3. Savings for down-the-road expenses. Of course, you also have to take into account maintenance and other potential costs that may come up as a homeowner. If you live in a particularly competitive or pricey market, such as San Francisco or the District of Columbia, it’s reasonable to expect your monthly costs to be higher than 28 percent at the start.
As your closing date nears, everyone involved in your real estate transaction should check its progress on a daily basis, because staying on top of things means you'll know immediately if there's a problem that must be dealt with. Here's a bit of information that focuses on a few common problems that home buyers must deal with before they close on a house.

As a first-time home buyer, you probably don’t have a ton of money saved up for the down payment and closing costs. But don’t make the error of assuming that you have to delay homeownership while saving for a huge down payment. There are plenty of low-down-payment loan programs out there, including state programs that offer down payment assistance and competitive mortgage rates for first-time home buyers.

Before you start looking for a house, you need to have a prequalification letter in hand. This letter is basically proof that a lender will loan you a certain amount of money. This is your ticket to putting an offer on a house. People with excellent credit scores, can have their pick of lenders and the most competitive rates. If your score is somewhere in the middle, you might have to spend more time shopping around to get the lowest rate.


A real estate agent isn't always a necessity when it comes to buying a home, but he or she can be an invaluable tool for those who do work with one. An agent will understand the real estate market and lead homebuyers to the homes that they want to see. As a result this will save the home buyer time and frustration. The recommendation of friends or family members is one of the best ways to choose a real estate agent. If there are no recommendations, choose a real estate agent or agency that has a good reputation in the area. The agent should be a buyer's agent dedicated to working in the best interests of the buyer. The agent should also be someone who listens and has no problem answering any questions that are asked of him or her.
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.
A lender will help you determine exactly what you can afford and, therefore, which houses you should be considering. To arrive at a purchase price, you’ll factor in expenses like homeowners insurance, association dues, and utilities to make sure you can comfortably make your mortgage payments. The lender will then identify the total amount of money it's willing to lend you.
Once you start seeing homes you like, call your agent and ask them to start scheduling viewings. And another, and another. Visit as many homes and open houses as you can. You can use the Trulia app to find open houses scheduled near you. The more comparing and contrasting you can do, the more knowledge you have about the market and your options. Ask your agent for advice about how to buy a house that really fits your needs.
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.

Still, if you familiarize yourself with what it takes to buy your first home beforehand, it can help you navigate the real estate market with ease. So let's get started! In this step-by-step guide, you'll learn what it takes to buy your first home from beginning to end. Whether it's your first time in the real estate market or you're an experienced homeowner who wants to brush up on their skills, this list has you covered.


Interest rates are the term used to describe the percentage you'll pay your lender to borrow the money you'll need to buy your home. By and large, your mortgage will be paid off either at a 15-year or 30-year timetable. As far as interest rates go, the shorter the time you'll need to pay off the mortgage, the more favorable your interest rate. The lower your interest rate, the less your monthly mortgage payment will be. Consequently, job one when you go shopping for a mortgage lender is to compare interest rates -- and choose the loan where those rates are the lowest you can find.
Seek more than one estimate for expensive repairs, such as roof replacements. A good real estate agent should be able to give you referrals to contractors who can give you estimates. But also seek independent referrals from friends, family and co-workers so you can compare those estimates against ones you receive from contractors your agent refers.
Getting prequalified is the first step in the mortgage process (it’s usually pretty simple). You give your lender your overall financial picture, the lender evaluates your information, and then the lender gives you an idea of the mortgage amount that you will qualify for. Note, that prequalification is not a done deal – you may not in fact qualify for the loan for which you are preapproved (it’s a general idea).
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.
What to consider instead: You can put as little as 3 percent down for a conventional mortgage (note: you’ll pay mortgage insurance). Some government-insured loans require 3.5 percent down or zero down, in some cases. Plus, check with your local or state housing programs to see if you qualify for housing assistance programs designed for first-time buyers.
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!
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.
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.
Several years ago I remember a friend advising me to purchase a house before I was ready, and now I have been curious about the repercussions of purchasing a house outside your financial capabilities. I appreciate that you specifically pointed out that you should never stretch to buy your primary residence thinking that you can take cash out or flip it for a quick profit in a few years. Thank you for the advice regarding financial planning in purchasing real estate!
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.
Once you've got your savings growing, your down payment set, and you are pre-qualified and pre-approved, start the search for your home. Begin by using sites like Zillow.com or Realtor.com to zero in on the home you want and the community you want to live in. Factor in key lifestyle needs -- like good schools, decent commute to your job, manageable property taxes, and ultimately, a home that has a good chance of appreciating in value if you ever want to sell it.
Paperwork forms the most critical steps of closing a property deal. Despite there being a heap of papers filled with complex legal terms and jargon, it is highly recommended to read it yourself. In case you don’t understand certain terms or portions, one can look up for explanation on the Internet or consult a real estate attorney. Although you may feel pressured by the people who are waiting for you to sign your papers - like the notary or the mortgage lender - read each page carefully as the fine print will have a major impact on your finances and your life for years to come. In particular, make sure the interest rate is correct and all other agreed terms, like no prepayment penalty, is clearly mentioned. More generally, compare your closing costs to the good faith estimate you were given at the beginning of the process and throw a fit about any fees that may appear off.
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.
When determining how much mortgage you can afford, base this amount on what you are earning today. That is, the income that you and your spouse earn from stable sources. If you're in your last year of law school, for instance, don't assume that you will be earning much more money in a year or two, so you can afford a larger payment. If your wife is expecting a big promotion, don't base your mortgage payment off of her potential salary increase. No one can predict the future, and although you may very well be in a better financial situation a year down the road, there is no guarantee.
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.
Several years ago I remember a friend advising me to purchase a house before I was ready, and now I have been curious about the repercussions of purchasing a house outside your financial capabilities. I appreciate that you specifically pointed out that you should never stretch to buy your primary residence thinking that you can take cash out or flip it for a quick profit in a few years. Thank you for the advice regarding financial planning in purchasing real estate!
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."
Williams got his start working in entertainment reporting in 1993, as an associate editor at "BOP," a teen entertainment magazine, and freelancing for publications, including Entertainment Weekly. He later moved to Ohio and worked for several years as a part-time features reporter at The Cincinnati Post and continued freelancing. His articles have been featured in outlets such as Life magazine, Ladies’ Home Journal, Cincinnati Magazine and Ohio Magazine.
You'll probably have an ideal location, but keep an open mind as you see how much house you can buy in different areas. Homes and land are less expensive the farther they are from a metropolitan area. On the other hand, imagining that the long commute won't matter that much is an easy trap to fall into. The stress and costs of a long commute can undermine marriages, finances and mental health. Use the calculator in step 1 to see what that extra trip could add to your monthly bill.
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.
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.
Qualifying for a loan isn’t a guarantee your loan will eventually be funded: Underwriting guidelines shift, lender risk-analysis changes and investor markets can alter. “I have had clients who signed loan and escrow documents, and 24 to 48 hours before they were supposed to close were notified the lender froze funding on their loan program,” says Recchia. Having a second lender that has already qualified you for a mortgage gives you an alternate way to keep the process on, or close to, schedule
It’s more fun to look at homes than it is to talk about your finances with a lender. So that’s what a lot of first-time home buyers do: They visit properties before finding out how much they are able to borrow. Then, they are disappointed when they discover they were looking in the wrong price range (either too high or too low) or when they find the right home, but aren’t able to make a serious offer.
Like any other loan, a cosigner on a mortgage means that the person is binding himself to be legally obligated to make the debt payments should you default. So, if you have your mom cosign on your mortgage and you default, she’s on the hook legally and will have to make payments. Similarly, if she wants to get off your mortgage, she can’t do so without you refinancing. If a cosigner is required, the lender is effectively saying that your financial history isn’t good enough and they want someone else to be on the hook, too.

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.
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