What first-time homebuyers should know

7 things first-time homebuyers should know

Your home is one of the biggest investments you’ll ever make, so it pays to be prepared. 

What you should know about homebuying.

Start saving early

Think about all the expenses that affect how much home you can afford—including the down payment, closing costs, and moving expenses—and determine how much you’ll need to save to cover them. 

Your score matters a lot

Your credit score, that is. Before you start shopping around for the best interest rate, you’ll want to make sure your credit history looks healthy. Lenders will offer better rates to borrowers with better credit scores.

Read more: Your credit score, explained

Explore first-time homebuyer options

Buying a home is expensive, and financial barriers like saving for a down payment make it harder for first-time buyers. But there are specialized loans for first-time buyers, and others—like an FHA, VA, or USDA loan—are created to help people become homeowners, especially if you don’t have a ton of cash on hand. 

You don’t have to go as big as you can.

Sure, you may qualify for a $500,000 loan—but do you need a house that big? Maybe, maybe not. Just be sure you can afford the monthly payment plus your other expenses—and still maintain a healthy emergency fund

Preapproval can help you see your buying power

Getting preapproved means lenders perform a basic financial check—like looking at your income and savings—to see if you can handle a mortgage. At the very least, you should get a preapprovalDisclosure 1 when shopping for a home to start lining up your financing. Getting preapproved will help you see how much homebuying power you have and make the process smoother when you’re ready to make an offer. Sellers will also take you more seriously.

Skipping the home inspection is risky

In hot real estate markets where all-cash offers aren’t uncommon, eager buyers may make riskier bets—like offering to forego the home inspection. But before you close, you should have a professional come out and look at the property—even if you’re buying a “fixer-upper.” You can use the inspection report to avoid major surprises and negotiate the home price if there’s anything that needs fixing. 

Be ready for the seller’s market—but don’t rush the process

As of 2021, residential real estate across the country has generally been in red-hot demand—which gives sellers the upper hand as more and more buyers compete with one another. You have to be ready to act fast in a seller’s market—especially when homes are being sold within 1–2 days of being listed—but costly mistakes can happen when you rush things. Watch the home market in your area for at least three months to get your head in the game before you start the buying process—and work with a trusted real estate agent who can guide you through every step. It may be stressful, but it’s also exciting! You can do this. 

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Having equity can unlock new possibilities.

As you pay down the principal of your home mortgage, you gain that back in home equity. This can be used to open a home equity line of credit (aka a HELOC) for other goals down the road—like renovations.

Flexible use

With a HELOC, you can consolidate debt, improve your home, or gain long-term access to flexible funds. The choice is yours. 

Pick your repayment optionDisclosure 2

Go with a fixed-interest rate, 1.5% of the outstanding balance, or make interest-only payments. 

Interest may be tax-deductibleDisclosure 3

When used for home improvements. Nice.