Tips for First-Time Home Buyers

Buying a house for the first time is super exciting—and wild! The process can take some time, and you’ll probably have lots of ups and downs along the way. After all, a home is probably the biggest purchase you’ll ever make.

Find expert agents to help you buy your home.

To help you go through your home-buying journey with confidence, I’ve put together 12 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. They fit into four basic categories:

• Preparing to buy
• Choosing a mortgage
• House hunting
• Closing

Ready? Here we go!

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.

Why? Because 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.

Use the 25% rule to figure out how much house you can afford.

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.

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.

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. 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 private mortgage insurance (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 of 5–10% is okay too. Just be ready to pay PMI, which costs anywhere from 0.46–1.5% of your total annual loan balance.¹

Here’s another thing: Your state may offer a down payment assistance program for first-time home buyers, but it’s usually best to stay away from those since they 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 2–7% 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 2–7% of the cost of your home, not including the cost of a real estate agent.² 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.

 

 

Pick the right mortgage.

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.

On the other hand, you’ll 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 pay a 1.75% mortgage insurance premium (MIP) up front and an annual premium of 0.55%—often for the life of the loan.³

• Veterans Affairs (VA) loans: VA loans let veterans buy homes with no down payment or PMI, but they include an initial fee of 2.15% of the purchase price (for first-time buyers).⁴ 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 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. 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.

Find 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 off the bat, 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?

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.

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 approved! 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 $343 on average, but it could save you thousands by catching costly hidden issues before you actually buy the home.⁵

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 completely dedicated to getting you the house of your dreams without breaking your budget.

 

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