgage application and provide detailed information to the lender (although you will not yet have a house picked out most likely, so the property information can be left blank). The lender will approve you for a specific amount and you will get a better idea of your interest rate. This puts you at an advantage with a seller because the seller will know you’re one step closer to getting a mortgage.
Getting pre-qualified for a home loan is a critical step in the mortgage process. Do so by approaching a mortgage lender or a bank and provide them with the necessary loan document information to get approved for a home loan. That includes your annual income, your household debt and your household assets -- and in some cases, your tax returns (especially if you own your own business.) Once you provide this information to a lender, they'll review your data and come back with a mortgage amount you're likely qualified to obtain. Normally, there is no cost to you for a mortgage pre-qualification, and you won't likely undergo a credit check -- not yet, anyway.
My husband and I are planning to buy our first home soon and we have no experience in home buying, so I am glad that I found this article. You make a great point that you should first think about your budget and choose a home that you can afford. Also, I appreciate that you say house hunting can be hard and very time-consuming, so we will definitely think about hiring a realtor to help us with this process.
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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.
Some first-time home buyers are naive. Overly optimistic, they think nothing could possible go wrong. If a home has a few problems, they view them as easy fixes and are unrealistic when it comes to the cost and time it takes to fix up the home. Some naive buyers will move to a neighborhood on the wrong side of town, forgetting that you can fix up a house, but you can't change your neighborhood or location without moving.
Chances are your home inspection report will turn up some problems with the home — but, keep in mind, not all repairs are created equal. There are major issues that will likely need to be dealt with before a lender will honor a home loan, such as structural problems and building code violations. In these cases, the homeowner is responsible for repairs before the sale can go through.

When you get a mortgage, your lender may require you to set up an escrow account. A monthly escrow amount is added to your mortgage payment. The escrow payments goes toward real property taxes and insurance that you would otherwise have to pay once or twice a year. Instead, you generally will pay a monthly payment and the money sits in escrow to be paid by your lender when it’s due. This escrow payment is above the principal and interest portion of the mortgage payment and is required. 
Ask to be present during the inspection, because you will learn a lot about your house, including its overall condition, construction materials, wiring, and heating. If the inspector turns up major problems, like a roof that needs to be replaced, then ask your lawyer or agent to discuss it with the seller. You will either want the seller to fix the problem before you move in, or deduct the cost of the repair from the final price. If the seller won't agree to either remedy you may decide to walk away from the deal, which you can do without penalty if you have that contingency written into the contract.
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.

Don't dip too far into your savings though. Try to keep at least 3-6 months of expenses set aside for emergencies. After all, you will be responsible for maintenance and repairs now. If you don't have enough money available in your regular accounts, you can access up to $10,000 without penalties from IRAs for a first-time home purchase and your employer's retirement plan may allow you to borrow from your retirement account with a longer time period to pay off home loans. There's always the "family and friends" route too.


Next, review exactly how much you’re spending every month – and where it’s going. This will tell you how much you can allocate to a mortgage payment. “Make sure to account for every dollar you spend on utilities, kids' activities, food, car maintenance and payments, clothing, entertainment, retirement savings, regular savings, miscellaneous little items, etc., to know how and where a new mortgage payment fits into your budget,” says Liz Recchia, owner/broker at We Sell Real Estate, LLC, in Phoenix, Ariz., and author of “HELP! I Can't Make My House Payment!”
Buying a home takes a lot of time -- likely more time than you figured. Exhibit "A" in this case is the "saving for a new home period." This timetable starts well before you see your dream home for the first time. To act fast on a great home purchase opportunity, you're going to need cash, and the more the better. Your chances of buying a home are greatly increased if you can show a lender you have plenty of cash saved up, and that you can meet the seller's likely demand that you can bring the cash needed to buy a home to the negotiating table. That means saving money early and often -- and starting well before you set eyes on that dream home.
Contingency clauses also offer a form of protection. "A mortgage financing contingency clause protects you if, say, you lose your job and the loan falls through or the appraisal price comes in over the purchase price. Should one of these events occur, the buyer gets back the money he used to secure the property. Without the clause, he can lose that money and still be obligated to buy the house," explains Justin Lopatin, a mortgage planner with American Street Mortgage Co., to MSN.
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.
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My husband and I are planning to buy our first home soon and we have no experience in home buying, so I am glad that I found this article. You make a great point that you should first think about your budget and choose a home that you can afford. Also, I appreciate that you say house hunting can be hard and very time-consuming, so we will definitely think about hiring a realtor to help us with this process.
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