Few financial milestones define the “American Dream” like buying your first home. Although home ownership is culturally-valued in the United States, it’s important to remember that homeownership isn’t for everybody. Sometimes, renting is the better move. If you are hoping to buy a home, the following outline will help you navigate the (sometimes fraught) path to buying a place of your own.

Financial readiness

Buying a home requires good credit, steady employment, and ample cash reserves to cover any required down payment and closing costs. Lenders also want to see that closing on your home won’t leave your bank account empty.

You’re likely ready when:

  • You have stable employment and income for at least 2 years
  • Your credit is above average and free of recent delinquencies
  • You’ve saved enough for a down payment (typically 3-20% of purchase price)
  • Your debt-to-income ratio is below 43%
  • You plan to stay in your home for 5 years or more
  • You’re emotionally prepared for homeownership responsibilities

Evaluating the market

Market conditions can make it harder to find and afford a home. Higher mortgage rates can also inflate the cost of borrowing. The more money you need to pay in interest, the less house you’ll be able to afford.

  • Compare current home prices to historical trends in your target area
  • Monitor mortgage interest rates – even a 0.5% difference will significantly effect how much house you can afford
  • Research local market indicators: days-on-market, inventory levels, and price-to-list ratios
  • Consider seasonal timing – spring typically has more inventory but higher competition
  • Prepare to be patient if the market is frothy

Determining affordability

Spending more than you can afford on a home will leave you “house poor”, meaning you don’t have enough money left over after your mortgage payment to afford other needs, wants, and savings. Try our home affordability calculator.

Know your numbers:

  • Calculate total monthly housing costs including mortgage, taxes, insurance, HOA fees, and maintenance
  • Use the 28/36 rule. Your housing costs should be no more than 28% of your gross (pre-tax) income and your total debt should be no more than 36% of your gross income.
  • Obtain mortgage pre-approval to understand how much banks are willing to lend you.
  • Factor in closing costs (typically between 2-5% of purchase price), moving expenses, and any desired renovations
  • Don’t forget your emergency fund: homeownership brings unexpected expenses

Choosing a realtor

Realtors aren’t just for sellers; a good realtor can help you navigate the home-buying process. Plan to find a realtor before you begin attending open houses to help you manage potential pressure from sellers’ agents.

  • Interview multiple agents with experience in your target neighborhoods
  • Check credentials and specializations (like Accredited Buyer’s Representative)
  • Verify communication style matches your preferences; sometimes, a realtor’s vibe is the most important thing
  • Review their transaction history and client testimonials; don’t be afraid to ask to speak to past clients references
  • Confirm they have bandwidth for your search

Shopping strategies

Your realtor will help you manage much of the house shopping process. In the meantime, consider your priorities and where you are willing to compromise for the sake of affordability.

  • Create a needs vs. wants list with your non-negotiables
  • Research neighborhoods thoroughly (schools, safety, amenities, commute)
  • Use online tools to preview homes before in-person visits
  • Take photos and notes at showings to avoid confusion later
  • Visit properties multiple times at different days/times
  • Consider talking to neighbors

Making competitive offers

In some markets, homes sell fast. You may be competing with multiple buyers. Know your limits before getting into a bidding war.

  • Research recent comparable sales to determine a fair market value of your desired property
  • Include your bank’s pre-approval letter with your offer
  • Consider contingencies carefully – fewer can strengthen your offer but may subject you to risk
  • Pledge appropriate earnest money (an upfront deposit that’s typically between 1-3% of the purchase price)
  • Have a plan to discuss counter-offers with your realtor and quickly respond

Mortgage application process

Applying for a mortgage is more involved than applying for a credit card or auto loan. Except the process to take at least two weeks.

  • Use an independent mortgage broker or compare rates and terms from at least three lenders
  • Understand loan options and terms – conventional, FHA, VA; 30-year, 15-year; fixed-rate or adjustable-rate mortgages (ARMs)
  • Prepare required documentation that includes bank statements, paystubs, employment verification, and tax returns
  • Avoid applying for other credit or making large purchases for three months prior to closing
  • Ask your lender to lock your interest rate when favorable

Closing and moving In

The closing process is an exciting time, but it’s also where additional costs can surprise you.

  • Schedule a final walkthrough 24 hours before closing to ensure the property condition
  • Review the closing disclosures at least three days before settlement
  • Bring proper identification and certified funds (a bank check or wire transfer instructions) to closing. (Beware of closing scams asking you to change wire transfer instructions. Always verify wire details in-person or by phone.)
  • Transfer utilities and update your address
  • Create a home maintenance schedule after moving in

Keep in mind: Buying your first home is a major life event. Make sure you have adequate financial resources and a good team of advisors (realtor and lender or mortgage broker). Most importantly, don’t rush. Finding a good home takes time.