How to Buy a House: A First-Time Homebuyer's Complete Guide

Assess Your Financial Readiness

Before you start browsing listings or imagining yourself in a new neighborhood, you need an honest assessment of where you stand financially. This foundation determines not just whether you can buy a home, but how much home you can realistically afford without stretching yourself too thin.

Evaluate Your Credit Score

Your credit score is the single most powerful factor in determining your mortgage interest rate. A higher score translates directly into lower monthly payments over the life of your loan, potentially saving you tens of thousands of dollars. Most conventional loans require a minimum score of 620, though FHA loans may accept scores as low as 580 with a 10% down payment.

Request your free credit reports from all three bureaus (Equifax, Experian, and TransUnion) and review them for errors. Dispute any inaccuracies immediately, as even small corrections can boost your score. If your credit needs work, consider delaying your home purchase by six to twelve months while you pay down debt and establish positive payment history.

Calculate Your Debt-to-Income Ratio

Lenders examine your debt-to-income (DTI) ratio to determine how much mortgage payment you can handle. This calculation divides your total monthly debt payments by your gross monthly income. Most lenders prefer a DTI below 43%, though some loan programs allow up to 50% in certain circumstances.

To strengthen your position, pay down credit card balances, avoid taking on new debt, and resist the urge to make large purchases before applying for a mortgage. Even buying furniture on credit can impact your qualification.

Determine How Much House You Can Afford

Understanding how much house you can afford requires looking beyond the maximum loan amount a lender will approve. Just because you qualify for a certain mortgage doesn't mean you should borrow that full amount.

A conservative approach is the 28/36 rule: your monthly housing costs (mortgage, taxes, insurance) shouldn't exceed 28% of your gross income, and your total debt payments shouldn't exceed 36%. Factor in future expenses like maintenance, utilities, and potential homeowners association fees when setting your budget.

Develop Your Down Payment Strategy

The traditional 20% down payment isn't a requirement—it's simply the threshold that allows you to avoid private mortgage insurance (PMI). Many buyers successfully purchase homes with far less upfront, though this means higher monthly payments and additional insurance costs.

Understanding Down Payment Options

Different loan programs have varying down payment requirements. Conventional loans may accept as little as 3% down for first-time buyers. FHA loans require just 3.5% with a credit score of 580 or higher. VA loans offer qualified veterans and service members the remarkable benefit of zero down payment. USDA loans also feature no down payment for eligible rural properties.

The typical first-time homebuyer in 2025 puts down 10%—matching the highest share recorded since 1989. Repeat buyers typically put down 23%, often using equity from their previous home sale.

First-Time Buyer Programs and Assistance

Every state offers programs designed to help first-time buyers overcome down payment hurdles. These include grants that don't need repayment, low-interest second mortgages, and forgivable loans that disappear after you've lived in the home for a specified period.

Gift funds from family members can also contribute to your down payment. Most loan programs allow gift money, though documentation requirements vary. Your lender will need a gift letter confirming the funds aren't a loan that must be repaid.

Choose the Right Mortgage Type

Selecting the appropriate mortgage product affects everything from your down payment requirements to your long-term financial obligations. Take time to understand the options before committing to a loan type.

Fixed-Rate vs. Adjustable-Rate Mortgages

With a fixed-rate mortgage, your interest rate and monthly payment remain constant for the entire loan term—typically 15 or 30 years. This predictability makes budgeting straightforward and protects you from rising rates.

Adjustable-rate mortgages (ARMs) start with a lower interest rate that adjusts after an initial fixed period (commonly 5, 7, or 10 years). ARMs can make sense if you plan to sell or refinance before the adjustment period begins, but they carry risk if rates increase significantly.

Get Preapproved for a Mortgage

Mortgage preapproval is a critical step that serves multiple purposes: it clarifies your budget, demonstrates seriousness to sellers, and streamlines the eventual loan process. A preapproval differs significantly from prequalification—it involves thorough verification of your financial information.

The Preapproval Process

During preapproval, lenders review your credit reports, verify income and employment, examine bank statements, and calculate your debt-to-income ratio. You'll need to provide documentation including W-2s from the past two years, recent pay stubs, bank statements, tax returns, and identification.

Once approved, you'll receive a preapproval letter stating the loan amount you qualify for, typically valid for 60 to 90 days. This letter becomes essential when making offers in competitive markets, showing sellers you're a serious, qualified buyer.

Shop Multiple Lenders

Don't accept the first preapproval you receive. Compare offers from at least three lenders—including traditional banks, credit unions, and online lenders. Each will provide a Loan Estimate document that allows direct comparison of rates, fees, and closing costs.

Credit inquiries from mortgage shopping within a 45-day window count as a single inquiry for credit scoring purposes, so comparing lenders won't damage your score. The difference between lenders can amount to thousands of dollars over your loan term.

Partner With the Right Real Estate Agent

The right buyer's agent becomes your advocate throughout the homebuying process, providing market expertise, negotiation skills, and guidance through complex paperwork. Knowing how to choose a Realtor who fits your needs can make the difference between a smooth transaction and a stressful experience.

What Changed After the NAR Settlement

Following the National Association of REALTORS® settlement that took effect August 17, 2024, buyers must now sign written agreements with their agents before touring homes. These agreements specify the compensation the agent will receive and clarify who pays that compensation—which may be the buyer, the seller, or some combination.

This change increases transparency around agent compensation. Buyer's agent commissions, which historically averaged around 2.5% to 3%, are now fully negotiable between buyers and their agents. Sellers can still offer to cover buyer's agent compensation as part of the transaction, but this is no longer displayed on the Multiple Listing Service (MLS).

Interviewing Potential Agents

Interview at least three agents before making your selection. Ask about their experience in your target neighborhoods, their communication style, availability, and approach to negotiations. Request references from recent buyers and follow up with those clients about their experience.

A top-performing agent brings more than just access to listings—they provide insight into fair pricing, help you avoid overpriced properties, identify potential issues during showings, and guide your offer strategy based on current market conditions.

Define Your Home Search Criteria

Before you start touring properties, clarify what you need versus what you want. Creating this framework helps you search efficiently and make decisions without being swayed by staging or emotions.

Must-Haves vs. Nice-to-Haves

Your must-haves are non-negotiables—features your home absolutely requires. These might include minimum bedroom count, specific school districts, maximum commute time, or accessibility features. Nice-to-haves are desirable but not deal-breakers, such as a finished basement, updated kitchen, or home office space.

Be realistic about trade-offs in your price range. In today's market, where inventory remains limited in many areas, flexibility increases your chances of finding a suitable home without overpaying.

Property Type Considerations

Single-family homes offer maximum privacy and outdoor space but require full responsibility for maintenance. Condominiums and townhouses typically cost less and include exterior maintenance through HOA fees, though you'll have less control over your environment and potential special assessments.

Consider your long-term plans. First-time buyers made up just 21% of all home purchases between July 2024 and June 2025—a historic low—with the typical first-time buyer now 40 years old. Many buyers are choosing properties that can accommodate changing needs over time rather than traditional "starter homes."

Make a Competitive Offer

When you find the right property, acting quickly and strategically can make the difference between winning and losing in a competitive market.

Understanding Market Conditions

Your offer strategy depends on current market dynamics. In a seller's market with limited inventory, you may need to offer at or above asking price and minimize contingencies. In a buyer's market with more choices, you have greater negotiating leverage and can be more aggressive with price and terms.

Your agent should provide comparable sales data showing what similar homes have sold for recently. This information guides your offer price and helps you avoid overpaying or making insultingly low offers that won't be considered.

Structuring Your Offer

Beyond price, your offer includes numerous terms that matter to sellers. These include your proposed closing date, earnest money deposit amount, financing contingencies, inspection contingencies, and any requests for seller concessions toward closing costs.

Earnest money—typically 1% to 3% of the purchase price—demonstrates your commitment and goes into an escrow account. This money applies toward your purchase at closing but may be forfeited if you back out without a valid contingency.

Navigate Inspections and Appraisal

Once your offer is accepted, due diligence begins. This phase protects you from purchasing a property with hidden defects or paying more than market value.

Home Inspection

A professional home inspection examines the property's major systems—foundation, roof, electrical, plumbing, HVAC, and more. You'll select and pay for the inspector (typically $300 to $500), and the inspection usually takes two to four hours.

Attend the inspection if possible. Walking through with the inspector helps you understand the home's condition and ask questions. The written report documents findings, from minor maintenance items to significant issues that might warrant negotiation or walking away.

Specialized Inspections

Depending on the property and location, you may need additional inspections. These might include radon testing, mold inspection, termite/pest inspection, sewer line inspection, pool and spa inspection, or structural engineering review. Your agent can advise which specialized inspections make sense for your specific property.

Home Appraisal

Your lender orders an appraisal to verify the home's value supports the loan amount. If the appraisal comes in lower than your purchase price, you have several options: renegotiate the price with the seller, pay the difference in cash, challenge the appraisal with additional comparable sales, or walk away using your financing contingency.

Understand and Prepare for Closing Costs

Closing costs catch many buyers off guard. Beyond your down payment, you'll need additional funds to finalize the purchase—typically 2% to 5% of the home's purchase price.

Common Closing Cost Components

Understanding closing costs helps you budget accurately and avoid last-minute surprises. According to recent data, the national average for closing costs is approximately $4,661, though this varies significantly by location. Buyers in high-cost states like New York or Washington D.C. may pay significantly more.

Strategies to Reduce Closing Costs

Several strategies can lower your out-of-pocket closing costs. Negotiate with your lender on origination fees. Shop around for title insurance and other services you're allowed to select. Ask the seller for closing cost concessions as part of your offer. Some loan programs allow rolling certain closing costs into your mortgage balance.

Your lender must provide a Loan Estimate within three business days of your application and a Closing Disclosure at least three days before closing. Compare these documents carefully to identify any discrepancies or unexpected charges.

Complete Final Steps Before Closing

The weeks leading to closing involve numerous tasks and coordination among multiple parties. Staying organized and responsive keeps the process on track.

Secure Homeowners Insurance

Your lender requires proof of homeowners insurance before closing. Start shopping for policies as soon as you have an accepted offer. Compare coverage levels and deductibles across multiple insurers, and consider bundling with auto insurance for potential discounts.

If the property is in a flood zone, you'll also need flood insurance. Your lender can tell you whether flood insurance is required based on FEMA flood maps.

Complete the Final Walkthrough

Schedule your final walkthrough within 24 hours of closing. This isn't another inspection—it's verification that the property is in the agreed-upon condition. Confirm that any negotiated repairs were completed, all included appliances remain, and no new damage has occurred. Turn on lights, run water, test appliances, and check that the sellers have moved out completely.

Prepare for Closing Day

Bring a government-issued photo ID, your checkbook or cashier's check for closing funds (your lender or title company will provide the exact amount), and any documents your lender has requested. Review your Closing Disclosure carefully before the meeting, and don't hesitate to ask questions about anything you don't understand.

What Happens After Closing

Congratulations—you're now a homeowner! But your responsibilities don't end when you receive the keys.

Immediate Post-Closing Tasks

Change the locks immediately for security. Transfer utilities into your name if you haven't already. File your deed and other closing documents in a safe place. Update your address with the post office, banks, employers, and other important contacts.

Ongoing Homeownership Responsibilities

Create a home maintenance schedule to protect your investment. Budget for routine maintenance (typically 1% to 2% of your home's value annually), unexpected repairs, and potential improvements. Keep records of all work done on the property—this documentation becomes valuable when you eventually sell.