Nerd Wallet Tips for First-Time Home Buyers

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:

» 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:


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:

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

6. Compare mortgage rates and fees

Plan to shop around for mortgage lenders and compare three to five different quotes. Doing so could save you thousands of dollars in interest over the lifetime of the loan.

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 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. Gather your loan paperwork

Before you’re approved for a mortgage, your lender will ask you for financial records to verify your income, assets and debt, including:

Pull these documents ahead of time to stay organized throughout the process — you’ll need them for a mortgage preapproval as well as when you apply for the loan.

8. 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 the documents you organized in the previous step. 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

9. Choose the type 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 processes. Get agent referrals from other recent home buyers. Decide whether you need a full-service agent or a limited service agent and Real Estate Attorney


10. Narrow down your ideal type of house and neighborhood

Weigh the pros and cons of different types of homes, given your lifestyle and budget.

» 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, including property values, property taxes and safety considerations. Choose one with amenities that are important to you, including schools and entertainment options. If you work away from home, test out the commute during rush hour.

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

11. Stick to your budget

To avoid financial stress down the road, set a price range based on your budget — and then stick to it.

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 in a bidding war.

In a competitive market, consider looking at properties below your price limit to give some wiggle room for bidding. In a buyers 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

12. Make the most of walk-throughs and open houses

Online 3D home tours have become more popular as technology improves. 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.

It’s possible to buy a house sight unseen, but it’s always best to visit in person. Open your senses when walking through a  home. 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 to make the most of an initial home walk-through

Home purchasing tips

13.  Don’t skip the 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:

» MORE: Types of home inspections buyers should know

14. 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: Seller’s disclosure: What home sellers must reveal

15. 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.