Unlock the door to your dream home with our exclusive guide crafted for first-time buyers. Explore 13 essential steps meticulously designed to empower you through every stage of the home-buying journey. From saving for that initial down payment to sealing the deal, let's transform your homeownership dreams into tangible reality! When you're ready to take out a mortgage, check out credit unions and find the best deal. 

Until then, let's look at some first-time homebuyer tips to get you started. 

1. Start saving early

The more you can save, the easier your home-buying process is. Certain loans require a down payment equivalent to 20% of the purchase price. For instance, if you're buying a home that's $300,000, you'll need $60,000 in the bank for your down payment. Some mortgage loan programs require less of a down payment, some as little as 3%. Even with a small down payment, buying a home means you need to save money. In addition to a down payment, you may need funds for the following:

• Closing costs

• Moving expenses

• Utility adjustments

• HOA Fees

• Home improvement projects

• Taxes

• Insurance

• Cash reserves*

*Cash reserves are money in a savings account after you close on the home. Specific loan applications may require you to have these reserves on hand. The bottom line is to start saving when the desire to buy your first home comes to mind.

2. Determine how much house you can afford

Your mortgage should ideally align with your financial circumstances, ensuring it remains manageable and sustainable. A general rule of thumb suggests that your mortgage payment should not exceed 28% of your pre-tax income. This guideline helps maintain financial stability, allowing room for other essential expenses and unexpected costs. By adhering to this principle, you can strike a balance between enjoying your new home and maintaining financial security for the long term.

3. Check your credit

Your credit score will determine what type of loan you qualify for, the rate, and other options. You may receive a lower interest rate and more cost-saving options with a high credit score. Credit scores can differ amongst the three major credit reporting agencies (Experian, Trans Union, and Equifax). Additionally, VantageScore and FICO (Fair Isaac Corporation) scores may differ from the three agencies. Generally speaking, a FICO score is the preferred score for most lenders.

Here are the ranges for FICO scores: 

• Poor: 300-579

• Fair: 580-669

• Good: 670-739

• Very Good: 740-799

• Excellent: 800-850

If you have a high credit score now, take steps to protect it. Follow these tips:

• Continue to pay bills on time.

• Don't apply for more credit.

• Avoid new loans for cars or other items.

• Keep credit card balances less than 30% of your credit limit.

• Protect yourself against identity theft.

If your credit score is low, there are ways to improve it. A few ideas are listed below:

• Pay bills on time.

• Pay off or pay down revolving credit balances.

• Check for inaccuracies in your credit history; they should be reported.

Buying a first home does not happen overnight; this is good news! It gives you time to save more. If your credit score is low, there's time to move that needle into the green.

4. Research mortgage options

Not all home loans are the same. Some are specially designed for new homeowners and offer special rates, low or no money down, and other considerations. Government-guaranteed loans such as FHA and VA offer favorable terms and conditions to home buyers and may be helpful to those with lower credit scores.

As a first-time homebuyer, you'll need a highly qualified mortgage loan expert to help you navigate several loan options. Therefore, finding the right financial institution is extremely important.

5. Get pre-approval for a mortgage

There is a difference between prequalification and pre-approval. Not knowing the difference could mean losing out on your dream home, especially in a hot housing market.

Pre-qualification for a loan

• Mortgage lender collects basic financial information. It can be done verbally, with no verification of information.

• It gives new buyers an idea of how much house they can afford.

• There is no pulling of the credit report.

• Prequalification can be done quickly.

Pre-qualification is only an estimate of a loan amount. There is no guarantee that you'll receive funding. A pre-qualification can be handy when you're in the early stages of home buying. It will give a realistic idea of the loan amount and calculate how much you need to save.

Pre-approval for a loan

• Pre-approval can be done before a home has been chosen.

• A lender will inform you if you've been approved for a specific loan amount.

• It takes more time to complete a pre-approval.

• Must verify income and submit personal financial documents.

• A hard pull on a credit report and a deeper dive into financial standing are required.

A pre-approval is a deep examination of your financial health history that gives lenders a good idea of whether you qualify. After pre-approval, you'll receive possible interest rates, loan amounts, and monthly payments. Real estate agents love it when clients are pre-approved. They know you're serious about buying a home and are financially able to do so.

6. Find a real estate agent

Home buying is a complicated process. A top realtor will help you navigate it and could save you money. Family and friends are good sources for recommendations. A good rule of thumb is to interview at least three realtors and be sure to ask for references. It's important to find one who will serve your interests best and who you feel comfortable working with.

7. Start the search for your home

As soon as you commit to buying a home, start looking online and in person for homes. Attend as many open houses as possible. Open houses can be in person or virtually. If you go to a virtual open house and like what you see, you must explore the area more.

• Drive through the neighborhood.

• Go at different times of the day.

• Use your senses when looking. Notice unusual smells, loud noises, etc.

• Check out the neighbor's house and those surrounding the home.

If you're out of state or can't visit the area directly, you'll need to do extensive online research to gauge the neighborhood and outlying area. 

8. Make an offer

You've finally found your dream home and are ready to make an offer. An offer letter will usually be in writing and include the following:

• Name

• Introduction

• Current address

• Price of offer

Your agent can help you create an offer letter or write it themselves. Some letters will include an earnest deposit, which may be 1 – 2% of the purchase price or whatever is common in your area. An earnest deposit may be lost if you cancel the offer. The agent will submit the letter, and the waiting game ensues. Sellers typically respond by accepting, rejecting, or countering. Negotiations will continue until both parties are happy or the agreement falls through. If the seller accepts, it is time to move on to the home inspection and appraisal. 

9. Home inspection

A home inspection is always a good idea. Most lenders do not require an inspection, but it could reveal some unsavory issues that you're unwilling to accept or want to have the homeowner address before selling. A few examples of what a home inspector may check for include:

• Electrical issues

• Roofing repairs

• Lead paint

• Foundation cracks

• Poorly installed windows

• Drainage issues

• Hidden mold

• Bug or pest infestations

Home inspections are crucial to protect the buyer from buying a home with expensive problems. Buying a home 'as-is' or without an inspection will leave the buyer to repair any issues.

10. Home appraisal

An appraisal is different than an inspection. A home appraisal is concerned with the value of the home. The inspection is about the condition of a home. Home appraisals will require a walkthrough of the house. The lender picks the licensed appraiser and will look at:

• Condition of the home

• Upgrades, remodels, or additions

• Size of lot

• Comparable homes in the area

After the appraisal, a final report is created and includes a fair market value.

11. Ask for repairs or credits if needed

Homebuyers can ask for repairs or credits after an appraisal comes back. Repairs are related to safety issues like plumbing, electrical, mold, or leaking roofs. The home buyer will review all appraisals and inspection reports with the real estate agent. If you're in a sellers' market, it may be best to overlook minor issues like chipped paint or inexpensive repairs.

12. Final walkthrough

After the appraisal and inspection are completed and everything looks good, you'll go through a final walkthrough. A final walkthrough involves ensuring every last detail has been taken care of. A few things to look for include:

• The requested repairs are completed.

• Appliances are in working order.

• Any furniture left is in good condition.

13. Close on your first home

Closing on a home is the final step before the house is 100% legally yours. At the closing, you'll be signing a lot more documents. Bring your ID and a check for closing costs. After signing the documents, the title company will register a new deed in your name(s). Now it's time to celebrate. Today is the day you are a proud, legal owner of your dream home. Congratulations are in order! 

Welcome home

Buying a home is not easy and can be one of the most challenging purchases you'll experience. After moving in and getting settled, don't be caught off guard by the cost of homeownership. Start a home savings account for those unexpected (and expected) home expenses.

And remember to keep your finances looking as good as your home. As a not-for-profit, cooperatively-run organization, credit unions can help with all your financial needs. Find one in your area and see why new homeowners make credit unions their trusted financial partners.

Did you know?

Credit unions can offer valuable resources and support for first-time homebuyers. They often provide educational resources and counseling to help first-time homebuyers navigate the process. They may also offer special programs for first-time homebuyers, such as lower down payments, closing costs, or reduced interest rates. By working with a credit union, first-time homebuyers can access the guidance and resources they need to make informed decisions and achieve their homeownership goals.