First home buying, step by step
Twelve Stops Between You and Your First Front Door
A route map for first-time buyers: budget, loan, offer, inspection, appraisal and closing day, in the order they happen.
Buying a first home is mostly a series of ordinary decisions made in the right order. Settle the budget before you fall for a house, compare loan quotes before you pick a lender, and keep your contract protections until the inspection and appraisal are done. A good local real estate agent can walk the route with you.
The paperwork is more standard than it looks. Every lender uses the same Loan Estimate form, and you get the final Closing Disclosure at least three business days before you sign. If you would like help along the way, a HUD-approved housing counselor or a first-time buyer program in your state is a sensible place to start.
The route
Three Lines, Twelve Stops
Start on the Plan & Budget line, change to Find & Offer when you are ready to shop, and finish on Inspect & Close. Each stop is one short guide.
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Change here for the Find & Offer line
Change here for the Inspect & Close line
Payment check
What Would the Monthly Payment Be?
Put in a price, a rate from a real quote and your own income and debts. Everything stays in your browser.
Monthly housing payment
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| Down payment | – |
|---|---|
| Loan amount | – |
| Principal and interest | – |
| Taxes and insurance | – |
| Mortgage insurance | – |
Debt-to-income, housing included
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Example figures only; replace them with your own quotes. Debt-to-income here is all monthly debts, the new housing payment included, divided by gross monthly income. Lenders set different limits. More in How Much House Can I Afford? A Budget That Starts With the Monthly Payment.
How the process fits together
Buying a First Home, Room by Room
Five parts of the purchase, laid out like the rooms of a house. Walk through them once before you start and the rest of the route makes more sense.
Entry
Start with a payment, not a price
Most first-time buyers start with listings. It works better the other way round. Decide what monthly payment you can carry comfortably, including property taxes, homeowner’s insurance and any mortgage insurance, and then turn that payment into a price range. A lender may approve you for more than that, and the approval is a ceiling, not a target. Keep savings for closing costs and the first repairs as well as the down payment.
Living room
Choose the loan before the house
Every mortgage combines a loan type, a term and a rate type. Conventional, FHA, VA and USDA loans differ in down payment, mortgage insurance and who can use them. Ask two or three lenders for quotes on the same day and compare the official Loan Estimates, which use one standard form. A preapproval letter based on verified documents also makes your offer more convincing to a seller.
Kitchen
Shop with a checklist
When you look at homes, look past the paint and the furniture. Check the roof, windows, water stains and the age of the big systems, and think about the commute and the street at night. Before you offer, get real insurance quotes on the address and check its flood risk, because most homeowner’s policies do not cover floods.
Study
Protect yourself in the contract
An accepted offer is a contract. Earnest money shows you are serious and is usually applied at closing. Contingencies for financing and a satisfactory inspection let you cancel without losing it if the loan falls through or the house has serious problems. Write down every deadline the day you sign.
Porch
Close carefully, then settle in
After the inspection and appraisal, the lender finishes underwriting and sends the Closing Disclosure at least three business days before closing. Compare it with your Loan Estimate line by line and ask about anything that changed. At the table you sign the note, the mortgage or deed of trust and the deed, then collect the keys. Change the locks, learn the shut-offs and start a repair fund.
Questions
Questions First-Time Buyers Ask
What is the difference between prequalification and preapproval?
Both letters show roughly how much a lender may be willing to lend, and neither is a guaranteed loan offer. Lenders use the words differently; some base prequalification on information you report and preapproval on information they have verified. A preapproval based on verified documents usually carries more weight with a seller.
How long do I have to review my final loan terms?
Your lender must give you the Closing Disclosure at least three business days before closing. Use that time to compare it with your Loan Estimate and ask about any changes in the rate, the payment or the closing costs.
Do I need 20 percent down?
No. FHA loans allow down payments as low as 3.5 percent, and VA and USDA loans can need no down payment for buyers who qualify. With less than 20 percent down on a conventional loan you will typically pay mortgage insurance, and every FHA loan has mortgage insurance.
What is earnest money and do I get it back?
It is a deposit that shows the seller you are serious, held by the seller or a third party such as a title company. If the sale closes, it usually goes toward your closing costs or down payment. If the contract ends for a reason the contract allows, it is returned; if you back out without one, you can lose it.
Is the home inspection the same as the appraisal?
No. The inspection is for you and looks at the condition of the house. The appraisal is for the lender and estimates its value. You generally need both, and you have the right to a free copy of the appraisal no later than three days before closing.
Can I remove mortgage insurance later?
On a conventional loan with private mortgage insurance, you can ask in writing to cancel it when your balance is scheduled to reach 80 percent of the home’s original value, if you meet the conditions. It ends automatically when the balance is scheduled to reach 78 percent and you are current. FHA and VA loans have different rules.
Does homeowner’s insurance cover floods?
Standard homeowner’s insurance does not cover flood or earthquake damage. Flood coverage is a separate policy, often through FEMA’s National Flood Insurance Program, and it typically has a 30-day waiting period unless your lender requires it for the loan.
Who runs the closing?
A settlement agent, which may be a title or escrow company or a closing attorney depending on where you live. The agent collects and pays out the money, has you sign the papers and records the documents with the county. After that, you get the keys.