First-Time Home Buyer Tips For 2024

Buying your first house can be many things at once — exciting, confusing even frightening. But it doesn’t need to be. Preparation is key. It starts with educating yourself on the entire process and making a thorough assessment of your finances before you ever step inside that enticing Craftsman bungalow you’ve had your eye on.

By understanding the whole home buying process works — and the crucial decisions and actions you must take — you’ll feel more prepared to handle every step.

At A Glance: Tips For First-Time Home Buyers

You can find our first-time home buyer tips under the four categories below.

Helpful Tips For Buying A House For The First Time

Buying a house for the first time can seem like a daunting journey when you first start out. We’ve broken it down into four smaller stages to simplify. Each stage in turn has just a few small steps requiring you to make an assessment, take action or both.

Getting Your Personal Finances Ready

Before you ever begin house hunting or even contacting a lender, you can save a lot of time and avoid frustrations down the road by knowing and growing your financial position first.

1. Start Saving For A Down Payment And Closing Costs

Making regular contributions to a savings account should be a core principal of your financial discipline in general. You need a financial safety net in case of a job loss, unexpected medical bill or car trouble. And when you’re planning to buy a house, aggressive dedication to a savings plan is essential.

You may have heard that you need to make a 20% down payment to buy a house, but that’s not true. A 20% down payment will get you a better rate and terms on your mortgage, but the fact is a conventional loan down payment could be as little as 3%. FHA loans require as little as 3.5%, and VA loans and USDA loans have no down payment requirement at all.

But even if you only need 3%, if the house you want to buy costs $200,000, that requires you bring $6,000 to the closing. So start saving now.

And speaking of closing, there are a number of closing costs you will also need to pay on the day you get the keys to your new house. Closing costs will vary by lender, title company and individual transaction, but typically amount to roughly 3% − 6% of your loan amount or purchase price.

2. Strengthen Your Credit Score

Obtain and continue to monitor your credit report and your credit score so you’ll have a good idea of how a lender will assess your creditworthiness as a borrower. Most lenders require a credit score of 620 to qualify for a conventional loan and 580 for a FHA loan.

Even if your score is strong enough, it helps to build it even higher because that can qualify you for better interest rates and terms on a mortgage. There are many ways to build good credit and since some of them require some time, it’s best to start now:

• Avoid missed payments. Make your monthly payments on existing loans in full and on time.
• Pay your bills. Most utilities do not report to the credit bureaus, but many have programs where you can report your good payment history over time.
• Diversify your types of credit. It’s good to have multiple loans that report good payment history. Consider credit cards, personal loans, car loans, etc.
• Keep your credit utilization below 30%. If your credit card limit is $10,000, keep your balance below $3,000 at all times.
• Consider a secured credit card. Designed to help people with very low credit qualify for a credit card and begin building credit.

3. Review Your Debt-To-Income Ratio

Your debt-to-income ratio (DTI) is expressed as a percentage of all your monthly debt payments as compared to your gross monthly income.

To calculate your DTI, you add up all your monthly debt payments and divide them by the amount of money you earn in a month before taxes and other deductions are taken out. For example, if you pay $1,000 a month for your rent, another $200 for your car payment, $200 for your student loan and another $600 for the rest of your monthly debts (like credit cards), your monthly debt payments add up to $2,000. If your gross monthly income is $8,000, your debt-to-income ratio is 25%, since $2,000 is 25% of $8,000.

Most lenders want to see your DTI below 50% to qualify for a conventional mortgage, though many expect it to be 36% or lower. For people with a DTI in the range of 50% – 57%, mortgage financing might still be possible – depending on the situation – but typically with stricter terms for the borrower through a government-backed Federal Housing Administration (FHA) loan.

4. Figure Out How Much House You Can Afford

Just because a lender qualifies you for a big mortgage doesn’t mean you need to look for homes at the top of your budget. It’s better to assess your financial situation, with an eye to the future, to see how much you can comfortably put toward your monthly mortgage payments. After all, your lender won’t know that you’re planning to go back to school, for example, or start a family. And you don’t want so much of your monthly income going to service your mortgage that you don’t have much left over to enjoy other things in life.

You’ll also need to factor in fees like closing costs, property taxes, homeowners insurance, homeowners association (HOA) fees, if applicable, and regular home maintenance costs. Your real estate agent will be an excellent resource in helping you estimate these expenses. And you have access to many other home buying resources designed to help you figure out how much house you can afford.

Shopping For Your First Mortgage Loan

The rare person has enough cash to purchase their home outright. Everyone else has to take out a mortgage. At any given time in your life, your mortgage will likely be your most important financial commitment. Let’s investigate how mortgages work, the different kinds of mortgages available, and the steps you’ll need to take to get preapproval on a mortgage.

1. Get Familiar With Home Loans

In some ways, every home loan is similar: a bank or other financial institution lends you money to buy a house and then sets up a plan for you to pay them back, with interest, over a period of many months/years. But really every mortgage is different within its details. Here are some key concepts to know about and how each affects your bottom line:

• Down payment: How much cash you bring to closing affects the amount of money you’ll need to borrow, the interest rate and other terms of the loan.
• Mortgage interest rate: Your interest rate affects the ultimate price you pay the bank for the privilege of borrowing their money. Obviously, the lower the rate the better, and factors such as how much money you put down and the risk you pose as a creditor can raise or lower the interest rate.
• Monthly mortgage payment: After the total amount of money you need to pay back the bank, with interest, is determined, that sum is divided into equal portions by the number of months of the loan term. Also, separately included into this payment will be 1/12^th of your annual property tax (see escrow below) and homeowners insurance, along with homeowners association (HOA) dues (if needed) and private mortgage insurance (PMI, if needed, see below). With each monthly payment, you pay down your debt until, at the end of the term, typically 30 years, you own the house outright.
• Escrow: Instead of paying all of your annual property tax and homeowners insurance at once, you can choose to divide their combined sums equally over 12 months to a third-party handler. These funds remain “in escrow” with that party until the tax and insurance bills come due. Then, they are automatically paid out from the escrow. The chief reason for escrow is to spread out those large payments, which helps budgeting.
• Private mortgage insurance (PMI):  PMI is a type of insurance that may be required for conventional loan borrowers when they buy a home and make a down payment of less than 20% of the home’s purchase price. PMI is typically paid as a part of your mortgage payment. It protects your lender if you stop making payments on your loan. Even if your loan is set up with PMI, there are ways to eliminate PMI.

2. Look Into Programs For First-Time Home Buyers

Many people talk themselves out of buying a house simply based on down payment requirement alone. They don’t have enough savings and think that buying a house is out of reach. Not so. There are several loan programs and grants that can assist with your down payment and closing costs, including charitable and government-sponsored programs. Local and federal tax credits can lessen these costs, and educational programs can offer help at every step. One or several of these first time home buyer programs might make homeownership achievable for you. Just remember that not all lenders accept all programs. It’s best to speak to a loan expert to see what options are available to you.

3. Compare Mortgages, Lenders And Options

There are several different types of home loans and each has variations depending on factors unique to you, including your credit score, down payment and the amount you wish to borrow. Here are the principal loan categories:

• Conventional mortgages: A conventional home loan is one of the more popular types of home loans. It’s a mortgage agreement between you and a private financial institution that isn’t formally backed by a government agency.
• Fixed-rate mortgages: A fixed-rate mortgage is the home loan option with an interest rate that stays the same the entire time you’re paying it unless you refinance or alter your loan in another way.
• Adjustable-rate mortgages: An adjustable-rate mortgage (ARM) is a home loan that has a set interest rate during the introductory period of your loan, then adjusts according to current rates.
• FHA loans: An FHA loan is a Federal Housing Administration-backed mortgage that has  lower down-payment and credit requirements. This is the perfect mortgage for low- to moderate-income families looking to purchase a home.
• USDA loans: If you’re purchasing a home in a rural or suburban part of the country, you may qualify for a USDA loan. This type of mortgage is backed by The U.S. Department of Agriculture and offers financing options for families with low or moderate incomes. Some lenders, including Rocket Mortgage® do not offer USDA loans.
• VA loans: A VA loan is a mortgage backed by the Department of Veterans Affairs. These loans are made specifically for veterans with relaxed terms such as a minimum 580 credit score limit and zero down payment.
• Jumbo loans: A jumbo loan is a bit different from a conventional loan because it is a mortgage for an amount larger than the limits set by Fannie Mae and Freddie Mac. If you are looking to purchase a home that exceeds the conventional loan limit, this type of loan might be for you. Jumbo loans typically have higher interest rates and stricter requirements.

4. Get A Verified Approval Letter

A Verified Approval Letter¹ (VAL) from our friends at Rocket Mortgage is a document showing that your income, assets and credit have been verified by the lender’s underwriting team. It differs from a mortgage preapproval in that it requires a more thorough documentation of your income, assets and credit report. With a VAL in hand, you’ll have a competitive advantage over other potential buyers of a house by being able to show the seller that your finances are secure.

Hunting For A House

Armed with the knowledge of how mortgages work, a thorough assessment of your financial situation and a verified approval letter from your lender, you are now ready for the fun part—house hunting. But remember, even though you are now actively looking, you’re continuing to gather information and learn as you go.

1. Understand Your Housing Market

Browse houses for sale online to get a feel for your local housing market. House hunting websites can give you a close look at how much the average home sells for in your area and provide a more realistic idea of what type of home you can afford.

It’s also important to see if there is a strong seller’s market or buyer’s market. In a seller’s market, houses are in high demand in that area and sell quickly. Houses sell for full asking price and, in some cases, for more than the asking price after multiple bids. If you’re buying in a seller’s market, you will have to be quick to make a strong offer on a house you like.

In a buyer’s market, demand for houses in an area is soft. Houses can stay on the market for weeks or even months, with the price on individual houses being dropped in some cases. In a buyer’s market, you should be able to get good value on your home purchase, and you may be able to entice a desperate seller into a deal with an offer well below the asking price.

2. Research Real Estate Agents

A reliable real estate agent or REALTOR^® in your local market can make home shopping easier and less stressful. They can help narrow your search, give you a better idea of how to get the most out of your budget and show you more homes than you’ll be able to view on your own.

To find a good real estate agent, it helps to get a strong recommendation from someone who has worked with one in your area. Ask friends and family members for a name or two. Also, if you notice the same agent’s name on multiple yard signs in the area you’re targeting, that’s a good indication they know the local market, which can be invaluable.

Ask for references from previous home buyers and interview a few candidates before committing. Since you’ll be spending a lot of time together, choose an agent whose personality meshes well with yours, and make your expectations and needs clear upfront.

3. Figure Out Where You Want To Live

Researching homes online also allows you to scope out potential neighborhoods for schools, shopping, crime rates and anything else you might want to consider. The home you buy is likely not on an island. Where you buy a house is just as important as which home you buy. Your real estate agent can help you explore neighborhoods as well as properties.

Drive around areas you think you might like and compare local amenities and features to your budget. As you tour more homes and check out each neighborhood, you’ll get a better idea of the right home and community for you.

4. Determine Your Must-Haves

Consider how long you plan to live in the house and then collect input from all family members on what they consider must-haves. This can save time and prevent arguments. Take present and future children into consideration. Here are some common features that frequently pop up on must-have lists:

• Updated kitchen. Some people do not want to go through the expense and disruption necessary to renovate a kitchen once you’re living in the house.
• Two-car garage. Not only does it provide a safer, drier entry to the house, it also means you won’t have to bother with street parking.
• Primary bedroom suite. Ensures you won’t have to share a bathroom with multiple family members.
• A big yard. Provides privacy, green space and outdoor entertaining space.
• Swimming pool. Or, at least ample yard space to install one yourself.

5. Consider In-Person And Virtual Walk-Throughs

It’s always good to visit open houses in the area you’re targeting. Like anything else, you learn to look at houses by looking at houses. Ask a lot of questions and make notes. Since the listing agent is often present, you can learn a lot from them that will help your own house search. In fact, many people find their realtor this way if they don’t already have one.

Whether it’s an open house or a private showing, when viewing a home, don’t be afraid to be a little nosy. Test outlets, showers, toilets and kitchen appliances to make sure they work. Make written notes of repairs or replacements you might want to ask the seller to complete if you decide to buy the home.

Most houses will also have a detailed online listing, with a complete description and dozens of photos. Many will also have a virtual tour on video that provides even more detail. These listings can help you screen through a lot of homes in just a short time. Some houses offer great curb appeal but are disappointing when you see the inside. You can eliminate some houses and save yourself an afternoon spent on a private showing.

Buying Your New Home

Congratulations. You’ve found the house you want to buy and it’s within your price range. This should be a time of excitement — and caution — because there are still plenty of hurdles to clear, as we’ll see. In the quest to buy your first house, don’t be surprised if you still hit hurdles. Here are the key next steps.

1. Negotiate Your Best Deal

After you find a home you want to buy, your agent will work with you to make an offer. This means helping you navigate the current market and submitting an offer that will look the most attractive. As part of your offer, you’ll want to note any contingencies or seller concessions that you or your real estate agent deem necessary. These will likely include the seller agreeing to pay some closing costs. Similarly, your offer may say how much you’ll put down as earnest money (to show how serious you are about the purchase).

You may end up making one or more counteroffers, but once the seller agrees to accept an offer, you’ve cleared a major hurdle in the home buying process.

2. Arrange A Home Inspection And Appraisal

The seller has accepted your offer. You’re getting closer to owning your first house, but you’re still not there. The next big steps are the home inspection and the appraisal, two similar examinations which serve slightly different purposes.

It’s crucial that your offer is contingent on the house passing a home inspection. This is something you pay for and it’s for your protection. This process involves a licensed home inspector looking at the home’s structure and mechanicals to check for potential issues. This can and should be a thorough inspection that usually takes 2 hours or more.

If the inspector finds issues, you can negotiate with the seller to have the issues fixed or get a seller credit so you can do repairs once the home is yours. The home inspection – which you should attend in person – is also the time when you can possibly walk away from the purchase if the damage or necessary repairs are extensive, and you should be able to get your earnest money back.

During this time period there will also be a home appraisal. A home appraisal is a process through which a licensed appraiser determines the fair market value of the property. Home appraisals are typically required by lenders when you take out a mortgage, whether to purchase or refinance a house. The appraisal can assure you and your lender that the price you’ve agreed to pay for a home is fair.

The appraisal is not as extensive as the home inspection. A home appraiser will take into account visible defects, such as a caved-in roof or an improperly functioning plumbing system, but an appraiser doesn’t search for specific problems. Instead, the appraiser mainly looks for an overall value to assign to the property.

Keep in mind that if the house appraises for less than what you are offering for the house, your lender may deny financing or insist that you add sufficient funds to your down payment to pay the difference. In this case, you could lower your offer or walk away from the deal if the seller is unwilling to budge.

3. Buy A Homeowners Insurance Policy

Homeowners insurance is a specific type of property insurance. Homeowners’ insurance covers damage or loss by theft and against losses from things like fire and storm damage. In some cases, homeowners insurance will also provide personality liability coverage against lawsuits for injuries sustained on your property.

Mortgage lenders usually require homeowners insurance as part of the mortgage terms, but usually only stipulate that your policy has enough coverage for the full replacement value of your home.

According to data compiled by Quadrant Information Services, the average annual cost of homeowners insurance In the U.S. in 2024 is $2,511 per year. However, due to different risk factors the rate could be higher or lower in your state or town.  

4. Know What To Do On Closing Day

Besides you and your real estate agent, a lot of people play a part in the closing of your home sale, including the seller and their agent, the title company, your lender and possibly others. Before the final “settlement” meeting, some realtors will advise a final walk-through of the property for assurance that it’s in the same condition as you last saw it on inspection. Prepare to sign a lot of documents in a meeting that should take around an hour.

At the closing meeting the property is formally transferred to you, the buyer. It consists of you paying closing costs, signing your mortgage and updating the deed of the house to your name. Things you’ll be expected to bring to closing will likely include:

• Your official ID, such as a driver’s license or passport
• Marriage certificate if you’re purchasing the property with a spouse
• A certified check for the down payment and closing costs
• Proof of homeowners insurance

At the end of the closing meeting, you’ll get the keys, so congratulations—you’re a homeowner!

FAQs: Advice For First-Time Home Buyers

What loan assistance programs can help first-time home buyers?

There are numerous first-time home buyer programs available to qualifying borrowers at local, state and federal levels. These programs can include government-backed loans, grants, loan forgiveness solutions, down payment/closing-cost assistance programs, and more. Your realtor should know all programs that might be relevant in your area and be able to help you apply.

These programs are well-funded and designed to help first-time home buyers, so even if you think you won’t qualify, it can’t hurt to apply. It could make a difference in whether you can get a mortgage or not. Just make sure you check with your lender as not all programs may be accepted.

How much do I need for a down payment on a house?

Many people believe that you need to make a 20% down payment to get a mortgage — and while there are definite advantages if you can do that — it is not required you put down that much. The fact is there are lower down payment requirements available to make home ownership possible sooner. However, it’s likely that you’ll have to pay mortgage insurance for down payments below 20%.

The down payment requirement for an FHA loan, for instance, is just 3.5%. In some cases, you might even be able to purchase a home with zero down.

Is paying cash for a house a good idea?

If you have the cash reserves to buy your house outright, there are advantages to doing so. First, you’ll save potentially tens or hundreds of thousands of dollars in interest you would pay over the course of many years if you took out a mortgage.

An all-cash bid on a house with multiple other bidders will also be very attractive for sellers because they don’t have to worry about your financing or an appraisal. The biggest downside is that it ties up a great deal of your assets in a single investment.

How much do most first-time home buyers put down?

According to the National Association of REALTORS® (NAR), the typical first-time home buyer down payment in 2023 was 8%.

The Bottom Line: Preparation Is Key For First-Time Home Buyers

If you’re doing it right, at least half the work you’ll put into buying your first home will be done before you ever visit your first open house. You can prepare by first assessing and improving your financial footing, educating yourself on the different loan programs available, shopping multiple lenders and finally securing a verified approval letter from one or more of them. All of this will help ensure you get a great house that you can afford.

It will all start with saving for a down payment. So download the Rocket Money℠ app today to start monitoring your credit score, your expenses and your income.

¹Participation in theVerifiedApprovalprogram is based on an underwriter’s comprehensive analysis of your credit, income, employment status, assets and debt. If new information materially changes the underwriting decision resulting in a denial of your credit request, if the loan fails to close for a reason outside of Rocket Mortgage’s control, including, but not limited to satisfactory insurance, appraisal and title report/search, or if you no longer want to proceed with the loan, your participation in the program will be discontinued. If your eligibility in the program does not change and your mortgage loan does not close due to a Rocket Mortgage error, you will receive the $1,000. This offer does not apply to new purchase loans submitted to Rocket Mortgage through a mortgage broker. Rocket Mortgage reserves the right to cancel this offer at any time. Acceptance of this offer constitutes the acceptance of these terms and conditions, which are subject to change at the sole discretion of Rocket Mortgage. Additional conditions or exclusions may apply.