13 Steps to Buying Your First Home

You're considering purchasing your first home.

Our steps will help you understand the process and help you reach your goals of homeownership.

When you're ready to take out a mortgage, be sure to check out credit unions and other lenders to find the best deal. Until then, let's take a step into homebuying. 


1. Start Saving Early

The more you can save, the easier your home-buying process is. Certain loans require a down payment that is 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. There are mortgage loan programs that 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:

* 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

A good rule of thumb is that your mortgage should be no more than 28% of your pre-tax income. Take your income, and multiply it by 28, and divide that by 100. To make your goal of buying a home a reality, create a budget and stick to it. 

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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, a VantageScore and FICO (Fair Isaac Corporation) score 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: 

Exceptional 800 - 850
Very Good 740 - 799
Good 670 - 739
Fair 580 - 669
Very Poor 300 - 579

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

If your credit score is low, there are ways to move it up.

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

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4. Research Mortgage Options

Not all home loans are the same. Some are specially designed for new homeowners that 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 a lower credit score.

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

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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

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 very 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

A pre-approval is a deep examination of your financial health history and gives lenders a good idea if you qualify. After a pre-approval, you'll receive possible interest rates, loan amount, and monthly payments. Real estate agents love 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 the home-buying process 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 that will serve your interests best and that 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 done in person or virtually. If you go to a virtual open house and like what you see, you must explore the area more.

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 you're ready to make an offer. An offer letter will usually be in writing and include the following:

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:

Home inspections are crucial and 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:

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 making sure every last detail has been taken care of. A few things to look for include:

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! 

Further Resources for First-Time Homebuyers

Here are some further resources for first-time homebuyers:

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, don't forget 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.

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Did you know?

Credit unions can offer valuable resources and support for first-time homebuyers. Credit unions often provide educational resources and counseling to help a first-time home buyer 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.

Find the right Credit Union for you

There are more than 5000 credit unions to choose from across the U.S.