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First Time Homebuyer Checklist

Buying your first home can seem like a big project, but this financial checklist can help you manage it – and increase your confidence in the process.

By Mike Faden | American Express Credit Intel Freelance Contributor

7 Min Read | July 31, 2020 in Money



A financial checklist can help you work through the necessary steps to buy your first home.

Start by getting your finances in order and saving for the down payment and homebuying “closing costs.”

Figuring out what you can afford and getting pre-approved for a loan are important steps.

Buying your first home can be one of the most exciting and fulfilling events of your life. But making the leap to home ownership can seem like a big financial project. Like any large project, it may feel more manageable if you break it down into a checklist of financial items that you then work right through. As you tick off the items on your first home checklist, you’ll be building a strong financial foundation for home ownership – and positioning yourself to search for your perfect first home, close the deal, and move in!  


Get Your Finances in Order

To become a first-time homebuyer, you’ll need your finances to be in good shape. Most people need to get a mortgage to buy their first house. Before lenders will take the risk of offering you your first mortgage, they’ll generally want to see evidence that you can repay the debt, and that you have a history of making debt payments on time. 


If your finances aren’t already in tip-top shape, start working to improve them as early as you can, because the process can take time. Mortgage lenders will examine your credit score and credit history to see how you manage your debt. The higher your credit score, the better the chance you’ll be offered a mortgage with a low interest rate. Mortgage lenders will also consider your overall debt-to-income ratio – how much money you already owe compared to how much money you make – to make sure you’re not taking on more debt than they think you can handle.


You should definitely check your own credit score as soon as you can. If you find you have less-than-excellent credit, look for ways to improve it, such as paying down debts and consistently making every required payment on time. Paying down debt also will improve your debt-to-income ratio.


Start Saving for the Down Payment  

More than two thirds of renters say that the biggest hurdle to buying a home is saving enough for the down payment, according to real-estate website Zillow.1 The good news is that the hurdle may not be as high as you think. Many people believe that you need a down payment of 20% of the purchase price to buy a home, but most first-time homebuyers pay far less. In 2019, the median down payment among first-time homebuyers was just 6%. Lenders now offer loans with down payments anywhere between 3% to 20% or more, and there are even some zero down payment mortgages. 


Still, a 20% down payment will lower your monthly home ownership costs, because you’ll have a smaller loan and you can generally avoid paying mortgage insurance. It may get you a wider choice of mortgage lenders and a lower interest rate. For more, read “How Much of a Down Payment Do You Need to Buy a House?


Save for Other Homebuying Expenses

In addition to your down payment, you’ll need to accumulate money for “closing costs” that typically add up to 2% to 5% of the purchase price of your first home. Closing costs are fees and services that you’ll pay for when you finalize (“close”) the home purchase. The list of items varies, but it may include:

  • Mortgage application fee.
  • Appraisal fee.
  • Title insurance.
  • Mortgage insurance fees and premium.
  • Home inspection cost.
  • Legal fees.
  • Homeowners insurance.
  • Survey fees.
  • Property taxes. 

Don’t forget moving expenses. If you don’t have many possessions, you may be able to save money by loading your stuff into a truck and moving it yourself. But if you use professional movers, budget for average costs of $1,250 if you’re moving locally and nearly $5,000 for a long-distance move, experts say.2


Figure Out What Type of Home You Can Afford

Yes, it’s fun to dream about buying a mansion in the hills or a luxury penthouse downtown. But you’ll need to focus the search for your first home on the neighborhoods and types of properties that you can actually buy. So, getting a realistic idea of what you can afford is a vital step in the homebuying process. 


A common guideline is that you shouldn’t spend more than 25% to 30% of your household budget on housing costs, including your mortgage payment, although many people spend more than that, according to Consumer Reports. Furthermore, mortgage lenders use different metrics, so they may offer loans with monthly payments that are higher than this.3 When you’re calculating your budget for home ownership, don’t forget about the other ongoing costs: The annual cost of maintenance and repairs, for example, may total 1% to 2% of the home’s purchase price. For more, read “Budgeting Tips for New Homeowners.”


Get Pre-Approved (or Pre-Qualified)

Once you feel ready to start house-hunting in earnest, you can talk to a lender or mortgage broker to get a letter indicating how much they’re prepared to lend you. This letter has two main purposes. It gives you an idea of how big a loan you can get, and it provides evidence to home sellers that you’re really in a position to buy their home – which means they’re more likely to consider your offer seriously. 


When it comes to buying your first house, some experts use the term “pre-qualification” to mean an earlier and less-formal step than “pre-approval,” requiring less verification of your financial information.4 The Consumer Financial Protection Bureau (CFPB), on the other hand, says there’s not much difference between the two terms: both refer to a letter that says the lender is willing to offer you a loan up to a certain amount, based on specific assumptions, but isn’t a guarantee that you’ll get a loan. The CFPB says the best way to make sure you get a letter that provides adequate information to potential sellers is to ask a local realtor about what’s generally needed.5


To get this letter, you may need to provide documentation including:

  • Proof of income.
  • Proof of assets.
  • Credit score.
  • Employment verification.
  • Government-supplied ID.


Determine the Right Type of Loan for You

Once you know lenders are prepared to offer you a mortgage, start thinking about the kind of loan that best suits your needs. Today’s loan offerings are fairly diverse, so you may have a variety of options depending on your situation:


  • First-time homebuyer programs: Some lenders offer loans, backed by federal or local programs, that are particularly helpful for first-time homebuyers. These programs may have lower down payments or credit score requirements in some cases. In 2019, 25% of first-time buyers purchased their home with loans backed by the Federal Housing Authority, which requires down payments as low as 3.5%.6  
  • Fixed-rate mortgages: These offer predictability because your interest rate and monthly mortgage payment will remain the same for the life of the mortgage.
  • Adjustable-rate mortgages: These typically have lower payments for an initial period, after which the interest and monthly payment may go up or down depending on the direction of the benchmark rate to which the loan is tied.


The Takeaway

A financial checklist can help you effectively manage the homebuying process. Working through the list can move you closer to buying your first home and help increase your confidence throughout the process. It’s important to start early, to make sure your finances are in good shape by the time you’re ready to buy.

Megan Doyle

Mike Faden has covered business and technology issues for more than 30 years as a writer, consultant and analyst for media brands, market-research firms, startups, and established corporations.


All Credit Intel content is written by freelance authors and commissioned and paid for by American Express. 

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