Tips for First-Time Home Buyers
By
Rachel Cruze
Key Takeaways
- Don’t buy a house until you’re debt-free and have an emergency fund of 3–6 months of expenses.
- Keep your housing costs at 25% or less of your take-home pay.
- Aim for a 20% down payment to avoid extra costs like private mortgage insurance (PMI).
- Choose a 15-year fixed-rate mortgage over riskier loan options.
- Work with a trusted real estate agent and stick to your budget.
Buying a house for the first time is super exciting—and wild! You guys, this is probably the biggest (and most emotional) purchase you’ll ever make, and I want you walking in ready.
Quick Answer
First-time home buyers should focus on getting their finances in order—paying off debt, building a full emergency fund, saving a strong down payment, and keeping housing costs within 25% of their take-home pay. From there, choose a 15-year fixed-rate mortgage, get preapproved, and work with a trustworthy real estate agent so you can buy with confidence.To help you go through your home-buying journey with confidence, I’ve put together 13 of my favorite tips for first-time home buyers. Just like you, I want your first home to be a blessing instead of a burden, and these tips can help you make that a reality.
Before we dive into the details, here’s a quick snapshot of the most important tips to keep in mind as a first-time home buyer:
First-Time Home-Buyer Tips at a Glance
- Pay off all debt and build an emergency fund.
- Use the 25% rule to figure out how much house you can afford.
- Aim for a 20% down payment.
- Save 3–4% for closing costs.
- Pick the best mortgage option.
- Pick a lender you’re comfortable with.
- Get preapproved before house hunting.
- Work with a trustworthy real estate agent.
- Get clear on needs versus wants.
- Do your research.
- Be patient.
- Get a home inspection.
- Stick to your budget.
Now let’s break each of these down so you know exactly how to put them into action.
Should You Buy or Keep Renting?
Right off the bat, I want to say this: If you’re still paying off debt or building your emergency fund, keep renting a little longer—and don’t feel one bit bad about it. Renting isn’t throwing money away. It’s buying you time to get financially ready. You guys, there’s nothing worse than rushing into a house before you’re ready and ending up house poor and stressed. Not sure where you land? Here’s how to know if you’re ready to buy a house.
How to Prepare Financially as a First-Time Home Buyer
Pay off all debt and build an emergency fund.
Okay, when you asked for first-time home-buyer tips, you probably didn’t expect to hear about paying off debt. But it’s hands-down the most important thing. Here’s the deal: Every debt payment is a chunk of your paycheck that’s already spoken for before the month even starts. Your greatest wealth-building tool is your income—stop forking it over to lenders.
Owning a home is expensive—trust me, maintenance and mishaps add up fast. It’s hard to maintain margin in your budget when you’re paying the costs of homeownership on top of your debt payments, and that’s a recipe for stress.
So, before you even think about buying your first home, pay off all your consumer debt using the debt snowball method. You should also save an emergency fund of 3–6 months of expenses to cover unexpected costs.
A Real First-Time Home Buyer’s Story
“After we got married, we paid off my husband’s student loans as fast as possible and started stacking up cash for our first home. Just when we had enough saved up for a down payment, we relocated across the state for a new job opportunity . . . Our secret sauce has been consistency, being on the same page with our finances and the goals we are working towards, living at or below our means and not trying to keep up with the Joneses.”
—Whitney S., THE Ramsey Baby Steps Community
Use the 25% rule to figure out how much house you can afford.
Before house hunting, determine how much house you can afford as a first-time buyer. Your monthly housing costs—including principal, interest, property taxes, home insurance, PMI, and homeowners association (HOA) fees—should be 25% or less of your monthly take-home pay. For example:
|
Monthly Take-Home Pay |
Max Monthly Housing Budget |
|
$4,000 |
$1,000 |
|
$6,000 |
$1,500 |
|
$8,000 |
$2,000 |
It may seem like a small number, but here’s the deal, you guys: If more than a fourth of your paycheck goes to your house each month, your house payment can easily turn into a source of constant stress. And every time the house needs some type of repair (which will happen), you’ll feel like it’s the end of the world.
That’s called being house poor, and it’s no fun. So don’t do it! Set your budget and stick to it.
How Much Should I Save Before Buying a House?
Aim for a 20% down payment.
Once you figure out your house budget, it’s time to get serious about saving for a down payment on your first home. The more you save, the more house you can afford. It’s hard work, but having a big down payment can be a game changer when you start shopping.
How much? You should shoot for a 20% down payment so your lender won’t make you pay for PMI—insurance that protects your lender (not you) if you fail to make payments.
If 20% is out of reach for you as a first-time home buyer, a smaller down payment—at least 5%—is okay too. Just be ready to pay PMI, which adds an extra fee to your monthly payment until you build enough equity to drop it.
Here’s another thing: Your state may offer a down payment assistance program for first-time home buyers, but typically offer that “assistance” in the form of extra debt. Unless your state’s program offers a grant that you don’t have to pay back, don’t use it.
Save 3–4% for closing costs.
You should also plan to pay for buyer closing costs, which cover things like inspection and appraisal fees, loan origination and processing fees, property taxes, title insurance, and homeowners insurance. Closing costs for buyers tend to be about 3–4% of the cost of your home, not including the cost of a real estate agent.1 Last year, the median closing cost was $7,306, according to Ramsey Solutions’ Real Estate Report. Some sellers might agree to pay part or all of the buyer’s closing costs to sweeten the deal, but every situation is different. So make sure you plan ahead.
Up-Front Cost Breakdown Table
|
Cost Type |
Typical Amount |
|
Down Payment |
5–20% of home price |
|
Closing Costs |
3–4%2 |
|
Inspection |
$4003 |
|
Moving Expenses |
$1,7004 |
What Is the Best Mortgage for First-Time Home Buyers?
Pick the best mortgage option.
The best mortgage option for a first-time home buyer is a 15-year fixed-rate conventional loan. Though the monthly payments are higher than 30-year loans, you’ll pay off your mortgage in half the time. Plus, most 15-year loans have a lower interest rate, and that interest rate will be locked in for the life of the loan.
Here’s an example of what a $300,000 fixed-rate home loan could end up costing you on a 15-year versus a 30-year term—principal and interest (P&I) only:
|
Loan Term |
Interest Rate |
Monthly P&I |
Total Interest Paid |
Ramsey Takeaway |
|
15-year fixed |
6% |
$2,600 |
$156,000 |
Higher payment, but you’re debt-free in half the time and save about $227,000 in interest. |
|
30-year fixed |
6.5% |
$1,900 |
$383,000 |
Lower payment—but you pay about $227,000 more in interest and stay in debt twice as long. |
The 15-year loan costs you a little more each month, then saves you a fortune—that money stays in your pocket instead of the lender’s.
You’ll also want to avoid these not-so-great mortgage options:
- Adjustable-rate mortgages (ARMs): ARMs sucker you in with a low initial interest rate, but your lender can (and probably will) raise the rate down the road. No thanks!
- Federal Housing Administration (FHA) loans: FHA loans are popular for first-time home buyers with not-so-great credit because you can put as little as 3.5% down, but they require you to add a mortgage insurance premium (MIP) to your monthly payment for the life of the loan if your down payment is less than 10%.5
- Veterans Affairs (VA) loans: VA loans let veterans buy homes with no down payment or PMI, but they include an initial funding fee. And while buying a house without a down payment may sound like a good idea, you’re likely to wind up with too much debt and a way bigger payment than you can afford.
- United States Department of Agriculture (USDA) loans: Designed for people who live in rural areas and can’t afford a traditional mortgage, USDA loans don’t require a down payment. But their repayment plans are poorly designed, which often leads to people owing more money on their home than it’s worth. That’s no good.
Pick a lender you’re comfortable with.
Some mortgage lenders care more about making a profit than helping their customers, and you don’t want to give your business to a company like that! Instead, make sure you choose a lender that offers great customer service along with competitive interest rates and low fees.
I recommend using Churchill Mortgage. Not only will their team treat you super well, but they also offer loans through manual underwriting for people who are debt-free and don’t have a credit score.
Get preapproved before house hunting.
It pays to get preapproved for a mortgage (not just prequalified). Preapproval is when your lender verifies your financial information and gives you a letter saying how much money you can borrow. It shows sellers you’re serious and can give you a leg up in a competitive market.
Just know some lenders may preapprove you for a bigger loan than you actually need or can afford, so it’ll be super important to keep that 25% rule in mind when deciding how much to borrow.
When you’re ready to get preapproved, your lender will ask for paperwork that proves your income, savings, and history of making payments for several things. Gather these items ahead of time so the process moves fast:
- A government-issued photo ID
- Pay stubs from the last 30 days
- W-2s and tax returns from the past two years
- Recent bank, brokerage and retirement account statements
- Official documentation of you making several types of on-time monthly payments from the past 12 months (rent, gas, electric and cell phone)
How to Find the Right Home (Without Overpaying)
Work with a trustworthy real estate agent.
One of the most important things you need when buying a house for the first time is a good real estate agent who’ll help you find the right home and navigate the buying process. You should always work with an agent because their expertise can be a huge help along the way.
The best place to start is finding a RamseyTrusted® agent in your local area. Our team at Ramsey only recommends the best of the best. One of the perks of having an agent is that they’ll do all the negotiating on your behalf—which means you don’t have to! If you’re like me and find negotiations a little awkward, this will take a big weight off your shoulders.
Get clear on needs vs. wants.
It’s tempting to think your first home is your forever home, but the truth is, it likely isn’t. So don’t feel like you need the perfect home right away because you can always upgrade later. For now, you just need a house to fit your current season of life.
Sit down and list out the three to five things your house absolutely must have, focusing on the true nonnegotiables. For example, maybe you need to live close enough to commute to work every day, or maybe your pets need a fence.
Then, write down a few “wants” that could be the cherry on top of your first home. A swimming pool? Granite countertops? Enough bedrooms so your kids don’t have to share? It’s up to you!
Just know that you probably won’t be able to get them all, and make sure to share your list with your real estate agent.
Do your research.
Okay, you’ve got your shopping list in hand, so now it’s time to do some research and find your first home. Here’s what to keep in mind as you start your search:
- Get ideas online. Find homes you like online and send them to your real estate agent so they get an even better idea of what you’re looking for.
- Research neighborhoods for the best fit. Instead of running around the whole city looking for a house, narrow down your search to just a few areas. Remember, real estate prices are all about location, location, location. Look into crime rates and the quality of schools.
- Think long term. Like I said, you probably won’t live in your first home forever, so make sure to buy one you can resell down the road. Buy in your neighborhood’s lower price range and learn about the local economy. Are home prices rising or falling? Are businesses booming or closing?
Here's a Tip
Don’t let ugly carpet scare you off. Cosmetic stuff—dated paint, shag carpet, brass fixtures—is cheap and easy to change once you move in. What you can’t change is the location, the layout and the lot. Look past the ugly and you’ll often score a great house at a better price, just because other buyers couldn’t see past it.
Be patient.
Finding the right house takes time. More than likely, you’ll look at several houses and make several offers. That’s just part of the process. So be patient and proud of the fact that you’re willing to wait for the right house—not settle for the wrong one.
Your Guide to Finding an Affordable Home You Love
Learn our simple, step-by-step process to make closing on the right home for you easier and less stressful.
What Happens After Your Offer Is Accepted?
Picture this: You’ve made a plan for your money, secured your mortgage, and made an offer on an awesome house . . . and your offer gets accepted! That’s such an exciting feeling—but you aren’t done quite yet. Here are the final details you’ll need to wrap up.
Get a home inspection.
Home inspectors can help you spot potential problems so you can ask the seller to either fix them or knock down the price based on the repair cost. You can also walk away if you realize it’s a bad deal.
This step is always worth the investment, you guys! A home inspection costs $400 on average, but it could save you thousands by catching costly hidden issues before you actually buy the home.6
Stick to your budget.
My final tip is to stick to your budget. No matter what.
Believe me, I know firsthand how hard setting a boundary like that can be, especially when a $400,000 dream house catches your eye right after you set your budget at $300,000.
But don’t give in to the temptation and start fudging the numbers on your budget! That’s a ticket to buying a home you can’t afford, which will turn a “dream” house into a nightmare really quickly.
So remember: Don’t let your monthly house payment go past 25% of your take-home pay.
Time to Get Started!
Whew, you made it to the end! (And we covered a lot of ground, so give yourself a pat on the back.)
I know buying a home is a long and stressful process, but I want you to have some fun with this too. Becoming a homeowner is super exciting, and it’s a huge milestone. Enjoy the process as much as you can, and don’t be afraid to celebrate a little bit once it’s all said and done.
And when you’re ready to take the plunge and buy that first house, be sure to get with one of our RamseyTrusted real estate agents. These folks are pros at serving you with excellence and finding you a house that doesn’t break your budget.
Next Steps
- Spend some time writing out your lists of needs and wants for your new home.
- Take our quiz to make sure you’re ready to buy.
- Find a RamseyTrusted agent in your local area to start your house-buying journey.
Frequently Asked Questions
-
What credit score is needed to buy a house?
-
Believe it or not, you actually don’t need a credit score to buy a house. That’s because plenty of lenders out there offer no-score mortgages through a process called manual underwriting. If you do have a credit score, most mortgage lenders will require it to be 620 or above.
-
What percentage of the purchase price do you need for a down payment?
-
As a first-time home buyer, you can put down as little as 5%—but aim for 20% if you can swing it. A 20% down payment means you skip PMI and get a smaller loan you can pay off fast.
-
How can I get a low mortgage payment as a first-time buyer?
-
Increasing your down payment will decrease your monthly payments on your mortgage. You can also lower your monthly payments by stretching out your mortgage over more years, but that’s never a good idea—it leads to paying more in interest and spending more time in debt.
-
What financial signs tell me I’m ready to buy a house?
-
You’re ready when you have no debt, a fully funded emergency fund (3–6 months of expenses), can keep your house payment at 25% or less of your take-home pay, have saved at least 20% down (at least 5% is okay if you’re a first-time home buyer), and plan to stay put for at least three to five years.
-
Should I use a first-time home-buyer grant?
-
Only do this if it’s a true grant you never have to pay back. A real grant is free money toward your down payment or closing costs—no repayment and no strings attached. But a lot of “assistance” programs are really second mortgages or silent loans dressed up as help, and that’s just more debt. If it has to be repaid, skip it and keep saving.
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About the author
Rachel Cruze
Get proven Ramsey answers fast.