15 Tips for First-Time Home Buyers: 2022 Expert Advice

Written by Jeremiah ClayUpdated: 24th Jan 2022
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Nothing may feel as fulfilling as buying your first home. As a first-time home buyer, you might feel a mix of both excitement and fear as you begin your home buying journey. But if you are ever nervous, just know that around 31% of other home buyers are in the same boat as you.

Learning how to buy a housecan be a bit intimidating, just like learning how to ride a bike. You might be in fear of taking a spill or hitting some obstacle in your path, but by taking it slow, developing a plan, and using some training wheels, you’ll be riding (or owning) in no time.

Preparing for whatever the home buying process throws at will help you close on your new home faster with fewer hiccups. Let’s look at a few key tips and tricks that every first-time home buyer should know.

First-Time Home Buyer Tips and Tricks

#1. Save Money for a Down Payment

Buying a new home doesn’t come cheap. If you are using a mortgage to buy your new home, traditional lenders will require you to put some of your own money down. The amount can be anywhere from 5% to 20% of the purchase price (or less with some mortgage programs).

It’s important to make sure you have enough saved up for your down payment before you begin your property search. An easy way to start saving is by setting up automatic transfers from your paycheck that go directly into a separate saving account earmarked exclusively for your down payment.

#2. Set a Realistic Budget

Setting a realistic budget is an important part of the home buying process. For example, you shouldn’t expect to live in a million-dollar mansion living off of minimum wage salary.

A great way to determine the right budget for your home purchase is by using a free affordability calculator. This tool will give you a breakdown of how much your estimated monthly mortgage paymentwould be in relation to homes at various price points.

Compare this monthly payment to your overall gross monthly income and other monthly obligations. Adding the new proposed housing payment to your current monthly payments and dividing by your gross income, a ratio of around 43% or less means you can comfortably afford that new home.

#3. Review Your Credit Score

Roughly 87% of all home buyers end up having to use some sort of financing when purchasing a new home.1 This means it’s important to understand where your credit score is at so that you know the likelihood you can qualify for a new mortgage before you put an offer in on a home.

Most lenders look at your FICO credit score as part of the process of making a mortgage approval decision. One way to quickly gauge where your credit is at is by requesting your free annual credit report from one (or all) of the three main credit repositories: Equifax, Experian, and TransUnion.

Make sure to review your credit report for any discrepancies. If you do find an error, make sure to address that with your lender or submit a dispute to the credit bureau so that it doesn’t adversely impact your credit score.

>> More: How Does a Mortgage Affect Your Credit Score?

#4. Understand Mortgage Loan Options

One of the best ways to optimize your first home purchase is to know your mortgage loan options upfront and ahead of time. This will save you time and cut down on the needless back and forth with your lender.

There are many mortgage loan options. Make sure to choose a financing solution that best fits your financial plan and scenario. Here are a few popular mortgage loan options:

  • Conforming Loans: Conforming mortgages are loans that are not guaranteed by a specific government agency, but rather are offered through private lenders and financial institutions and meet the credit guidelines set forth by government-sponsored entities Fannie Maeand Freddie Mac.
  • Federal Housing Administration (FHA): FHA mortgages are those insured by the Federal Housing Administration (FHA) under the U.S. Department of Housing and Urban Development (HUD). These programs were designed to benefit borrowers who need lower down payment requirements, have lower credit scores, or that have had issues managing credit in the past.
  • U.S. Department of Agriculture (USDA): Rural Housing Service (RHS) operates under the oversight of the U.S. Department of Agriculture (USDA), providing USDA mortgage financing solutions to borrowers that meet certain income eligibility requirements and that live in designated rural areas. There are no down payment options available for eligible borrowers.
  • U.S. Department of Veterans Affairs (VA): The U.S. Department of Veterans Affairs offers special non-conforming VA mortgage programs to eligible active-duty service members, veterans, and surviving spouses. Like other agency programs, the VA guarantees these loans in the event of borrower default. Some options do not require a down payment from the borrower.

Fixed-Rate vs. Adjustable Rate

In addition to choosing the best mortgage loan options to finance your new home purchase, you will want to choose whether you want a loan with a fixed rate or an adjustable rate.

Fixed-rate mortgages are exactly what the name implies; the rate is fixed and does not change over the life of the loan. One advantage of having a fixed-rate loan is that you have a predictable payment and schedule. If market conditions change, you know your payment will remain the same.

On the other hand, adjustable-rate mortgages(ARM) are loans where the interest is variable, meaning it can change over the life of your loan. Your interest rate is tied to a benchmark index, such as the Secured Overnight Financing Rate (SOFR) and usually includes a margin which is an amount over your base rate, usually expressed as a percent.

Some borrowers like adjustable-rate mortgages because they often offer lower introductory rates that are fixed for a specific period.

After the initial fixed-rate period has elapsed, your interest rate can then adjust at predetermined intervals. It’s important to note that there is often a ceiling for how high your rate is permitted to adjust over your loan term.

>> More: Differences Between Fixed-Rate and Adjustable-Rate Mortgages

#5. Check for First-Time Home Buyer Programs

While buying a new home can be exciting, there are several headwinds first-time home buyers face when trying to buy a house. For instance, 11% of buyers found saving for a down payment to be the most difficult hurdle to overcome when buying a new home.

Fortunately, many local and state organizations offer first-time home buyer assistance programs geared to help make homeownership a reality. Be sure to do your own research, as well as talk with your realtor, about different programs in your area.

Programs can be structured in a variety of ways including forgivable grants or event no-interest second mortgages. Make sure to discuss assistance opportunities with your lender to make sure it will work with the mortgage loan option you have chosen.

#6. Compare Mortgage Lenders and Rates

When you are buying a new home, it’s always a good idea to shop around and compare different mortgage options lenders are offering. You want to make sure that the mortgage you choose gives you the most bang for your buck.

A straightforward way to compare pricing across lenders is to focus on the quoted annual percentage rate (APR). Unlike the interest rate, the APR also measures the cost to borrow money for that loan including any fees or points.

>> More: See the Best Mortgage Lenders

#7. Get Pre-Approved for a Mortgage

Before you start actively looking at properties, it’s a smart idea to get your financing in line ahead of time. In fact, many sellers won’t even entertain an offer that isn’t accompanied by evidence that supports your ability to obtain financing.

Most sellers want to see that you are pre-approved for a mortgage, meaning you have taken the steps to fill out a mortgage application and a lender has done a preliminary analysis of your finances and credit.

Getting pre-approved for a mortgage demonstrates to sellers that you are a motivated buyer and that the deal has a strong likelihood of not falling through due to financing related issues.

#8. Research Neighborhoods and Houses Thoroughly

Determining where you want to live before you start looking at homes will help narrow the scope and focus of your property search. It’s always important to research neighborhoods so you know what type of homes and price points to expect.

Engaging a real estate agent is always a smart idea when doing your preliminary research. Realtors have intimate knowledge of local real estate markets and can help you pinpoint the exact neighborhoods with homes that align with your needs.

#9. Visit Multiple Open Houses

Open houses offer a wonderful opportunity to see properties up close and in person. They also allow you to explore different homes to get a sense of exactly what you need in a new home. Not only that but you get better acclimated to the surrounding neighborhood and amenities.

Additionally, open houses allow you to touch base with the listing agent. If you are still looking for a real estate agent, open houses can be a great way to interview potential candidates while also conducting your property search, killing two birds with one stone.

#10. Partner With a Reputable Real Estate Agent

When you are buying your first home, don’t just use your distant cousin or another random shmuck off the streets as your real estate agent. Instead, it’s important to research reputable realtors and find an agent that aligns with your personality and interests.

You want to partner with an agent that can walk you through the entire purchase process since it’s your first time buying. Narrow potential candidates by conducting interviews with a few top producers in your area. Then whittle the list down the list from there by reviewing past client reviews and accolades.

#11. Finalize Your Dream Home and Submit Your Offer

Once you have narrowed down your property search to a few candidates, it’s time to finalize your decision on which home you want to buy. After you have decided on your dream home, it’s time to submit your offer for purchase.

Your expert real estate agent can collaborate with you to draft a fair but competitive offer that a buyer will have no choice but to accept. Make sure to include any contingencies that are pertinent to you buying the property.

For example, you can make the purchase subject to being approved for financing or passing a home inspection. It may also be tactful to include earnest money to wet your seller’s beak.

#12. Begin to Negotiate

Negotiating is an important part of the home buying process. Most of the time your realtor will function as an intermediary between you and the sellers or their respective agent.

In many circumstances, the first offer you submit to the seller may be rejected or even countered. Make sure to respond quickly and tactfully. If the issue is price, consider upping your offer, throwing in additional earnest money, or eliminate certain contingencies.

Another successful strategy is to offset your offer by increasing your purchase price in exchange for the seller sweetening the deal with either a seller’s credit toward closing costs or paying for a home warranty.

#13. Hire a Home Inspector

After your offer has been accepted by the seller, the process still isn’t complete just yet. If there are contingencies in your offer, those need to be addressed and cleared. It’s always strategic to condition for a home inspection before you commit to buying a property.

Hiring a home inspector will give you a detailed list of items that may be wrong with the property that may not be known to you including structural damage or issues with major mechanical systems. You can leverage the feedback from the inspection to negotiate better terms with the seller or, in some cases, you can walk away from the deal.

#14. Get Home Insurance

Just like you would shop around for a new home mortgage, it’s equally important to shop around for homeowner’s insurance to make sure you are getting the best deal.

If you are financing your purchase, your lender will require you to maintain homeowner’s insurance coverage on the home to protect them (and you) in the event of a casualty loss event. Your lender will also need to factor your premiums into your repayment calculation.

#15. Make On-Time Mortgage Payments

Closing the deal on your new home doesn’t mean your work is over. While you got through the home buying process in one piece, there are still a few tasks you’ll need to perform on an ongoing basis to keep your new investment appreciating in value.

First, it’s important that you monitor your finances, making sure to pay your mortgage on-time. Falling behind on your mortgage payments could be negatively impactful.

Additionally, you will want to maintain your home. Stay abreast of general upkeep and repairs so that you can continue to enjoy it for years to come.

Bottom Line: Tips for First-Time Home Buyers

While it may seem trepidatious being a first-time home buyer, it’s important to keep the perspective that thousands of home buyers are going through the same process as you.

Buying your first home may be a bit nerve-racking, but if you follow these key tips and tricks, you will be on the track to being a new and successful homeowner.

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Jeremiah Clay
Jeremiah Clay

Jeremiah Clay is a leading mortgage expert who has spent his career helping make homeownership a reality for new and existing homebuyers. Father of two, he works as a NAMU Certified Mortgage Underwriter and Team Lead, having over ten years of experience in the financial services industry. Jeremiah received his MBA in 2017 from Loyola University Chicago and has been creating real estate and mortgage-related content for nearly half a decade. His areas of focus include mortgages, real estate investing, first-time homebuyers, and underlying underwriting principles.