FIRST TIME HOME BUYER TIPS : HOW TO BUY YOUR FIRST HOME IN 10 STEPS

So, You Want To Know How To Buy Your First Home ?

You’ve been Zillow scrolling like it’s your part-time job, saving your dream homes left and right. And then bam—you get that dreaded “Sold” email. Ouch. We know the feeling.

But here’s the good news: buying your first home doesn’t have to feel like some far-off fantasy. With the right game plan, you can absolutely turn those saved listings into keys in your hand—and yep, your first home can be a great investment... if you play your cards right.

This guide provides first time home buyer tips and breaks everything down—from budgeting and credit to house-hunting and turning your crib into a cash-flowing asset.

Here Are Some First Time Home Buyer Tips:

1. Set a Budget

2. Save for Front-End Home Buying Costs

3. Improve Your Credit Score

4. Decrease Your Debt-to-Income Ratio (DTI)

5. Research & Shop for the Best Mortgage Lender

6. Connect with an Experienced Real Estate Agent & Start Shopping

7. Make Your Offer & Sign the Contract

8. Collect Your Documents

9. Get a Home Inspection

10. Get the Keys

    
    

Now let’s break each of these down so you can feel confident and prepared throughout your home buying journey.

STEP 1: Set a Real Budget

You are casually scrolling social media and you see all of your peers closing on homes and you start feeling behind. What if we told you that most Americans might be house rich but cash poor. What does this mean? Most Americans are living paycheck to paycheck in homes that they cannot truly afford. (See: Keeping up with the Joneses).

But we're here to help.

Before you find yourself shopping around for your first (or next) home, you need to establish a budget.

A budget is nothing more than a detailed plan for your money. You must know what is coming in and what is going out. Ask yourself, can you truly afford a home currently based on your current income and expenses?

We know what you’re thinking, “If I can afford rent every month, then I can afford a mortgage!”

While that might be true, there is a reason why so many homeowners lose their personal residences to foreclosures every single year.

There are more expenses involved with owning a home than just paying for the mortgage. There is insurance, property taxes, maintenance costs, and reserves that you will need for emergencies that may not always be covered by a home warranty. Not to mention you will need funds to cover the cost of actually purchasing the home (don’t worry, we will cover this in Step 2).

So, based on your current budget and current lifestyle, could you afford to also pay property taxes, insurance, and maintenance costs? Do you have enough liquid cash savings (3-6 months recommended) to cover an emergency without resorting to charging your credit card?

If not, let’s establish a budget. (If this doesn’t apply to you, then you can move on to Step #2)

HOMEWORK: ESTABLISH A SET BUDGET

1. Look at your last 2-3 month bank statements.

2. Write down your total net monthly income (Income - expenses)

3. Write down your total monthly expenses and make sure you include:

   1. Your necessities (rent, gas/electric/water, phone, groceries, internet, clothing, etc.)

   2. Your discretionary spending (eating out, leisure activities, spending allowance, travel, etc.)

   3. Your monthly savings goal

4. Analyze what’s left. Do you have enough to become a homeowner ?

-       If the answer is no, then you need to see how you can eliminate unnecessary expenses or increase your income.

-       If the answer is yes, then you are ready for the next step.

STEP 2: Start Saving for the Upfront Costs

There are a few costs associated with actually purchasing a home. These costs include:

Earnest Money Deposit (EMD)

An earnest money deposit, also known as an EMD, is a good faith deposit that sellers require to show that you are serious about purchasing their home. The industry standard for an EMD is approximately 1% of the purchase price, but an experienced, savvy realtor can often negotiate and lower this cost in your favor. Don’t worry, although the EMD is a required fee up front, it is deducted from the cost of the home and is not considered an additional expense.

Closing costs 

Closing costs range anywhere from 2% - 3% of the total loan. Closing costs are in addition to the down payment.

Home Inspection 

Experienced and quality certified home inspectors can range anywhere from $200 - $400 on average.

Moving costs 

This is a cost most homeowners tend to forget. Unless you have family or a community willing to help, you will need to set aside costs for movers, a Uhaul (or similar company), new furniture, etc.

Down payment

The standard down payment is 20% of your purchase price, especially to avoid private mortgage insurance (PMI) [Don’t worry, we will discuss this fee more in Step 5]. However, there are programs that offer lower down payment options and even zero down payment options.

A few examples are below:

●      Bank of America's Affordable Loan Solution program allows you to pay only 3% down and NO PMI as long as you complete their approved homebuyer education and meet their other requirements.

-       First time home buyers could also potentially qualify for a BOA grant toward your downpayment or closings costs anywhere up to $7,500 - $10,000!  Find out more about the grants here.  Tip: some states will still consider you a "first time home buyer" as long as you have sold your home & haven't owned a home within 3 years.

●      Navy Federal Credit Union's Conventional Mortgage also allows you to only put 5% down with NO PMI.  If you are active or former military simply sign up for a checking or savings account to qualify, but even if you are not active or retired military you can have a family member (active or retired military) sponsor you by providing you with their access number to open an account and become a member.

●      Neighborhood Assistance Corporation of America allows property owners to be approved for a mortgage with NO down payment , NO closing costs and NO PMI. Note: You must live in the property for as long as you have the mortgage with them. For a condensed summary about the program, click here.

There are even more lenders who offer low down payment, no PMI, and/or home buyer grant options  but they are typically state specific. All it takes is a simple google search or calling your local lenders and asking about their programs.

You will need to incorporate the above costs temporarily into your budget to make sure you have the funds necessary to close on your home transaction.

Enroll For Free

STEP 3: Fix That Credit Score

If you plan to purchase your home using 100% cash, then obviously you will not need to worry about a credit score since you will not need a mortgage.

But if you are one of the millions of Americans who don’t have several hundred thousand dollars stashed away in your checking or savings account, you will need a credit score to qualify for a loan.

Most lenders want to see a minimum credit score of 640 to qualify for a mortgage. However, the higher your credit score, the better and lower your interest rate will be. (Also note that lenders typically check your mid-FICO score. To retrieve your mortgage FICO scores, you can visit, www.myfico.com ).

If you needed further reason why having a great credit score is important, check out the below comparison to see the amount of money saved with a higher credit score versus a lower credit score.  Figures are based on a 30 year fixed loan of $200,000.00. 

FICO score	APR	Monthly payment	Total interest paid
760–850	3.408%	$888	$119,626
700–759	3.63%	$913	$128,560
680–699	3.807%	$933	$135,776
660–679	4.021%	$957	$144,611
640–659	4.451%	$1,008	$162,720
620–639	4.997%	$1,073	$186,380

●    If your score changes to 700-759, you could pay an extra $8,934.

●     If your score changes to 680-699, you could pay an extra $16,150.

●     If your score changes to 660-679, you could pay an extra $24,985.

●     If your score changes to 640-659, you could pay an extra $43,094.

●     If your score changes to 620-639, you could pay an extra $66,754.

This is why improving your credit score is so important! It could help you save thousands over the life of your loan!

Below are some steps to help you establish or improve your credit score.

Establish Your Credit Score

If you do not have a credit score or your credit has been severely impacted due to a bankruptcy, foreclosure, divorce, judgement, repossession, etc, getting approved for anything will be very difficult - but not impossible!

Below are two methods to help you establish or improve your credit score.

Method 1: Apply for a secured credit card

A secured credit card requires you to put up collateral usually in the form of a cash deposit to open a line of credit. You essentially are borrowing money from yourself while simultaneously establishing credit in the process.

A few recommended secured credit cards are:

●      Navy Federal Secured Credit Card

●      Capital One Secured Credit Card

●      Discover It Secured Credit Card

However, there are a few things you need to know on how to build your score using credit cards:

STEP 1:  Pay all of your bills on time.

STEP 2: Know two important dates: your STATEMENT date and your DUE date

●      The statement date is when your creditors report your balance to the 3 credit bureaus: Equifax, Experian, and Transunion. (Note: the statement date is different from your minimum payment DUE date ).

●      The due date is when your minimum payment is due.

STEP 3: Pay down to between 5%-10% of your available line of credit by the STATEMENT date. (Under 30% is a standard rule of thumb, but paying down between 10%-15% is even better).

●      So if your available line of credit is $1,000, aim to have your balance between $100-$150 (but definitely no more than $300) by your STATEMENT date (you can find this date on your monthly statement).

●      Leaving a small balance by the statement date shows the Bureaus that you are actually using your credit card and using it responsibly.

STEP 4: Pay your remaining balance in full by the DUE date to avoid being charged high cc interest.

STEP 4: Lower Your DTI (Debt-to-Income Ratio)

So now you have established a budget, saved for your front end home buying costs, are currently working on your credit and now you can start looking for a house!

Wrong.

One more factor lenders consider when considering you for an approval is your debt to income ratio, also commonly called DTI for short. Your DTI is a percentage of how much debt you owe relative to your income. If your DTI percentage is too high, lenders might deny your approval for a mortgage as they might consider you risky even if you have a great or decent credit score.

Your DTI is what lenders use to see exactly how much home you can afford. Lenders do this by looking at all of your total monthly debt payments including (but not limited to) any existing mortgage payments, auto payments, credit card payments, personal loans, and student loans.

For example, let’s assume your gross monthly income is $4,000.00

●      Estimated mortgage payment: $900

●      Auto payment - $300

●      Student Loan - $400

●      Credit card - $400

Your total debt expenses including your future mortgage payment would be $2,000.00.

Lenders calculate your DTI by dividing your total monthly debt payments by your gross monthly income.

In this scenario your DTI would be roughly 50%  ($2,000.00 / $4,000.00 = 50%) .

Ideally lenders would want to see a DTI of 30% or less.

HOMEWORK:

This is why Step #1, establishing a budget, is so important. When you are combing through your statements, add up your monthly debt payments.

If your DTI exceeds 30% then determine how you can lower those monthly payments through either increasing your income (ie. picking up extra hours at work, adding a  part time job, starting a side hustle), refinancing, negotiating your payments, or decreasing your expenses. Doing all of the above steps is also a great start too!

STEP 5: Shop for a Mortgage Lender & Get Pre-Approved

A lot of aspiring homeowners tend to make shopping for homes and looking for mortgage lenders to obtain a pre-approval letter their first step.The reason why this is considered Step 5 is due to the fact that lenders must pull your credit score for a pre-approval. Your pre-approval is typically considered a hard inquiry and will drop your credit score a few points.

What you do not want to happen is for a lender to pull your credit score just for you to be denied!

However, when you practice patience and diligently complete steps 1-4, you have a higher chance of getting a pre-approval!

It can be tempting to start making offers on homes and contacting real estate agents before you have a pre-approval letter. However, most experienced agents will not even accept you as a client until you are pre-approved. Not to mention, a pre-approval letter will also let you know what price range of homes you can actually qualify for. For example, if you are only approved for $200,000.00 there is no need to look at houses above this price.

But there is good news. You can apply for as many mortgage pre-approvals within a 2-week period and each pre-approval letter is good for 30 -90 days depending on the lender. As long as you apply within the 2-week day window, you will not incur a hard pull for each lender inquiry - only one hard pull (inquiry) per 2 week period. This will help you compare rates and terms with each lender without the burden of multiple inquiries (hard pulls) to your credit report. You will also need to take into consideration that some applications will charge an application fee, so do thorough research on each lender and limit your applications to 2-3 if possible.

LOAN TYPES

Understanding loan types is also pertinent to choosing a lender. Depending on your current financial situation will depend on which loan you qualify for. Below is a short summary of your most common mortgage loans.

Conventional

Conventional loans will only require private mortgage insurance (PMI) for down payments 20%. Down Payments over 20% will not require PMI. Conventional loans will also typically offer lower interest rates than FHA.

FHA

FHA loans typically allow lower credit score requirements (some lenders will allow as low as a 580). FHA also requires private mortgage insurance regardless of your down payment amount. Private mortgage insurance (PMI) is a fee the lender will charge the borrower in addition to your mortgage because the borrower may be deemed high risk. FHA loans require as low as 3.5% down unlike conventional loans. However, you should also note that PMI is included in the life of the loan unless you refinance to a conventional loan.

FHA 203K

FHA 203K loan is also called a rehab or construction loan. This loan is a sub type of FHA with very similar requirements. However, the difference between this loan and FHA is that 203K loans allow you to wrap renovation costs into the mortgage. All lenders do not offer this loan type, so if you are looking for a property to renovate (ie. fixer upper) you will want to search for lenders that offer this option as a product.

STEP 6: Find a Rockstar Real Estate Agent & Start House Hunting

Finding an agent is one the most important steps of the home buying process.

You want an agent that knows your market, has a track record of solid negotiation skills, communicates effectively, and primarily looks out for the interest of their buyer (you).

There are many real estate agents who lack negotiation skills, drive, and do the bare minimum for a 3% commission.

Make your agent earn their commission.

Read reviews, ask other peers for references, and do your research.

Once you have connected with an agent, start by sending them your buying criteria. This would include your:

●      Price range (based on your pre-approval letter)

●      Number of bedroom & bathrooms expectations

●      Neighborhood preferences (visit the neighborhood during the day and in the evening to get a feel for the area)

●      Layout preferences (single story, two-story)

●      Current condition (turnkey or fixer upper)

●      Other preferences (pool, basement, 1 or 2 car garage, etc).

Your RE agent should take your preferences and immediately begin sending you homes that fit your criteria and scheduling showings.

STEP 7: Make Your Offer & Sign the Contract

Once you have found your dream home, now it is time to make the offer!

Here is the catch: remember that pre-approval letter you received in Step 5? What you are pre-approved for does not necessarily mean that is what you can afford.

Refer back to your budget that you created in Step 1. How much of a house payment can you truly afford based on your budget?

It is recommended that your mortgage payment (insurance and taxes included) be no more than 25% of your take home (net) pay.  So if you bring home a net income of $3,000.00, your monthly payment should not exceed $750.00. This is the key to ensuring that you do not become “house rich, and cash poor.”

You can actually find your estimated monthly payment using your preferred lender’s mortgage calculator- these are typically free to use and available for use on their website.

Once you have determined your estimated monthly payment based on your pre-approval amount determine if this exceeds the 25% rule. If it does, you will need to adjust your mortgage price.

Your offer price should align with what you can afford. Never make an emotional purchase or get too attached to a home. Only purchase what you can afford comfortably.

Tip: If you are a two income household, base your payment as if you were a single income household. If one of you were to lose a job or become physically unable to work, your mortgage would not be affected and at risk of foreclosure if your income drastically shifted.

STEP 8: Gather Your Docs

Now it’s time to gather all of your information. Although you earned a pre-approval based on your credit score, lenders will need to see and analyze several documents prior to giving you an official approval and clear to close on your home.

Below is a list of documents you will need prior to getting an official approval.

1. Last 3 - 6 months of bank statements

2. Last two years of tax returns

3. Your most recent check stubs (usually 2 months)

4. Credit report. (Your lender will pull this on their own, but you will need to be ready to explain any negative items on your credit report. Negative items included, but not limited to: Bankruptcies, foreclosures, repossessions, judgements, etc.

5. Proof of homeowners insurance (will need to provide this before closing)

Make sure all documents are clearly labeled so your process is as smooth as possible.

STEP 9: Get a Certified Home Inspection

Even if the home looks perfect, you still need a pro to inspect it. Sellers don’t always disclose every issue, and you don’t want surprises later.

Make sure the inspection includes:

• Roof, plumbing, electric, HVAC, foundation

• Mold, termites, radon

• Doors and windows

• Any unpermitted renovations

If there are issues, your agent can help you negotiate repairs—or walk away and get your EMD back if things look too risky.

STEP 10: Get the Keys (Cue Happy Dance)

You have established a budget, improved your credit score, and you are ready to close on your first home! This is a huge accomplishment as many do not even have the opportunity to make it this far.

We have spent time telling you what TO do, but there are also a few more things that you should NOT do to ensure that you close on your dream home:

1. Do not make any large purchases before closing on your home. That new car, furniture set, or whatever you have your eye on needs to wait until after you close! Making large purchases could potentially increase your DTI resulting in a denial of your home loan.

2. Do not apply for any additional lines of credit. Lenders also tend to pull your credit once more right before closing, so make sure you do not do anything that could result in a hard inquiry thereby lowering your score.

As long as you follow these steps detailed in this guide, then your next and final step is to sign your mortgage paperwork and collect the keys to your dream home!

CONGRATULATIONS!

BONUS: Is Your Primary Home a Good Investment?

Some say a primary residence isn’t really an investment... but we disagree (kind of).

Here’s the truth: it depends on how you buy.

You may have seen this argument several times. You have gurus who state that a primary residence is never a good investment, but simply a place to lay your head.

On the other hand, you have investors who advocate home ownership and to not throw away money renting and paying someone else’s mortgage.

So what should you do? Should you continue renting your primary residence and investing elsewhere? Or should you also purchase a primary residence to call home?

We would argue that the way most Americans currently purchase their home does not make for a good investment. Why? Lack of knowledge.

Many Americans purchase more home than they can afford, purchase at the top of the market leaving very little equity or room for appreciation, and their monthly payments leave very little room to save and invest.

How can you ensure your primary actually becomes a great investment? Below are a few tips.

Consider House-hacking

House-hacking is the process of purchasing a home while living in one unit (or room) for FREE while the other units (or rooms) cover your mortgage.  That's right, you can get paid to LIVE FOR FREE!

Once you have taken the necessary steps to prepare for your purchase, there are so many ways to start house-hacking using little to no income of your own through first time buyer home programs, grants, and more.

Below are two common ways to get started house-hacking (but not nearly an exhaustive list).

PURCHASE A MULTI-FAMILY (1-4 UNITS)

1. Find a property that needs repair (preferably a multiunit; 1-4 units).

2. Use a FHA 203K loan that will cover the cost of the purchase and repairs rolled into ONE loan. (Note: if no repair is needed, then use a traditional FHA loan).

3. Save for a down payment as low as 3.5% of the cost of your loan + closing costs

4. Find tenants and screen applicants. Charge market rent.

5. Live in one unit free, while your tenants cover the mortgage.

PURCHASE A TRADITIONAL SINGLE-FAMILY HOME (NON MULTI-UNIT)

1. Find a property that needs repair

2. Use a FHA 203K loan that will cover the cost of the purchase and repairs.

3. Consider adding a room or basement that you can rent out.

4. Save for a down payment as low as 3.5% of the cost of your loan + closing costs

5. Live in one room free while your mortgage is covered by the other rooms that you rent out (bedrooms/basement/attic) to long term tenants or rent via AirBnb or other short term rental platforms.

You can also use this same concept with a turn-key property (no renovations needed) and use a traditional FHA loan instead.

Consider purchasing in areas in progress of being redeveloped.

Purchasing your first home in areas that are in the process of being revitalized (but not yet fully developed) almost guarantee instant equity and appreciation.

When you are in the process of shopping for homes, ask your real estate agent which areas are being revitalized.

Look out for these signs of areas bound to appreciate:

-       Large developments (stadiums, apartment complexes, concert halls, etc).

-       Coffee shops

-       Newer construction properties

When you purchase in areas that are in the process of being revitalized your home is bound to appreciate (not guaranteed, but a much higher chance). Then you can take that newfound equity and use a HELOC (home equity line of credit) to invest in additional properties! Or, you can sell and use the profits to purchase a new rental or another property.

The possibilities are endless when you buy low and buy RIGHT!

Again, these are just a few ways of how you can turn your personal residence from just an asset or place to rest your head into a realized positive, cash-flowing investment property.

So, Let's Get Started!

Ready to turn your dream into a deed? Follow these steps and you won’t just buy a home—you’ll build a financial foundation that can carry you for decades.

P.S. Want to learn how to turn your first home into a legit real estate investment? Take our FREE Real Estate 101 training . We’ll walk you through everything from flips to rentals to long-term wealth. Let’s make real estate real simple.

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