First-Time Homebuyer Guide [11 Steps to Buying Your First Home]

Written By: Jen Chinburg

The first-time homebuying process can begin long before you start to look at potential homes. So, how can you get started today? We’re here to set you up for success throughout the exciting journey of buying your first home.

Our step-by-step guide covers the basics of first-time homebuying and highlights some first-time homebuyer tips. Read on for a closer look at what each step of the process entails.

Benefits of Owning a Home

Let’s kick off by covering some of the short- and long-term benefits of owning a home, as shared by a top realtor on the Seacoast region of New Hampshire, Patty O’Brien, who is the co-founder and designated broker at The Gove Group. With over 20 of real estate experience, she has a significant amount of first-time homebuyer advice to give.

Build Equity
Equity is the difference between the value of the home and the amount you owe on the home. “You purchase the home and the first time you make your payment, you build equity,” says O’Brien. Home equity is a large component of creating a viable long-term strategy for building wealth — the longer you have your mortgage, and if you pay down debt, you build equity. As the value of your home increases over time, the debt-to-equity ratio also becomes more favorable.

Tax Benefits
Both the interest that you pay monthly on your mortgage and your property taxes are usually deductible. “The biggest thing for a first-time buyer is come next April 15, they actually get a financial benefit with the IRS that they have never experienced before,” O’Brien explains. Home equity loans and some closing costs are tax deductible, as well. In the future, if you sell the home you may get a capital gains benefit based on how much you sell it for.

Long-Term Investment
O’Brien highlights that historically, real estate is one of the safest and best investments you can make. She explains, “The market changes – there’s ups, there’s downs – but there’s always an up after a down.” The real estate market is widely accepted as a more secure investment than others like the stock market. To purchase a home is to invest money in yourself for the long run.

Pride of Ownership
Buying your first home is also a huge personal achievement. O’Brien believes that the pride felt with home ownership is one of the biggest benefits of all, especially for the first-time buyer. “Almost everybody wants to own a home at some point in their lives,” she says. “It’s one thing you can talk to anyone about, anywhere.”

It is important for first-time homebuyers to know that you can never start planning too early.

“Even if it’s a year or more out before you’re going to purchase, you can start to look now,” O’Brien says.

Figure out your different locations, go to open houses, talk to realtors – the more homework you can do ahead of time to understand your local market, the better.

Steps to First-Time Homebuying

1.  Take a First-Time Homebuying Course

A course is a great way to get your feet wet before you dive into the housing market. Educating yourself will provide you with a better foundation for understanding the process as a whole, as well teach you general mortgage and lending terms. You may even be required to complete a course by your mortgage lender, financial advisor or realtor.

Because the homebuying journey is different in every state, many of these courses cater to where you are looking to buy. The U.S. Department of Housing and Urban Development (HUD) offers approved courses by state that may be required if you are participating in a down payment assistance or similar financing program.

Homebuying Courses in New Hampshire
New Hampshire Housing offers a variety of homebuyer education opportunities. Earn a certificate of completion through their “Becoming A Homeowner” course or partake in one of their homebuyer education seminars. These virtual, one-day workshops are conducted by HUD certified educators via live webinar and are offered monthly for as little as $39.99.

Homebuying Courses in Maine
Backed by the Maine Association of REALTORS®, HoMEworks of Augusta, Maine offers a HUD-approved homebuyer education course led by certified instructors. In-person completion will take eight hours, whereas online completion will take between six and 10 hours with the flexibility to start and stop at any time.

Homebuying Courses in Massachusetts
From the Greater Boston area to the Cape, Massachusetts Homeownership Collaborative offers both first-time homebuyer courses and individual counseling throughout the entire state. Participants will gain insight from home inspectors, real estate brokers, lending officers and other industry professionals. Varying by region, HUD certification participants may be required to additionally complete an online program.

2.  Consider Your Financing Options

Once you’ve gained a better understanding of the first-time homebuying process, the next step is to assess your finances. Remember that you aren’t alone in this process — there are numerous experts who are eager to assist in laying out the key financial determinants for buying a home. We spoke to Jim Collins, senior loan officer at CMG Financial, to gain insight on the financing options available for first-time homebuyers. Collins has 15 years of loan consulting experience, which gives him plenty of insight for the first-time homebuyer.

Determine Your Budget
First-time homebuyers often overlook that their budget must cover more than just the monthly mortgage payment. “One of the things I tell people is to be realistic,” says Collins. He emphasizes that prospective borrowers should put a lot of thought here. The key questions he asks include:

  • What do you want to spend on a monthly basis?
  • What do you have available?
  • What other new costs will you incur such as utilities and property taxes?
  • And finally, what’s left over for your other lifestyle requirements?

It can be beneficial to run your financials through a monthly budget worksheet to determine how much you can afford. Another great resource is to consult an online mortgage calculator – we love this one from Blue Water Mortgage.

Determine How Much of a Down Payment You Can Afford
The down payment is a percentage of the home’s purchase price that will be paid without the assistance of a mortgage lender upon closing.

The industry standard has historically been 20%, however according to the National Association of Realtors the average first-time buyer in the U.S. put down just 6% percent in 2019. With Freddie Mae and Fannie Mac, the down payment program can start at as little as 3% down.

Collins explains that the recommendation for a down payment is really dependent upon the borrower’s credit and the requirements of the lender. He says, “5-10% seems to be best fit for the borrower in that depending on your credit score, private mortgage insurance (PMI) can vary.” Typically, the more you put down on a home, the lower the PMI is going to be – but not always. “Someone with really good credit can get the same PMI payment for 3% down as someone with average credit for 5% or 10% down,” says Collins.

Check Your Credit
Whether you are years away from buying your first home or plan to hit the open houses tomorrow, it’s a good idea to check your credit score and compare your debt-to-income ratio. Building good credit is critical to the ease of the homebuying process. The only requirements to pull your credit score from Experian, Equifax or Transunion are your name, social security number, date of birth and address. Good credit will make it more likely for a first-time homebuyer to qualify for a loan and receive a lower interest rate.

However, it’s not just about credit score, and that is where the common misconception lies. “Some people may be thinking ‘I’ve got a 700-credit score,’ but you may not have credit depth!” says Collins. “That plays big role in getting an approval on a mortgage. They want to see that you have history and available credit to you.” Generally, lenders need to see at least three tradelines open. Ultimately, your credit score will help determine what loan program is accessible to you and is the best fit for your unique needs.

Research Types of Loans
With dozens of loan programs available, it can feel overwhelming to find the most compatible program for you. Some first-time homebuyers might qualify for FHA or USDA loans, while others may find a conventional or jumbo loan to better suit their needs. Eligible veterans additionally have the option of receiving a VA loan.

Collins advises, “I would steer the first-time home buyer toward conventional type loans; especially in the industry at this time, a lot of sellers are taking conventional loans over government loans such as USDA, FHA and VA.”

Government loans may require a seller to make specific upgrades or changes to the home, whereas a conventional loan would not. In the state of New Hampshire, Collins explains that if you qualify, NH Housing may give you a grant that is permissible to use with a conventional loan.

Additional recommendations from Collins include HomeReady from Fannie Mae and Home Possible from Freddie Mac, as they each require just 3% down and give you reduced PMI payments compared to a non-first-time homebuyer.

CMG offers an exclusive program called HomeFundIt, a unique crowdfunding solution that helps potential homeowners increase their down payment savings and offers a $1,500 matching grant for first-time homebuyers. This national program is a great option for a first-time buyer to build their savings early on in the process.

3.  Get Pre-Qualified

Getting prequalified is yet another piece of the mortgage approval process that you can complete long before you start to look at homes. Prequalification provides you with an estimate of how much you will be able to borrow based on your finances and credit. It is important to get an early start on the prequalification process to better prepare you when it comes time to apply for a mortgage.

4.  Find A Realtor

Buying your first home is a major life milestone, so you certainly want to consult an expert realtor to guide you and be on your side when making negotiations. One of the best ways to find a realtor is to ask for a referral from family and friends. If you’re moving to a new area, you can ask any agents that you have worked with in the past for a referral as well.

To find a realtor by city that best matches your needs, try using U.S. News’ Find an Agent Tool.

5.  Start the Home Search

Here are some things to consider when you begin to look for your new home.

Build New or Buy Existing
Do you want to commit to building the custom home of your dreams? Or is there an existing home that can provide you with everything you are looking for? Or something in between like a quick delivery home, where the house is already underway with a building company that has already made many of the decisions for you? We break down the pros and cons of these options in our blog post “Buying a Quick Delivery New Home vs. Custom New Home Construction.”

As they say in real estate — it’s all about location, location, location. Be sure to consider your personal preferences in regard to where you are buying. A suburban or rural home may provide you a lower mortgage but could leave you with a longer daily commute. On the other hand, a home in the city might reduce transportation costs, but could result in higher daily living expenses.

Number of Bedrooms & Bathrooms
If you plan to grow your family upon moving into your first home, be sure to look for a house with more bedrooms than you currently need. This includes the potential of children, as well as multi-generational living with aging parents and or young adults returning home as they prepare to launch. In the meantime, these extra spaces can be used as guest rooms or office spaces!

As for bathrooms, think about the functional uses of each. Do you prefer showers or bathtubs? Does the home permit any future opportunity of adding a bathroom? These are just some basic need questions to consider when beginning the home search.

You will want to check out the local community in which you are buying. If it is a factor for you, how are the schools? Do you have easy access to your commute, a favorite coffee shop, restaurants and/ or gym?

Decipher Your “Wants” From Your “Needs”
It is important to draw the line between what you need in a home from what you want in a home. For the twenty-first century business professional working from home, an office could be an absolute must have. For the dog owner, a plentiful yard with fencing might rank higher as an essential factor.

When comparing and contrasting potential homes, a Property Comparison Worksheet can be a handy tool to keep at your disposal. Keeping track of each home’s pros and cons will ensure that you are making the right decision.

6.  Make an Offer

Once you have found the right home, your realtor will walk you through the process of making an offer. Here is what to expect from your realtor when it comes to the negotiation process.

Ask Your Real Estate Agent for Comps
Your realtor is able to run comparables on recent home sales in the local market to help determine your offer price. Comps are a great way to uncover if the seller’s asking price is on point or too high.

Determine Offer Price, Contingencies, & Timeline
With the guidance of your realtor, decide upon an offer price and subsequently determine contingencies and the timeline on a closing date. This is where you can also assess if there is wiggle room financially to negotiate the price. If this is the case, your initial offer should stay below the maximum price you are willing to pay. In a “hot” market, time is of the essence, so you may need to make a quick and contingency-free offer.

Draft & Submit Your Offer
Your realtor will take care of the purchase and sales agreement for you to sign and submit!

Wait for the Seller’s Reply
The seller may accept the offer as-is, decline or counter the offer. If the seller accepts — congrats, you’re on your way to becoming a homeowner! If they decline, negotiations will be terminated and it’s time to start looking at other homes. A counteroffer puts the ball back in your court, in which you can either accept their offer or counter back.

7.  Apply for Mortgage & Negotiate Closing Costs

Once your offer is accepted, you will apply for a mortgage and negotiate closing costs. It’s important to remember that mortgage interest rates change daily, even sometimes hourly.

We know first-hand that many questions arise when it comes to securing a mortgage. The answer to nearly any mortgage related question can be found in this helpful resource, 105 Mortgage FAQs.

8.  Schedule Home Inspection

The home inspection’s purpose is to uncover any underlying problems that the seller failed to disclose. The home inspector will assess the condition of the house before the final closing to mitigate potential risks.

The home inspection is one of the most important steps in the homebuying process, so try to schedule it as early as possible. It is likely that your realtor has worked with a trustworthy home inspector to which they will refer you.

9.    Schedule Appraisal

The home appraisal is crucial for getting your mortgage loan approved. The appraiser will come in as a third-party observer who does not represent you or the lender to make certain that the property’s determined market value is unbiased. The quicker you schedule an appraisal, the quicker you can get to closing.

10.  Close on Your New Home

Closing day is the day you officially become a new homeowner! For an existing home, you can expect the timeframe for closing to be 30 to 45 days after the contract is signed. If you are building a new home, this process can take up to 6 months or more. Paying with cash can significantly speed up the closing process.

11.  Move In!

Congratulations, you’re a first-time homebuyer! As a new homeowner, find a moment to pause and simply take it all in. Then, go make that house a home!

As Northern New England’s premier builders, we can help answer any questions you may have throughout the homebuying journey. Visit our website for more first-time homebuyer tips and additional information to help get you started.