How to buy a home: a first-time buyer’s guide

Buying your first home is one of the largest financial decisions you’ll ever make. The process has more steps than most people expect — credit checks, pre-approval, inspections, appraisals, and closing — and each one affects how much you pay over the life of the loan. This guide walks through every stage so you know what’s coming before you start shopping.

Step 1: Check your credit score

Your credit score directly determines the interest rate you’ll qualify for, which shapes every monthly payment for decades. Conventional loans typically require a minimum score of 620, while FHA loans accept scores as low as 580 with a 3.5% down payment, or 500 with 10% down.^[2] According to the Consumer Financial Protection Bureau, borrowers with scores above 760 generally receive the most favorable rates.^[1] Even a half-point difference in rate on a $350,000 mortgage can mean tens of thousands of dollars in extra interest over 30 years.

Pull your free credit reports from all three bureaus at AnnualCreditReport.com and dispute any errors before applying. Pay down revolving balances if possible — credit utilization above 30% can drag your score down.

Step 2: Save your down payment

A 20% down payment lets you avoid private mortgage insurance (PMI), which typically adds 0.5%–1.5% of the loan amount to your annual cost. But 20% is not the only path. FHA loans require as little as 3.5% down; conventional loans backed by Fannie Mae or Freddie Mac allow 3% for qualified first-time buyers. VA loans (for eligible veterans and service members) and USDA loans (for qualifying rural properties) require no down payment at all.

Beyond the down payment, budget for closing costs — which the CFPB estimates typically range from 2%–5% of the loan amount^[3] — plus moving expenses and an emergency reserve. Many buyers are surprised that they need several months of mortgage payments in savings even after closing.

Step 3: Calculate what you can afford

Lenders use two ratios to assess affordability. The front-end ratio compares your monthly housing costs (principal, interest, taxes, and insurance — often called PITI) to your gross monthly income; most lenders want this below 28%. The back-end ratio adds all monthly debt payments (housing, car loans, student loans, credit cards) and compares that total to gross income; most conventional lenders cap this at 43%, though some will go higher with compensating factors like large reserves.

Use a home affordability calculator to model different purchase prices, down payment amounts, and interest rates side by side before you fall in love with a specific house.

Step 4: Get pre-approved

Pre-approval is a lender’s written commitment — based on verified income, assets, and credit — to lend up to a specific amount at specific terms. It is different from pre-qualification, which is a softer estimate based on self-reported data.^[4] In most competitive markets, sellers won’t seriously consider an offer without a pre-approval letter.

Shop at least three lenders. Interest rates, origination fees, and discount points vary meaningfully from lender to lender. The CFPB requires lenders to provide a standardized Loan Estimate within three business days of application^[5] — compare these line by line across lenders before deciding.

Step 5: Choose the right mortgage type

The most common mortgage options for first-time buyers are 30-year and 15-year fixed-rate loans. A 30-year term offers a lower monthly payment; a 15-year term pays off the home faster and typically carries a lower interest rate, but requires a higher monthly commitment. Adjustable-rate mortgages (ARMs) start with a fixed rate for an initial period (commonly 5, 7, or 10 years) and then adjust annually based on a market index — useful if you plan to sell or refinance before the adjustment period begins, but risky if you don’t.

Step 6: Make an offer and negotiate

Once you find a home, your agent will help you set an offer price based on recent comparable sales (comps) in the area. Include an earnest money deposit — typically 1%–3% of the purchase price — to show the seller you’re serious. Your offer should also include contingencies: a home inspection contingency lets you renegotiate or walk away if the inspection uncovers major issues; a financing contingency protects your deposit if your loan falls through; an appraisal contingency protects you if the home appraises below the purchase price.

Step 7: Schedule a home inspection

A licensed home inspector examines the structure, roof, electrical systems, plumbing, HVAC, and more. Inspections typically cost $300–$500 and take 2–4 hours. The report becomes your negotiating tool — you can ask the seller to make repairs, lower the price, or provide a credit at closing. Never skip an inspection, even in a hot market.

Step 8: Close on the home

Closing typically happens 30–60 days after an accepted offer. At the closing table you’ll review and sign a stack of loan documents, pay closing costs, and receive the keys. Three business days before closing, you’ll receive a Closing Disclosure — review it carefully and compare it to your Loan Estimate to make sure no fees have changed unexpectedly.^[5] After closing, your mortgage servicer will send payment instructions, and your first payment is typically due 30–60 days later.

Think ahead: refinancing

If interest rates drop after you close, refinancing can reduce your monthly payment or shorten your term. The key question is how long it takes for monthly savings to offset closing costs — the CFPB calls this the break-even point.^[6] A refinance break-even calculator makes that math instant.