First-Time Homebuyer Guide: Complete Step-by-Step Process

In 2012, I was you — a first-time buyer with a decent salary, zero real estate knowledge, and the naive belief that "renting is throwing money away." I bought a house I could barely afford, picked the first lender who approved me, and spent two years eating rice and beans.

A decade and three homes later, I've helped hundreds of first-time buyers avoid my mistakes. Buying your first home is exciting but overwhelming. This guide walks you through every step I wish someone had explained to me, from saving for a down payment to closing day.

Calculate What You Can Afford

Before you start house hunting, know your budget:

Try Our Mortgage Calculator

What is a First-Time Homebuyer?

According to the Department of Housing and Urban Development (HUD), you're considered a first-time homebuyer if:

• You haven't owned a home in the past 3 years
• You're a single parent who only owned a home with a former spouse
• You're a displaced homemaker who only owned a home with a spouse

First-time buyer status qualifies you for special programs and assistance.

Step 1: Check Your Credit Score

Your credit score determines your mortgage rate and whether you qualify. According to FICO, here's what you need:

Action Items:

• Check your credit report at AnnualCreditReport.com
• Fix any errors immediately
• Pay down credit card debt
• Avoid new credit applications

Step 2: Save for a Down Payment

How Much Do You Need?

Traditional wisdom says 20%, but many first-time buyers put down less:

Example: $400,000 home

• 20% down: $80,000
• 10% down: $40,000
• 3.5% down: $14,000

For a detailed breakdown of down payment options, see our Complete Down Payment Guide.

Down Payment Assistance Programs

Many states and cities offer first-time buyer assistance:

• State programs: Low-interest loans, grants, or forgivable loans
• Local programs: City or county assistance
• Employer programs: Some employers offer homebuyer benefits
• Non-profit programs: Organizations like Habitat for Humanity

Check HUD's list of state and local programs for your area.

Step 3: Get Pre-Approved

Pre-approval shows sellers you're serious and tells you exactly how much you can borrow.

Pre-Qualification vs. Pre-Approval

Always get pre-approved, not just pre-qualified.

What Lenders Look At

• Debt-to-Income Ratio (DTI): Total monthly debt ÷ Monthly income
  • Ideal: Under 36%
  • Maximum: 43% (some programs allow up to 50%)
• Credit Score: Higher is better
• Employment History: Stable income (2+ years preferred)
• Savings: Down payment + closing costs + reserves

Step 4: Understand Mortgage Types

FHA Loans (First-Time Buyer Favorite)

Requirements:

• Credit score: 580+ (3.5% down) or 500-579 (10% down)
• Down payment: As low as 3.5%
• Mortgage insurance: Required for life of loan if down payment < 10%

Best for: Buyers with lower credit scores or limited down payment funds.

Learn more about FHA loans and how they compare.

Conventional Loans

Requirements:

• Credit score: 620+
• Down payment: 3% minimum (PMI required if < 20%)
• Mortgage insurance: Can be removed at 20% equity

Best for: Buyers with good credit and 20% down payment.

VA Loans (Veterans Only)

Requirements:

• Must be eligible veteran or active-duty service member
• Down payment: 0% required
• No PMI
• Competitive rates

Best for: Eligible veterans and service members.

USDA Loans (Rural Areas)

Requirements:

• Property must be in eligible rural area
• Income limits apply
• Down payment: 0% required

Best for: Buyers purchasing in rural or suburban areas.

For a complete comparison of all mortgage types, see our Mortgage Types Comparison Guide.

Step 5: Find the Right Home

What Can You Afford?

The 28/36 Rule:

• Housing costs: No more than 28% of gross monthly income
• Total debt: No more than 36% of gross monthly income

Example: $85,000 annual income ($7,083/month)

• Maximum housing payment: $1,983/month (28%)
• Maximum total debt: $2,550/month (36%)

Use our Mortgage Calculator to see what home price this translates to.

Additional Costs to Budget

Beyond your mortgage payment, budget for:

Learn more about all the hidden costs in your mortgage payment.

Step 6: Make an Offer

Components of an Offer

1. Purchase price: What you're willing to pay
2. Earnest money: Good-faith deposit (typically 1-3% of purchase price)
3. Contingencies: Conditions that must be met (inspection, appraisal, financing)
4. Closing date: When you'll take ownership
5. Personal letter: Optional but can help in competitive markets

Negotiation Tips

• Research comparable sales in the area
• Don't lowball—make a competitive offer
• Consider waiving some contingencies in hot markets (carefully)
• Be prepared to walk away if terms aren't right

Step 7: Home Inspection

Always get a professional inspection. This is your chance to find problems before you're committed.

What Inspectors Check

• Structural integrity
• Electrical systems
• Plumbing
• HVAC
• Roof condition
• Foundation
• Appliances

Cost: $300 - $500 typically

After Inspection

You can:

• Request repairs from the seller
• Negotiate a lower price
• Walk away (if inspection contingency)

Step 8: Closing Costs

Closing costs typically range from 2% to 5% of the home price.

On a $400,000 home, expect $8,000 to $20,000 in closing costs.

Common Closing Costs

Use our Closing Cost Calculator to estimate your costs.

Step 9: Closing Day

What to Bring

• Government-issued ID
• Cashier's check for closing costs (or wire transfer)
• Proof of homeowners insurance
• Any requested documents

What Happens

1. Review all documents carefully
2. Sign loan documents
3. Pay closing costs
4. Receive keys to your new home!

First-Time Buyer Mistakes to Avoid

Mistake 1: Not Getting Pre-Approved

Without pre-approval, you don't know your budget and sellers won't take you seriously.

Mistake 2: Shopping for Homes Before You're Ready

Don't start looking until you have:

• Down payment saved
• Credit score in good shape
• Pre-approval letter
• Budget for closing costs and moving

Mistake 3: Maxing Out Your Budget

This was my biggest mistake. I was approved for $385,000 and bought a $379,000 house. Within 6 months, the water heater died ($1,800), the AC needed repairs ($900), and property taxes increased ($1,200/year). I had no cushion.

Leave room for unexpected expenses. Just because you're approved for $400,000 doesn't mean you should spend it all. I now tell clients to stay 10-15% below their maximum approval.

Mistake 4: Skipping the Inspection

Never skip a home inspection, even in competitive markets. Hidden problems can cost tens of thousands.

Mistake 5: Not Understanding All Costs

Your mortgage payment is just the beginning. Factor in property taxes, insurance, maintenance, and HOA fees.

For more on understanding your complete mortgage payment, see What's Really In Your Mortgage Payment?.

First-Time Buyer Programs

FHA Loans

• Low down payment (3.5%)
• Lower credit score requirements
• Popular with first-time buyers

State and Local Programs

Many states offer:

• Down payment assistance
• Lower interest rates
• Tax credits
• Closing cost assistance

Check your state's housing finance agency for programs.

Good Neighbor Next Door

For teachers, firefighters, police officers, and EMTs. 50% discount on HUD homes in revitalization areas.

Frequently Asked Questions

How much should I save before buying my first home?

For a $350,000 home, first-time buyers should save approximately $35,000-$60,000 total, broken down as follows: down payment of $12,250-$70,000 (3.5%-20%), closing costs of $7,000-$17,500 (2%-5% of purchase price), moving expenses of $1,000-$5,000, and an emergency fund covering 3-6 months of expenses. Additionally, set aside $5,000-$10,000 for immediate home repairs and maintenance. If you're using FHA with 3.5% down, you might need as little as $25,000-$30,000 total to purchase your first home.

What credit score do I need to buy a house?

The minimum credit score to buy a house depends on loan type: Conventional loans require 620+ (with best rates at 740+), FHA loans require 580+ for 3.5% down payment or 500-579 for 10% down, and VA/USDA loans have no government minimum but most lenders require 620+. Each 20-point credit score improvement can save you 0.125%-0.25% on your interest rate, which translates to $20,000-$40,000 over a 30-year loan. If your score is below 620, spend 6-12 months improving it before applying.

Can I buy a home with no down payment?

Yes, through VA loans (veterans) or USDA loans (rural areas). FHA requires minimum 3.5% down.

How long does the homebuying process take?

Typically 30-60 days from offer acceptance to closing. Pre-approval and house hunting can add several months.

Should I use a real estate agent?

Yes, especially as a first-time buyer. Buyer's agents are typically free (seller pays commission) and provide valuable guidance.

What is PMI and can I avoid it?

PMI (Private Mortgage Insurance) is required if you put down less than 20%. You can avoid it by:

• Saving 20% down payment
• Using a VA loan (no PMI)
• Using lender-paid PMI (higher rate)

Learn more about PMI and how it works.

Related Articles

• What's Really In Your Mortgage Payment? — Understand all components of your monthly payment, including PMI, taxes, and insurance
• Mortgage Calculator: Complete Guide — Learn how mortgage calculations work and understand different loan types
• Down Payment Guide — Everything about down payments, minimum requirements, and assistance programs
• Mortgage Types Comparison — Compare FHA, VA, conventional, and USDA loans to find the best option for you
• Mortgage Refinance Guide — Learn when and how to refinance your mortgage after purchase

Related Calculators

• Mortgage Calculator — Calculate your complete mortgage payment
• Closing Cost Calculator — Estimate your closing costs
• Home Equity Calculator — Track your equity growth
• Rent vs Buy Calculator — Should you rent or buy?

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This guide provides general information for educational purposes. Consult with qualified real estate and mortgage professionals for advice specific to your situation.