5 tips for first-time homeowners

After years of decline, home ownership is on the rise in America. Here’s what you need to know if you’re a first-time homeowner.

Why it matters. For many people, the idea of buying a home can seem intimidating. While there’s a lot to consider, home ownership is likely within your reach. It all comes down to doing the right research, saving money, and deep diving into your finances.

Go deeper. Get started with these five essential tips for first-time home buyers.

1. Do a deep dive into your finances

First things, first: get a clear picture of your financial situation.

Get up to speed with your bank account balances, debt, monthly recurring bills, retirement balances and other investments, your salary and other sources of income.

Then start figuring out how much property taxes cost in your state, research average annual ranges for maintenance costs, potential renovation costs, and the average cost for home inspections.

Now you can decide how much you can afford to spend for the actual price of your home and for your monthly mortgage payments.

2. Strengthen your credit score

Of course, you’ll also need solid credit. A good credit score for buying a house would fall within the good to excellent range. The lowest minimum credit score is 620. But remember, the lower your score when you apply for a mortgage, the higher the risk you’ll represent. That comes at a cost: higher mortgage rates. Your best bet is to aim for a higher credit score.

Credit improvement tips

• Request your credit report to ensure everything is up to speed
• Start disputing any existing errors
• Pay down debt to reduce your credit utilization rate (30% or less is ideal!)
• Pay down debt to make it easier to manage your future mortgage payments
• Avoid requesting any hard inquiries into your credit several months before you’re ready to buy your home

3. Save for a down payment, closing costs, and moving expenses

Now that you have a full understanding of your financial situation, it’s time to start saving for a down payment, closing costs, and all of your move-in expenses.

The bigger your down payment, the smaller your monthly payments. At this point, you also have a healthy emergency fund and a better understanding of how much money you can truly afford to tie up into a down payment. Other closing costs can include various fees (for everything from loan origination to the homeowners association, or HOA), wire transfers, credit report requests, appraisals, land surveys, notary fees, homeowners insurance, title insurance, and more.

Then there are move-in expenses, such as moving truck rentals or hiring a professional moving team, furniture, transportation, travel expenses, and utility deposits.

4. Research to discover tax breaks and other assistance

As you research avenues to make the home-buying process more affordable, get to know the most common mortgage loan options on offer. There are conventional mortgages (often favored by real estate agents), adjustable-rate mortgages, fixed-rate mortgages, government mortgages (such as Federal Housing Administration (FHA) loans for first-time buyers and VA loans for veterans) and other types of mortgage loans.

And get to know your tax breaks and special programs for first-time home buyers. There are federal support programs and incentives as well as incentives offered on the local level. For example, your county or state might offer options that are completely different from elsewhere in the country. The most widely-known incentive is the first-time homeowners loan.

The federal government has a program, but some states do too. Again, the best way to save money is to research all of your available options. Home buying is expensive—don’t leave money on the table.

Other ways to save include closing cost assistance programs, low-interest rate mortgages, down payment assistance and special tax credits.

5. Find the right real estate agent

A great real estate agent will be a knowledgeable and reliable professional who will be easy to get in touch with and who will always consider your personal preferences and needs—from financial considerations to your lifestyle. This person will be patient and they’ll take the time to guide you through the process, answering your questions and offering any necessary advice.

Take the time to get a referral or do your own research to find a trustworthy, reputable, and effective agent to find your new home.

Beyond helping you find your dream house, your real estate agent needs to be a business-savvy, highly-engaged person who can help you find worthwhile deals. This person will even handle your negotiations—considering factors such as your pre-qualification and market trends. Your agent can negotiate asking prices, whether the seller covers some or all of your closing costs and more.

Homeownership isn’t cheap. But the right research and planning can help you reduce stress, save money, and avoid the most common first-time home buyer mistakes.