Buying a Home for the First Time: What You Need to Know

Buying a home for the first time involves purchasing a residential property when you’ve never owned a home before. To become a homeowner, you typically need to understand what to look for in the real estate market, figure out how to finance your purchase and meet the requirements to get a mortgage.

Get Your Finances in Order

Before you start house hunting, it’s super important to make sure your finances are ready for this big step. Here’s how you can get ready:

1. Check If You’re Financially Ready

First things first: make sure you’re prepared for the long-term commitment of owning a home. You want to carefully consider your financial situation, including your salary, savings, and other expenses.

It’s also crucial to factor in any plans you may have for the future. For example, if you plan to start a family or move to a new city, these could affect your timing for buying a home. You need to be sure you can handle a mortgage while managing both your current and future financial commitments. And it’s a good idea to understand the basics of loans as well.

Learn more about loan basics.

2. Take a Good Look at Your Credit Score

Your credit score is a big deal when you’re looking to get a mortgage. Ideally, you want a score of at least 620 for a conventional loan, though some lenders might require a bit higher. If you’re aiming for an FHA loan, you might be able to go with a score as low as 580.

Check your credit reports and fix any errors or issues. It’s also smart to work on keeping your credit card balances low and paying all your bills on time.

3. Figure Out Your Debt-to-Income Ratio

Lenders will want to see how much of your income is already tied up in debt. This ratio helps them figure out how much of your income can go toward a mortgage without stretching your budget too thin. Aim for a DTI ratio under 43%, though some lenders might prefer even lower.

Learn how to calculate your DTI ratio.

Decide How Much Home You Can Afford

Next, figure out what you can realistically spend on a home. You don’t want to fall in love with a place only to find out it’s way beyond your budget. It’s important to set a realistic budget based on your income, credit score, debt, down payment, and where you’re looking to buy.

A good rule of thumb is the 28/36 rule: Your mortgage should be no more than 28% of your gross monthly income, and all your debt payments combined should stay under 36% of your income. Although this isn’t a hard-and-fast rule, it’s a great starting point.

When setting your budget, remember to factor in recurring costs, such as mortgage payments, property taxes, and insurance, in addition to the home price. Also, remember to set aside some cash for maintenance and unexpected repairs.

Here’s something else to keep in mind: home values can vary, so be sure to research local prices. This will give you a better idea of what’s reasonable in your area.

Learn how to build equity in your new home.

Consider Your Needs

Before you start looking at homes, it’s a good idea to create a wishlist. This will help you clarify what you really want and need.

Consider your must-haves. For example, how many bedrooms and bathrooms do you need? Would you like extra spaces like a basement or an attic? What about outdoor spaces, such as porches and decks? Would you prefer a condo with shared spaces or a single-family house with a big yard for kids and pets?

Remember to choose a location that suits your lifestyle. Consider how close the property is to medical facilities, shopping areas, and other essential services. If you have kids or plan to, proximity to playgrounds and good schools can be a big plus.

Decide whether you want a move-in-ready home or a fixer-upper. Each option has pros and cons, so take some time to understand what you’re comfortable with to help you find the right fit.

Learn how to buy a fixer-upper and finance renovations.

Find the Right Financing for You

Figuring out how to pay for a home can feel a bit overwhelming, especially if you’re a first-time buyer. The good news is there are plenty of financing options to help you out. Here are some of the most common choices:

RenoFi Loans

RenoFi Loans are unique financing solutions that allow you to borrow based on a home’s future value after renovations. This is an excellent option, especially if you’re looking for more borrowing power at the lowest rates possible. 

RenoFi loans are available as fixed-rate home equity loans or variable-rate home equity lines of credit (HELOCs) and are suitable whether you’re looking to fund a brand-new home or renovate a home you’re buying.

See how RenoFi loans work.

Conventional Loans

You can take out a conventional loan through a private lender to buy your dream home. Keep in mind that this type of loan isn’t backed by the government. This means you’ll usually need to make a down payment of around 20% of the home’s value before you can take out the loan. 

Plus, it typically requires a higher credit score compared to government-backed options. But don’t worry if you can’t meet the strict lending requirements of conventional loans—there are more lenient options available.

FHA Loans

You might want to consider FHA Loans, especially if you’re working with a tight budget. The Federal Housing Administration (FHA) insures these loans, so they are a bit easier to qualify for. You can get started with just a 3.5% down payment, making them popular among low-income and first-time homebuyers.

VA Loans

VA loans are typically for active-duty military personnel, veterans, and surviving spouses who qualify. The US Department of Veterans Affairs (VA) guarantees these loans, and they don’t require a down payment or private mortgage insurance.

Jumbo Loans

If you’re looking at a more expensive home, you might need a jumbo loan. These loans are for properties that exceed the standard loan limits. Jumbo loans usually require a bigger down payment, a solid credit score, and lower debt-to-income (DTI) ratios compared to conventional loans.

Renovation Loans

Another option that might suit you if you’re thinking about making some upgrades right after you buy is a renovation loan, such as the FHA 203(k) loan. This lets you combine the cost of the home and any renovations into one mortgage.

Explore first-time home buyer renovation loans.

USDA Loans

If you’re eyeing a home in a rural area, USDA loans could be a great fit. The US Department of Agriculture (USDA) insures these loans, which target low-income buyers. They offer 100% financing — meaning you don’t need to make a down payment. That said, you need to meet specific income limits and location requirements to qualify.

Why a RenoFi Loan Is Best for Financing a Home Purchase

When you’re shopping for financing options for your first home, all the choices we’ve discussed have their advantages, but none can quite match the borrowing power of RenoFi loans—not even a traditional HELOC with all its flexibility.

While a traditional 90% LTV HELOC might seem like a good way to finance your home purchase, it often doesn’t give you enough to cover the whole cost. That’s where RenoFi loans come in; they’re designed to help you tap into your home’s future value, particularly after renovations, to boost your borrowing power.

For example, let’s say you find your dream priced at $500,000, and after buying it, you’ve got a mortgage balance of $400,000. If your loan-to-value ratio (LTV) is sitting at 80%, a traditional home equity loan isn’t going to give you any extra cash to help with a down payment. 

The good news is that a RenoFi loan can let you borrow up to 150% LTV or 90% LTV based on the home’s future value after you fix it up, which could be around $640,000. This way, it significantly increases your borrowing capacity.

In this scenario, while a standard home equity loan leaves you with $0 in extra borrowing power, a RenoFi loan could let you borrow up to $176,000 based on the projected value of your new home!

So, if you’re buying a new home and considering future upgrades, RenoFi is definitely the smartest way to stretch your financing options. Learn more and check out your borrowing possibilities here.

Choose a Lender You’re Comfortable With

When choosing a mortgage lender, you want to find one who offers good rates, low fees, and provides excellent customer service. Look for a lender who’s easy to work with, answers your questions, and makes the whole process smoother. 

Remember, buying a home is a big commitment, and having a lender who will support you throughout can make a huge difference!

Get Pre-Approved

Before you start making offers, get pre-approved for a mortgage. This means a lender will give you a letter saying how much they’re willing to loan you. Having your pre-approval in hand makes you look serious to real estate agents and can give you an edge when making offers.

To get pre-approved, you’ll need to gather some documents, including:

• Proof of income (such as pay stubs)
• Recent bank statements
• W2s

You can apply for pre-approval with multiple lenders at the same time. Remember to do this within 30 to 45 days to limit the impact on your credit score. And once you’re pre-approved, stick to your budget and avoid big purchases or new debt to keep your application smooth.

Check out our finance glossary to understand the key loan terms.

Find a Real Estate Agent

Look for a real estate agent who knows the local market, respects your budget, and can help you negotiate with sellers.

To find a good realtor, you can visit a few real estate offices or ask for recommendations from friends or colleagues, especially those who’ve recently purchased a home. Your agent will be your go-to person for everything related to buying your home, so pick someone you trust and can communicate with easily.

Start House Hunting

With your real estate agent helping you out, you’ll check out homes that fit your wishlist. It’s okay to scroll through listings online, but it’s usually better to physically visit the house to really get a feel for the place and its surroundings.

It’s Okay to Negotiate

Once you find your perfect home, it’s time to negotiate. Even in hot markets, you can ask for a better price, especially if the home has been sitting around for a bit. Try offering less than the asking price or see if the seller will cover some of the closing costs or repairs.

Draw Up a Contract

Once your offer is accepted, it’s important to clearly outline any conditions that allow you to back out of the deal. These might include problems with mortgage approval or issues found during a home inspection. 

These terms are part of the purchase and sale agreement you and the seller sign. This contract protects you and helps ensure you can get your earnest money deposit back if things don’t go as planned.

Before closing, remember to get estimates from contractors if the home needs repairs or upgrades. This will help you budget for these expenses and ensure you’re prepared before moving in.

Take the Next Steps Toward Homeownership

Buying a home for the first time can be exciting but expensive too! Unless you have a ton of cash saved up, you’ll need financing to make your dream home a reality. Luckily, RenoFi loans give you significant borrowing power combined with the best rates to fund your home purchase.

Additionally, our RenoFi loans are the smartest way to finance a home renovation project. Unlike traditional loans, which are based on your current home value or require you to refinance your primary mortgage and give up your low rate, RenoFi loans are based on the after-renovation value of your home. This allows you to borrow, on average, 11x more, get a low monthly payment, and keep your low rate on your first mortgage. Contact us today to learn how  RenoFi can help you secure the best financing for your new home.