Buying your first home is the largest financial decision most people make. This guide walks through every step so you know exactly what to expect and how to prepare.
Step 1: Check Your Financial Readiness
Before looking at homes, make sure your finances are in order:
Credit Score Requirements
| Loan Type | Minimum Score | Best Rate Score | Down Payment |
|---|---|---|---|
| Conventional | 620 | 740+ | 3-20% |
| FHA | 580 (3.5% down) | 700+ | 3.5% |
| VA | No minimum (620+ typical) | 700+ | 0% |
| USDA | 640 | 700+ | 0% |
Check your score for free and review our how to improve your credit score guide if needed.
Debt-to-Income Ratio
Lenders want your total DTI under 43% (some allow up to 50%):
| Monthly Debts | Monthly Income | DTI | Can You Qualify? |
|---|---|---|---|
| $500 | $5,000 | 10% | Yes, easily |
| $1,200 | $5,000 | 24% | Yes, good position |
| $1,800 | $5,000 | 36% | Yes, but tight |
| $2,300 | $5,000 | 46% | Unlikely (conventional) |
Calculate yours: debt-to-income ratio guide.
Step 2: Determine How Much Home You Can Afford
Use the 28/36 rule as a starting point:
- 28% of gross monthly income for housing costs (PITI: principal, interest, taxes, insurance)
- 36% of gross income for all debts combined
| Gross Income | Max Monthly PITI (28%) | Approximate Home Price |
|---|---|---|
| $50,000 | $1,167 | $200,000–$240,000 |
| $75,000 | $1,750 | $310,000–$370,000 |
| $100,000 | $2,333 | $420,000–$500,000 |
| $125,000 | $2,917 | $520,000–$625,000 |
| $150,000 | $3,500 | $630,000–$750,000 |
For a personalized calculation, use our mortgage affordability calculator.
Step 3: Save for Down Payment and Closing Costs
Total Cash Needed
| Item | Amount (on $350,000 home) |
|---|---|
| Down payment (5%) | $17,500 |
| Closing costs (3%) | $10,500 |
| Home inspection | $300–$500 |
| Appraisal fee | $300–$600 |
| Moving costs | $1,500–$5,000 |
| Emergency reserves (2+ months) | $5,000–$10,000 |
| Total needed | $35,000–$44,000 |
Down Payment Options
| Down Payment | Amount ($350K home) | PMI? | Monthly PMI Cost |
|---|---|---|---|
| 3% | $10,500 | Yes | $140–$200 |
| 5% | $17,500 | Yes | $115–$170 |
| 10% | $35,000 | Yes | $75–$120 |
| 20% | $70,000 | No | $0 |
See average down payment data and our down payment calculator for more detail.
Step 4: Get Pre-Approved for a Mortgage
Pre-approval shows sellers you’re a serious buyer with verified financing. You’ll need:
| Document | Why It’s Needed |
|---|---|
| W-2s/tax returns (2 years) | Verify income |
| Pay stubs (30 days) | Confirm current employment |
| Bank statements (2 months) | Verify savings and down payment |
| ID | Identity verification |
| Debt information | Calculate DTI |
Pre-approval is different from pre-qualification:
- Pre-qualification: Quick estimate, no verification — sellers don’t take it seriously
- Pre-approval: Full application, credit check, income verified — strong offer signal
Full details: mortgage preapproval guide.
Step 5: Choose the Right Mortgage
| Mortgage Type | Best For | Key Feature |
|---|---|---|
| 30-year fixed | Stability, lower payment | Same rate for 30 years |
| 15-year fixed | Faster payoff, less interest | Higher payment, lower rate |
| 5/1 ARM | Short-term (moving in 5-7 years) | Lower initial rate |
| FHA | Lower credit/down payment | 3.5% down, easier qualification |
| VA | Military/veterans | 0% down, no PMI |
| USDA | Rural areas | 0% down |
Compare scenarios with our mortgage payment calculator.
Step 6: Find and Make an Offer on a Home
What to Look For
| Factor | Why It Matters |
|---|---|
| Location/commute | Daily quality of life, resale value |
| School district | Value even without kids — affects resale |
| Condition | Cosmetic fixes are cheap; structural issues are expensive |
| HOA fees | Can add $200-$500+/month |
| Property taxes | Vary dramatically by county (property tax by state) |
| Future development | New construction/businesses can increase or decrease values |
Making an Offer
Your offer should include:
- Offer price (based on comparable sales)
- Earnest money deposit (1-3% of price — shows good faith)
- Contingencies (inspection, appraisal, financing)
- Closing timeline (typically 30-45 days)
- Any requests (seller concessions, included appliances, etc.)
Step 7: Home Inspection and Appraisal
Home Inspection ($300-$500)
| Issue Level | Examples | Action |
|---|---|---|
| Minor | Paint, cosmetic cracks, worn carpet | Accept or get credit |
| Moderate | Old roof (5-10 years left), aging HVAC | Negotiate repair/credit |
| Major | Foundation issues, mold, electrical problems | Negotiate heavily or walk away |
| Deal-breaker | Structural failure, environmental contamination | Walk away |
Full guide: home inspection guide.
Appraisal ($300-$600)
The lender orders an appraisal to confirm the home is worth the purchase price. If it appraises low:
- Renegotiate the price
- Pay the difference out of pocket
- Challenge the appraisal
- Walk away (if you have an appraisal contingency)
More details: home appraisal guide.
Step 8: Close on Your New Home
At closing, you’ll sign documents and pay closing costs:
| Closing Cost Item | Typical Amount |
|---|---|
| Origination fee | 0.5–1% of loan |
| Title insurance | $500–$1,500 |
| Title search | $200–$400 |
| Recording fees | $100–$250 |
| Attorney fees | $500–$1,500 |
| Property tax escrow | 2-6 months |
| Homeowners insurance | First year premium |
| Total | 2–5% of purchase price |
First-Time Buyer Programs
| Program | Benefit | Eligibility |
|---|---|---|
| FHA loan | 3.5% down, flexible credit | All buyers |
| VA loan | 0% down, no PMI | Veterans/military |
| USDA loan | 0% down | Rural/suburban areas |
| State/local assistance | Down payment grants/loans | Varies by area |
| Fannie Mae HomeReady | 3% down, reduced PMI | Income ≤ 80% AMI |
| Freddie Mac Home Possible | 3% down, reduced PMI | Income ≤ 80% AMI |
Explore all options: first-time home buyer programs.
Key Takeaways
- Start with your finances — check credit score, DTI, and savings before house hunting
- Budget for more than the down payment — closing costs, inspections, and reserves add 5-10% to your upfront costs
- Get pre-approved before making offers to show sellers you’re serious
- Don’t skip contingencies — inspection and appraisal contingencies protect you from costly surprises
- Factor in all housing costs — mortgage, taxes, insurance, HOA, and maintenance can add 30-50% to your base payment