First Time Homebuyer Checklist

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 lower 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.

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 think they need anywhere from 16% to 20% (or higher) for a down payment. But since 2018, the typical down payment for first-time home buyers has ranged between 6% to 7%.² 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.

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.³ 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.⁴

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.⁵ 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.

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.

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.⁶ 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.⁷

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

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

Once you know you’ll qualify for a home loan, 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 2021, 23% of first-time homebuyers purchased their home with an FHA loan. These loans, backed by the Federal Housing Administration, require down payments as low as 3.5% for qualifying buyers.⁸

• 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.