10 Tips for First-Time Homebuyers

Emma DiehlUpdated February 24, 2023

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

A home is likely the most expensive thing you’ll ever buy. No pressure, though! As a first-time homebuyer, wouldn’t it be nice to get some help to save time, money, and anxiety before this big-ticket purchase?Before you begin browsing online and scouting neighborhoods for “For Sale” signs, check out these 10 tips to help smooth the road to homebuying.

1. Know Your Credit Score

Before heading to every open house, it’s smart to check your credit score. Mortgage lenders give great weight to credit scores, and if you’re in the dark about yours, you may be in for a surprise. A credit score usually ranges from 300 to 850. Generally, the higher the score, the lower the interest rate on a mortgage loan, and the more a homebuyer will be eligible to borrow. Of course, other personal financial factors come into play as well—like your income and assets. Underwriting criteria will vary from lender to lender. If you’re applying for a conventional home loan, you’ll likely need a credit score of 620 or higher to qualify. (Conventional loans, the most popular kind of mortgage, usually have tougher eligibility requirements than government-backed mortgages.) If you discover that your credit score is lower than desired, consider making an effort to repair your credit. With a higher credit score, it could be easier to secure a mortgage—and with a more favorable rate.

2. Consider Getting Preapproved for a Home Loan

Getting preapproved for a mortgage essentially means that a lender has qualified you for a home loan of a certain amount at a specific interest rate. Many lenders use “prequalification” and “preapproval” interchangeably, but the former typically relies on self-reported information and results in a ballpark estimate. Getting prequalified can be useful for comparing loan offers, and online prequalification forms usually take only minutes to complete.Preapproval involves filling out a full application, agreeing to a credit check, and providing information about your income and assets.In a robust seller’s market, having a preapproval letter in hand can make your offer on a home more favorable and also means you’re doing a lot of the loan preparation upfront.

3. Stick to Your Price Range

Preapproval from a lender will give you a firm range you need to stay within, but it’s OK to look for homes that are under your budget. Because the homebuying process is often emotional, it’s easy to get swept away by properties and throw your budget out the window. It’s smart to stay grounded in your price range and not try to buy more home than you can afford.It might be a good idea to anticipate setting aside 1% to 3% of a home’s purchase price every year for maintenance and repairs. Additionally, have you thought about what it will cost to furnish the house and move?During the search, it’s easy to think, “Why not spring for the two-car garage?” But remember that there are costs associated with owning a home beyond the monthly mortgage payment. Recommended: Moving Across the Country in Six Steps

4. Consider How to Deal With Your Down Payment

Where you keep your down payment savings may depend on how soon you plan to buy.

Buying in 1-3 years. If you’re planning to buy in the immediate future, accessing your money quickly could be beneficial. This is when a savings account or a cash management account could be a good fit.
Buying in 5 years. If you want to purchase a home five years down the line and want higher returns than a traditional savings account, investing in CDs could be a good fit.
Buying in 5-plus years. Some people may consider investing their down payment savings, but that is a highly individual decision.

5. Work With an Agent Who Knows What You Want

Finding the right buyer’s agent to work with is a little like dating: Don’t be afraid to interview a few to find the right fit. Fit could mean several things, but might include:

Experience in and knowledge about the area where you want to move.
Availability. Do they have a huge client roster, or will they be able to give you personalized attention?
Communication style.
Specialty. Do they primarily work with buyers or sellers?

If you have differing opinions or simply don’t like an agent, you don’t have to work with them. When in doubt, you can ask an agent if you can reach out to their references. Another approach is looking for referrals. A National Association of Realtors® survey showed that 41% of buyers worked with an agent recommended by a friend, neighbor, or family member.

6. Avoid Hard Credit Inquiries

If you’re serious about the homebuying process and on a timeline to purchase soon, it’s usually considered a good idea to avoid additional hard credit inquiries, such as:

Applying for a car loan
Applying for a new credit card
Requesting a credit line increase

Too many hard credit inquiries at once can hurt your credit score, and therefore could affect your preapproval process. FICO® Scores consider inquiries from only the past 12 months, so it might be best to try to refrain from any of the above a year before you hope to buy your home.

7. Look Into First-Time Loans and Programs

As a first-time homebuyer, you may be able to take advantage of perks. Both federal and local programs could help you secure a better interest rate on your mortgage, assist in closing costs, or close with no money down. Popular assistance programs include:

Federal Housing Administration (FHA) loans appeal to buyers wanting to make a down payment as low as 3.5% and who need flexible credit qualification. Just be aware of the FHA loan upfront mortgage insurance premium and annual premiums.
The Good Neighbor Next Door program offers law enforcement officers, teachers, firefighters, and emergency medical technicians a chance to buy a property up to half off its list price.
Loans from the U.S. Department of Agriculture help low- and moderate-income households qualify for a home with no down payment in an area the department recognizes as rural.
State or city programs. Depending on where you want to buy, you may qualify for a program through your city or state, translating to a lower interest rate, smaller down payment, or down payment assistance.

First-time homebuyers are in a unique position to potentially qualify for special programs. Even if you apply for a conventional loan, you may qualify for down payment assistance or other benefits.

8. Budget for Closing Costs

The down payment may be the big bill that comes due at closing, but closing costs are a significant expense many homebuyers overlook. Closing costs include anything from the cost of title preparation to your agent’s commission, and you’re on the hook for these expenses at closing. For a buyer, the average closing costs are 2% to 5% of the loan amount.

9. Inspect, Inspect, Inspect

The homebuying process can be both exciting and overwhelming for a first-time homebuyer. When you find a home you love, you might not even know what issues or problems to look for. That’s where inspections come in. Most buyers choose to get a standard home inspection, but you can pay specialists to take a look at a home’s systems and estimate the cost of any repairs.Paying a little more for specialized inspections could give you more leverage as a buyer or could illuminate an issue that makes you walk away from the deal.

10. Don’t Be Afraid to Negotiate

Putting together an offer on a property can be a little nerve-wracking, but it's also an opportunity to get more value out of the purchase. While the biggest factor is likely the offer price, there are add-ins you can negotiate with to make the deal stronger on your end. Homebuyers can ask for all of the following and more when they make an offer:

Repairs. From creaky doors to peeling paint, a buyer can ask the seller to make updates.
New appliances. If the furnace is on its way out, the buyer can ask that the seller replace it before closing.
Personal items. While appliances are typically included in the sale, you can ask the buyer to include furniture, art on the walls, or other personal belongings in the home.
Home warranty. A buyer can ask the seller to buy a home warranty to cover repair or replacement of particular home systems or appliances, typically for a year at a time.

The trick is, the buyer can ask for any of the above, but the seller doesn't have to agree to it. You’ll never get something if you don’t ask for it, so if you admire the seller’s outdoor patio set, it may not hurt to ask for it.

The Takeaway

Knowledge is power for first-time homebuyers. From getting prequalified to finding a good agent, there are many steps in a successful journey. But searching for the perfect home can be trying. You know what doesn’t have to be? Shopping around for mortgage rates and lenders.Lantern takes this time-consuming process and makes it all possible with a few clicks. Browse lenders and rates to find a great mortgage for your future home.

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About the Author

Emma Diehl

Emma Diehl is a nationally-published journalist with expertise in finance, real estate, and technology. Her work has appeared on NPR, The Huffington Post, Technical.ly, and numerous local publications. When she's not covering the world of personal finance with SoFi, she's probably rollerblading or planning her next meal.

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