Tips for First-Time Home Buyers

Like any big project, a successful homebuying experience is all about getting the details right from start to finish. These tips for first-time home buyers will help you navigate the process, save money and close the deal. We organized them into four categories:

• Preparing to buy tips.

• Mortgage selection tips.

• Home shopping tips.

• Home purchasing tips.

Preparing to buy tips

1. Start saving early

Here are the main 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 $240,000 loan could be between $4,800 and $14,400. 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: 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 strengthen 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 strengthen 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.

• 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 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 rural home buyers and usually require no down payment.

• VA loans are guaranteed by the Department of Veterans Affairs. They are for current and veteran military service members 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.

When interest rates are increasing, you might consider an adjustable-rate mortgage, or ARM. ARM rates are often lower than fixed rates, enabling you to buy a more expensive home for the same monthly payment, but they can also increase (or decrease) over time.

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

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 mortgages with down payment assistance and closing cost assistance. Tax credits are also available through some first-time home buyer programs.

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

6. Compare mortgage rates and fees

The Consumer Financial Protection Bureau recommends requesting loan estimates for the same type of mortgage from multiple lenders to compare the costs, including interest rates and possible origination fees.

Lenders may offer the opportunity to buy discount points, which are fees the borrower pays upfront to lower the interest rate. Buying points can make sense if you have the money on hand and plan to stay in the home for a long time. Use a discount points calculator to decide.

In a buyers’ market, some motivated sellers may offer to pay some or all of the buyer’s points to close the deal.

7. Get a preapproval letter

A mortgage preapproval is a lender's offer to loan you a certain amount under specific terms. Having a preapproval letter shows home sellers and real estate agents that you're a serious buyer and can give you an edge over home shoppers who haven’t taken this step yet.

Apply for preapproval when you're ready to start home shopping. A lender will pull your credit and review documents to verify your income, assets and debt. Applying for preapproval from more than one lender to shop rates shouldn't hurt your credit score as long as you apply for them within a limited time frame, such as 30 days.

» MORE: Get preapproved for a mortgage

Home shopping tips

8. Choose a real estate agent carefully

A good real estate agent will scour the market for homes that meet your needs and guide you through the negotiation and closing process. Get agent referrals from other recent home buyers. Interview at least a few agents, and request references. When speaking with potential agents, ask about their experience helping first-time home buyers in your market and how they plan to help you find a home. You might also ask how they find homes that aren't yet on the market, which can be a handy skill when buyer competition is fierce.

» MORE: How to find a real estate agent

9. Pick the right type of house and neighborhood

Weigh the pros and cons of different types of homes, given your lifestyle and budget. A condominium or townhome may be more affordable than a single-family home, but shared walls with neighbors will mean less privacy. Don't forget to budget for homeowners association fees when shopping for condos and townhomes, or houses in planned or gated communities.

Another option to consider is buying a fixer-upper — a single-family home in need of updates or repairs. Fixer-uppers usually sell for less per square foot than move-in ready homes. However, you may need to budget extra for repairs and remodeling. Renovation mortgages finance both the home price and the cost of improvements in one loan.

» MORE: Decide whether to buy, build or renovate

Think about your long-term needs and whether a starter home or forever home will meet them best. If you plan to start or expand your family, it may make sense to buy a home with extra room to grow.

Research potential neighborhoods thoroughly. Choose one with amenities that are important to you, including schools and entertainment options, and test out the commute to work during rush hour.

10. Stick to your budget

A lender may offer to loan you more than what is comfortably affordable, or you may feel pressure to spend outside your comfort zone to beat another buyer’s offer. To avoid financial stress down the road, set a price range based on your budget, and then stick to it.

In a competitive market, consider looking at properties below your price limit to give some wiggle room for bidding. In a buyer's market, you may be able to view homes a bit above your limit. Your real estate agent can suggest a range for your offering price.

» MORE: How to make an offer on a house

11. Make the most of open houses

Online 3D home tours have become more popular as technology improves. These tours let shoppers virtually walk through a home at any hour and observe details that regular photos don't catch. They don't supply all the information in-person visits do — like how the carpets smell — but they can help you narrow the list of properties to visit.

Open your senses when touring homes in person. Listen for noise, pay attention to any odors and look at the overall condition of the home inside and out. Ask about the type and age of the electrical and plumbing systems and the roof.

» MORE: How 3D home tours work

Home purchasing tips

12. Pay for home inspections

A home inspection is a thorough assessment of the structure and mechanical systems. Professional inspectors look for potential problems, so you can make an informed decision about buying the property. Here are some things to keep in mind:

• Standard inspections don’t test for things like radon, mold or pests. Understand what's included in the inspection and ask your agent what other inspections you might need.

• Make sure the inspectors can get to every part of the house, such as the roof and any crawl spaces.

• It's usually helpful if the buyer attends any inspections. By following the inspectors around you can get a better understanding of the home and ask questions on the spot. If you can't attend the inspections, review the reports carefully and ask about anything that's unclear.

» MORE: Types of home inspections buyers should know

13. Negotiate with the seller

You may be able to save money by asking the seller to pay for repairs in advance or lower the price to cover the cost of repairs you’ll have to make later. You may also ask the seller to pay some of the closing costs. But keep in mind that lenders may limit the portion of closing costs the seller can pay.

Your negotiating power will depend on the local market. It's tougher to drive a hard bargain when there are more buyers than homes for sale. Work with your real estate agent to understand the local market and strategize accordingly.

» MORE FOR CANADIAN READERS: First-time home buyer tips

14. Buy adequate home insurance

Your lender will require you to buy homeowners insurance before closing the deal. Home insurance covers the cost to repair or replace your home and belongings if they're damaged by an incident covered in the policy. It also provides liability insurance if you're held responsible for an injury or accident. Buy enough home insurance to cover the cost of rebuilding the home if it's destroyed.

It may be worth buying an umbrella policy if you need to cover your home, cars and other major assets.

» MORE: How long does it take to buy a house?