5.34 million existing homes were sold in 2019 before the pandemic hit, with first-time homebuyers making up 31% of the market. Now, the situation looks quite a bit different, and buying a house for the first time is no walk in the park, even when the economy is in good shape.

However, it’s well worth all your efforts in exchange for a place that you’ll one day call your home. You know, a shiny, brand new pad full of all of the things you’ve worked so hard to buy. It’s also a fantastic way to begin building wealth. But hey, we totally get it. From broker terms to fancy bank lingo, buying a home for the first time can be a challenging thing to do. 

We’re here to help, though! Follow along as we break down the homebuying process for first-time homebuyers. Leave a comment if we missed something or if you still have more questions.

Check Your Credit Score

Before you even begin to think about buying a house, you’ll want to take a look at your credit score. It’s the foundation of your wealth and financial future (which we go into more detail here). Without a good credit score, it’s going to be hard to get great loan terms. If you’re unsure of what that really means, then let’s break it down:

A higher credit score allows you to take on debt with lower interest rates. It allows you the freedom of taking out $30,000 at a 2% interest rate instead of a 15% interest rate (that’s a difference between $600 in interest and $4,500 in interest!).

What credit score do you need to buy a house? Usually, you’ll need to ensure that your score is above about 620. If you’re not sure what your score is or how to monitor it, check out Float.

Think About a Down Payment

The down payment on a house is an initial amount of money you pay to your lender when purchasing the property.

Most people that buy homes in the US do it through a mortgage arrangement. Generally speaking, your down payment will largely depend on the type of mortgage you choose.

Standard mortgages normally require a down payment of 20% of the house’s value. 

But for first-time homebuyers, the down payment can go as low as 3.5%, especially with the Federal Housing Administration (FHA) loans. It’s also worth mentioning that the minimum credit score needed to qualify for an FHA loan is 580.

You may use an online home affordability calculator to ascertain your eligibility to get a house in your state. We recommend using Zillow’s home loan calculator.

Search for Financing Options for First-Time Homebuyers

Currently, many buyer assistance programs are tailored specifically for first-time homebuyers. 

If you don’t qualify for an FHA loan, you might also check out HUD homes. Homeowners who have taken advantage of the FHA home loans mentioned above sometimes default on their loans. When that happens, the HUD takes possession and offers it at a lower price.

Another option for first-time homebuyers is to check out the HomePath Ready Buyer Program, a course that prepares first-timers for what they’re getting themselves into. This specific course costs $75, but once you pass it, you can get a grant for 3% of the closing costs as long as you purchase a Fannie Mae property.

And, you’ll find that state-assisted loans offer financial assistance on down payments and closing costs, too. Native American homebuyers, for example, can apply for a Section 184 loan and get flexible down payment options from their lender.

Get Pre-Approved

Woo! You’re ready to start looking for loans. Now, it’s time to get pre-approved. This process involves your prospective loan financier checking your employment records, financial records, and credit score. The financer will then decide if you’re eligible to take a loan from them or not.

Basically, in the real estate world, it’s next to impossible to approach a real estate agent without pre-approval in hand, making this step pretty important. Based on that report, they’ll approve you or deny you and also give you a good idea of what kinds of loans and rates you qualify for.

Go House Hunting

This is where things get fun! Okay, somewhat fun. With that pre-approval in hand, you’ll have a good idea of the dollar amount you can spend on a house. That means it’s time to connect with a real estate agent who will help you find a home and negotiate and offer.

While this isn’t necessarily financially-related, be sure to inspect the house for quality and safety with the help of a professional home inspector. If you don’t, you risk buying a home that’s secretly in need of some intense repairs, and if that happens then you’ll end up paying a ton of cash unnecessarily in the long run.

Negotiations may take you back and forth–especially with counter-offers–but after this step, you are close to finalizing the process of buying a house. 

Close & Move In

Assuming that the seller accepts your offer, you’re ready to seal the deal! And this is where things get boring again. Closing involves signing paperwork and filing taxes, as well as settling insurance premiums and other formal requirements. 

Your mortgage provider will also require a formal home appraisal to understand the value of their investment. Closing costs vary from 2% - 5 % of the loan amount, so keep this in mind when figuring out the total cost of buying a home for the first time.

After the closing process, it’s official; you’re now a homeowner!

Learn How to Compound Your Wealth from a Home Investment

Moving into your very first home is an exciting process. However, it doesn’t stop there! Now that you own property, you’re able to build your wealth through that capital investment. Simply paying off your mortgage won’t do the trick, though.

Learn through Wealth Stack's financial platform how to compound your wealth in a way that’s sustainable and smart. Start by downloading the app for free on the App Store or on Google Play so that you can start learning through our helpful video courses. Then, interact with our Speakers to see how to implement the techniques you're learning.