Tips for First-Time Home Buyers

It’s exciting — and a little scary — to think about buying your first home. Even when you know you’re ready to buy a house, you might not be sure where to begin. These tips for first-time home buyers will help you navigate the process from start to finish.

Preparing to buy tips

1. Start saving early

When calculating how much money you need to buy a house, consider one-time expenses as well as new, recurring bills. Here are the main upfront costs to consider when saving for a home:

• Down payment: Your down payment requirement will depend on the type of mortgage you choose and the lender. Some conventional loans aimed at first-time home buyers with excellent credit require as little as 3% down. But even a small down payment can be challenging to save. For example, a 3% down payment on a $300,000 home is $9,000. Use a down payment calculator to decide on a goal, and then set up automatic transfers from checking to savings to get started.

• Closing costs: These are the fees and expenses you pay to finalize your mortgage, and they typically range from 2% to 6% of the loan amount. Your closing costs on a $300,000 loan could be between $6,000 and $18,000. That’s additional money you’d have to pay, on top of your down payment. In a buyer's market, you can often ask the seller to pay a portion of your closing costs, and you can save on some expenses, such as home inspections, by shopping around.

• Move-in expenses: Remember to budget for moving costs, which typically run up to $2,500 for most local moves. (Long-distance moves can be much pricier.) You'll need some cash after the home purchase. Set some money aside for immediate home repairs, upgrades and furnishings.

» MORE: How to save money for a house

2. Decide how much home you can afford

Figure out how much you can safely spend on a house before starting to shop. NerdWallet's home affordability calculator can help with setting a price range based on your income, debt, down payment, credit score and where you plan to live.

» MORE: Learn about how to save for a down payment

3. Check and polish your credit

Your credit score will determine whether you qualify for a mortgage and affect the interest rate lenders will offer. Having a higher score will generally get you a lower interest rate, so take these steps to polish your credit score to buy a house:

• Get free copies of your credit reports from each of the three credit bureaus — Experian, Equifax and TransUnion — and dispute any errors that could hurt your score.

• Pay all your bills on time, and keep credit card balances as low as possible.

• Keep current credit cards open. Closing a card will increase the portion of available credit you use, which can lower your score.

• Avoid opening new credit accounts while you’re applying for mortgages. Opening new accounts could put a hard inquiry on your credit report and lower the overall average age of your credit accounts, which could hurt your score. 

• Track your credit score. NerdWallet offers a free credit score that updates weekly.

Mortgage selection tips

4. Explore mortgage options

A variety of mortgages are available with varying down payment and eligibility requirements. Here are the main categories:

• Conventional mortgages are the most common type of home loan and are not guaranteed by the government. Some conventional loans targeted at first-time buyers require as little as 3% down.

• FHA loans are insured by the Federal Housing Administration and allow down payments as low as 3.5%.

• USDA loans are guaranteed by the U.S. Department of Agriculture. They are for suburban and rural home buyers and usually require no down payment.

• VA loans are guaranteed by the Department of Veterans Affairs. They are for current military service members and veterans and usually require no down payment.

You also have options when it comes to the mortgage term. Most home buyers opt for a 30-year fixed-rate mortgage, which is paid off in 30 years and has an interest rate that stays the same. A 15-year loan typically has a lower interest rate than a 30-year mortgage, but the monthly payments are larger.

» MORE: Calculate a 15-year vs. 30-year mortgage

If you plan to stay in the home for only a few years, you might consider an adjustable-rate mortgage, or ARM. ARMs often start with a lower fixed-interest introductory rate, enabling you to buy a more expensive home for the same monthly payment, but they can also increase (or decrease) over time.

» MORE: ARMs vs. fixed-rate mortgages: How to compare

5. Research first-time home buyer assistance programs

Many states and some cities and counties offer first-time home buyer programs, which often combine low-interest-rate loans with down payment assistance and closing cost assistance. If you meet low- to moderate-income benchmarks, you could qualify for a grant or forgivable loan that doesn’t need to be paid back.

Tax credits, known as mortgage credit certificates, are also available through some first-time home buyer programs.

» MORE: Find first-time home buyer programs in your state