Tips for First-Time Home Buyers

Buying your first house is exciting! And wild. Homes today cost a median of $391,200 and fly off the market in just 17 days.¹ Plus, interest rates are rising fast.²

These trends may tempt you to rush into a purchase before things get any crazier. But slow down! Trust me, you guys, it’s worth buying your first home the right way. That means finding one that works with your money goals—not against them.

You may be thinking, Yeah, that’s great, Rachel. But I don’t know how to buy a house for the first time. Where do I start?

I’m glad you asked! I put together 13 steps to buying a house for the first time. Now, I know that sounds like a lot. But this is a big deal, and you want to do it right! Put these tips into practice so your first home is a blessing, not a burden.

13 Steps to Buying a House for the First Time

1. Pay off all debt and build an emergency fund.
2. Use the 25% rule to see how much house you can afford.
3. Save a down payment.
4. Save for closing costs.
5. Avoid the worst mortgages for first-time home buyers.
6. Know the best mortgage for first-time home buyers.
7. Pick a lender you’re comfortable with.
8. Get preapproved for a loan before house hunting.
9. Find a trustworthy real estate agent.
10. Get clear on needs versus wants.
11. Start looking for a house.
12. Make a competitive offer (within your budget).
13. Close the deal.

Preparing to Buy Your First House

Before you can start looking for your dream home, you’ve got to do some legwork so you’re in a good position to buy. Let’s start right here.

See how much house you can afford with our free mortgage calculator!

Okay, when you asked for first-time home-buyer tips, you probably didn’t expect this one. But it is hands down the most important.

Owning a home is much more expensive than renting, even if your monthly house payment will be less than your current rent. When you’re a homeowner, you’re responsible for everything. All the maintenance and mishaps add up fast!

Before you even think about buying your first home, get debt-free and save an emergency fund of three to six months of expenses. Then, your money won’t be tied up in monthly payments, and you’ll have cash to cover unexpected costs.

Avoiding Debt as a First-Time Home Buyer

Once you’re debt-free, I want you to stay that way. (Minus the mortgage. More on that in a minute.) So even though you’re excited about decorating, it can wait.  

I’m a spender, so I know that’s easier said than done. But it’s okay to let a room sit empty until you can afford to furnish it. Stick with the good money habits you learned while getting out of debt. Your future self will thank you.

Before house hunting, determine how much house you can afford. Your monthly housing costs—including principal, interest, property taxes, home insurance, private mortgage insurance (PMI) and homeowners association (HOA) fees—should be 25% or less of your monthly take-home pay.

For example, if you bring home $6,600 a month, your maximum house payment is $1,650. Now imagine you get a 15-year fixed-rate mortgage at 4% interest. If your property tax is 1.14%, home insurance is $1,200 per year, and PMI is 0.5% (for down payments below 20%), here are some home prices you could afford:

• $185,000 home with 5% down ($9,250)
• $194,000 home with 10% down ($19,400)
• $225,000 home with 20% down ($45,000)
• $253,000 home with 30% down ($75,900)

P.S. I got these estimates from Ramsey Solutions’ free mortgage calculator. Try plugging in your own numbers to see other home prices that work with your budget.

The best down payment is an all-cash offer. Nearly 1 in 4 buyers pay cash for their houses.³ But if that isn’t reasonable for your first house, then aim for a 20% down payment. That way, your lender won’t make you pay for PMI. PMI is insurance that protects your lender (not you) if you fail to make payments—so try to avoid this nonsense.

If 20% is still out of reach for you as a first-time home buyer, a smaller down payment of 5–10% is okay too. But no matter what your down payment is, make sure your housing payments are no more than 25% of your monthly take-home pay on a 15-year fixed-rate mortgage. (I’ll share more on mortgage types later.)

Closing costs are typically around 2–7% of your home’s purchase price.⁴ Here’s an example:

$300,000 home x 3% = $9,000 closing costs

That’s a big chunk of change—on top of your down payment—but I promise you can do it! Tackle these savings with intensity. You can even put retirement savings on hold for a short time to save for a home.

Choosing a Mortgage

You might be thinking, Wait, Rachel. I haven’t even found a home yet!

But remember the old expression, “You snooze, you lose.” If you try to get a last-minute loan, you could miss out on your dream house. So it’s smart to line your mortgage up before house shopping.

A huge benefit to being a first-time home buyer is that you’ve never fallen for an awful mortgage—and you don’t have to!

Many first-time home-buyer loans only make you put a little money down, but they cost tens of thousands of dollars more in the long run. Don’t fall for it! Remember—if it seems like a good deal for you right now, then it’s an even better deal for your lender in the end.

Avoid these low-to-no down payment mortgage options:

• Adjustable-Rate Mortgages (ARMs): ARMs sucker you in with a low initial interest rate. But then, your lender raises your rate, and your mortgage payment goes up. No, thanks!

• Federal Housing Administration (FHA) Loans: FHA loans are popular for first-time home buyers because you can put as little as 3.5% down. But you waste thousands of dollars on mortgage insurance (similar to PMI) for the life of the loan.

• Veterans Affairs (VA) Loans: VA loans let veterans buy homes with no down payment or PMI. But they carry a bunch of fees and usually charge high interest rates.

I only recommend 15-year fixed-rate conventional mortgages. Here’s why:

• Quicker payoff time – With 15-year loans, the monthly payments are higher than 30-year loans. But you’ll pay off your mortgage in half the time. Plus, most 15-year loans have a lower interest rate, saving you tons of money.

• Locked-in interest rate – A fixed-rate loan keeps your interest rate the same over the life of the loan, so you pay less interest and always know what to expect.

How a 30-Year Mortgage Compares

I’ll just say it: 30-year mortgages may have a lower monthly payment, but they cost more in the long run. Like tens of thousands of dollars more.

Imagine you want a $300,000 house with 20% down. You need a mortgage for $240,000. Even if the 30-year loan and the 15-year loan offered the same interest rate (unlikely, since 30-year rates are almost always higher), the 30-year mortgage still costs more.

	15-Year at 4.5%	30-Year at 4.5%
Number of Payments	180	360
Monthly Payment	$2,181	$1,562
Total Interest Paid	$90,447	$197,778
Total Amount Paid	$330,447	$437,778

You’ll save $107,331 with a 15-year fixed-rate mortgage—and you’ll be payment-free 15 years sooner. I mean, hello!

Some lenders only care about profits, while others actually care about helping you become a homeowner. Talk to at least three lenders. Compare their interest rates, fees and customer service to find the best one for your finances and peace of mind.

If you’re debt-free like me, you need a lender who doesn’t require a credit score. (Because you don’t have one anymore—yay!) So look for one who does manual underwriting, like Churchill Mortgage.

It pays to get preapproved for a loan (not just prequalified). Preapproval is when your lender verifies your financial information and gives you a letter saying how much money you can borrow.

Preapproval shows sellers you’re serious, and you can use your letter to get ahead in a competitive market.

Just know some lenders may preapprove you for a bigger loan than you can afford. But you don’t have to borrow that much—or look at houses that are too expensive!

Looking for a House

Finally, we’re to the fun part! Follow these first-time home-buyer tips to start looking for your new house.

One of the most important things you need to buy a house for the first time is actually a person. A good real estate agent will help you find the right home and navigate the buying process.

I always recommend working with a real estate agent. If you’re not sure where to start, connect with a RamseyTrusted agent through our Endorsed Local Providers (ELP) program.

Let’s be honest: Most of us aren’t very good at telling the difference between what we need and what we want. So, what can you do to change that?

Know what motivates you.

It’s easy to think you need a super nice house because your parents had one . . . but they worked for 30 years to get it. Or maybe you grew up in a less-than-perfect home, and you want a better one so you’ll feel like you’ve finally “made it.” 

When we take time to learn why we spend money the way we do, we can better understand what we need in a house—and what we can do without.

Be content.

When we compare ourselves and our stuff to others, we’re struggling with contentment. Contentment can make us rich—and it can keep us from making bad money decisions. When you’re grateful for what you already have, it’ll put your house hunt into perspective.

Talk to people.

Your real estate agent has helped dozens of first-time home buyers. They can help you discern your needs and wants, set realistic expectations, and show you houses that meet your criteria.

If you’re single, talk to a trusted friend who will call you out if you’re being unreasonable. And if you’re married, now’s the time to get to know your spouse better! Be honest about what you both need and want in a home so you can find a place where you’ll both be happy.

Be realistic.

As a first-time home buyer, you don’t have equity in an existing house, and you may not have a ton of savings either. So you may have to make some sacrifices to stay within your budget. For instance, you may have to buy a house that needs fixing up or a smaller place where your kids share a room.

That’s okay. It’s tempting to think your first home is your forever home, but for most people, it isn’t. You need a house to fit this season of life—and you can always sell it and upgrade later. Keep your perspective and your cool.

Make a list.

Some things really may be nonnegotiable for you—whether they’re needs or wants. Maybe you need to live close enough to commute to work every day. Maybe your pets need a fence. Or maybe you want to live in a good school district for your kids.

List 3–5 things your house absolutely must have. (And yes, it’s okay to put a want or two on this list.) Then, write down the nice-to-haves that could be the cherry on top of your first home.

Okay, you’ve got your shopping list in hand, and you’re ready to roll. Here’s how it’s done.

Get ideas online.

Find homes you like online and send them to your real estate agent. Then, they can use the Multiple Listing Service (MLS) to find more homes that check off the boxes for you.

Home buyers don’t have access to the MLS, but your real estate agent can use it to help you view the most properties for sale in your market. They can even help you find great deals on homes before they’re listed.

Research neighborhoods for the best fit.

Most home buyers would rather compromise on a home’s condition and size than on the quality of the neighborhood.⁵ Now, your real estate agent can’t talk about crime rates, schools or demographics. (That’s real estate steering, and it’s illegal.) But they can tell you where to find that information for yourself.

You can also look up local schools and calculate your new commute times to see what they’re like. If you can, visit the neighborhood at different times to check traffic and noise levels and see if people are comfortable being outdoors.

Once you choose the neighborhoods you like, attend some open houses. Looking at homes for sale—even if they’re not perfect for you—helps you learn about the area.

Think long term.

Like I said, you probably won’t live in your first home forever, so don’t buy the most expensive house on the block. Future buyers who are shopping in a $200,000 neighborhood won't want a $300,000 home. But if you buy in the neighborhood’s low price range, you’ll have more room to build home value.

Pay attention to what’s happening in the community too. Are home prices rising or falling? Are businesses booming or closing? You want a home that will be a good investment in the long run. 

Be patient.

Finding the right house takes time. More than likely, you’ll look at several houses. You may even make several offers before one gets accepted. And that’s okay. It’s part of the process.

So keep dreaming about all the exciting possibilities that are open to you right now. Be patient and proud of the fact that you’re willing to wait for the right house—not settle for the wrong one.

Buying a House for the First Time

You finally found a home you love, and you’re ready to buy. Congratulations! But there are still a few more steps you have to take before you can call it home sweet home.

It can be hard to know how much you should offer for your first house. That’s when you rely on your real estate agent’s expertise.

Ask them to help you make a competitive offer that’s within your budget and close to the home’s value. Don’t make an impulsive offer you can’t afford just to knock out the competition.

Once the seller accepts your offer, you can close on the house. The average closing process takes 48 days.⁶ During that time, your real estate agent will help you handle the remaining steps to buying the house, and they’ll inform you about any roadblocks.

Get a home inspection and appraisal.

Home inspectors can help you spot potential problems so you can fix them—or walk away from a bad deal! If you still want the house, the appraiser will assess its value. You can use the appraisal to try to negotiate a better price.  

Buy homeowners and title insurance.

Lenders require you to buy homeowners insurance, which pays to repair or rebuild your house after a disaster.

Title insurance protects your home from claims against the property or questions of ownership—like the last owner’s unpaid tax bill or long-lost grandson who claims he inherited your house. It sounds crazy, but it happens. And it’s why title insurance is worth every penny!

Take out a mortgage.

Once you and the seller agree to move ahead with the deal, it’s time to return to the lender and get a mortgage. They’ll walk you through this process. But I can’t say it enough: Don’t let them talk you into borrowing more than you can afford! Stick to the 25% rule. Period.

Do the final walkthrough.

Right before you finally buy your first home, you’ll get to walk through it and make sure everything’s as it should be. This is also your last chance to back out of the deal if something’s wrong, so be thorough.

Sign all the papers (but read them first).

You’re legally responsible for any papers you sign. Read every document carefully and ask your real estate agent to explain anything you don’t understand so you don’t end up in hot water.

Ready to Get Started?

Whew, you made it! We covered a lot of ground, so be sure to get our free Home Buyers Guide so you don’t miss a thing.

Your first home is a big purchase, maybe the biggest one you’ve ever made! So you want to get this right. A good real estate agent will make the first-time home-buying process much easier.

Want to meet an agent you can trust? Connect with the RamseyTrusted agents in our Endorsed Local Providers (ELP) program. RamseyTrusted ELPs are top-performing agents who will help you find a home that fits your needs and budget.

These pros are the best! Find a RamseyTrusted ELP today.

Frequently Asked Questions

Will Millennials Be Able to Buy a House?

Yes—and they do it all the time! Millennials actually made up the largest share of home buyers in 2022, according to a report by the National Association of REALTORS®. Sure, you might get sticker shock while house hunting. But buying a house as a millennial is possible.

To feel confident, millennials need to get serious about saving for a house. Ideally, you’ll want to save a down payment of at least 20% of the home price to avoid private mortgage insurance (PMI).

For first-time home buyers, a smaller down payment like 5–10% is okay too. But then you’ll have to pay PMI. Whatever you do, never buy a house with a monthly payment that’s more than 25% of your monthly take-home pay on a 15-year fixed-rate mortgage (which has the overall lowest total cost). And stay away from expensive loans like FHA, VA and USDA.

What Is the Process of Buying a House?

Here are the basic home-buying steps: Determine how much house you can afford, get preapproved for a mortgage, find an experienced real estate agent, research neighborhoods for best fit, go house hunting, make a competitive offer within your budget, finalize your financing, and prepare for closing.

What Do I Need as a First-Time Home Buyer?

As a first-time home buyer, you need to make sure you’re debt-free and have an emergency fund of 3–6 months of living expenses. That will set you up for success as you save money for a house and become a new homeowner.

How Much Should First-Time Home Buyers Budget?

Ideally, you’ll want to save a down payment of at least 20% of the home price to avoid private mortgage insurance (PMI). PMI is a fee you pay that protects your lender (not you) if you stop making mortgage payments. First-time home buyers won’t have cash from selling a previous home to use as a down payment, so a smaller down payment like 5–10% is okay too. But then you’ll have to pay PMI. Whatever you do, never buy a house with a monthly payment that’s more than 25% of your monthly take-home pay on a 15-year fixed-rate mortgage (which has the overall lowest total cost). And stay away from expensive loans like FHA, VA and USDA.