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.
Table of Contents
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
