Getting Ready To Buy Your First House

Molly GraceUPDATED: March 31, 2023

Buying a house for the first time isn’t something you just decide to do one day. You can’t just walk into the “house store,” say “one house, please,” and be on your merry way, keys in hand.

As a savvy hopeful home buyer, maybe you aren’t quite ready to fill out a mortgage application and start viewing houses, but you are interested in learning more. You aren’t starting the home buying process. You’re flirting with it. Thinking about thinking about it.

Taking the time to prepare yourself for the big and sometimes stressful process of buying a house can prevent headaches later on and ensure you don’t get tripped up by any surprises when you’re ready to begin the process.

Deciding You’re Ready

Becoming a homeowner is a big step – one that you should make sure you’re ready for.

Think about where you are in your life, what your goals are and where you see yourself in the next few years. If your finances and plans are pretty stable – for example, you don’t plan on moving to another state within the next 5 years or quitting your job to backpack through Europe – homeownership might make sense for you.

When you’re considering these things, think about some of the pros and cons of owning your own home and how they fit in with your goals and budget. While there are plenty of benefits to homeownership, it’s important to understand the responsibilities that come with it as well.

Renting Vs. Homeownership

For current renters, each monthly rent payment can feel like money down the drain. While it’s true that homeownership typically allows you to build equity with each mortgage payment you make, there are other important factors to consider as well.

Even if you live in an area where renting and buying cost about the same in terms of average rent cost versus the average mortgage payment, there are still additional costs to homeownership, including taxes, insurance and maintenance costs, that can make renting cheaper.

In fact, maintenance and other home-related costs being more expensive than they expected is the leading reason homeowners experience buyer’s remorse, according to a recent Bankrate survey.

Renting allows for flexibility, as it’s easier to move out of an apartment when your lease is up than it is to sell your house if you decide you want to move. And if you live in an area where purchasing real estate is prohibitively expensive, renting may be your only option.

On the other hand, when you own your home, you have a lot more freedom to shape your living space how you like and make changes and renovations that benefit you.

Plus, owning your home provides stability. With a fixed-rate mortgage, your monthly payment will stay the same as you pay off the loan. And as long as you stay on top of your mortgage payments and other debts, you generally don’t have to worry about being forced to relocate due to an unrenewed lease or being priced out, as you might with a rental.

Can Your Budget Handle It?

As we mentioned above, rent costs and mortgage payments being similar in your area isn’t the full story.

To get started, you need to find out how much your monthly payment would likely be. Instead of relying on averages for your area, use a mortgage calculator to get a more personalized estimate.

Replace that number with what you currently spend on renting in your budget. Don’t forget to factor in the cost of repairs and home maintenance. A good rule of thumb is to set aside 1% of the purchase price each year for these costs. So if you were to buy a $200,000 home, you’d keep $2,000 saved for unexpected house-related costs. Will you be able to save for that on top of your other costs?

Getting Mortgage-Ready

Making your finances worthy of mortgage approval doesn’t happen overnight. If you’re thinking about buying a home in a year or two, now is a great time to start getting ready for the mortgage approval process.

There are several factors that go into deciding your creditworthiness when it comes to mortgages. Let’s take a look at how you can make yourself a good candidate.

Give Yourself Some Credit

Your credit history and credit score give lenders a sense of how likely you are to pay back a debt you owe.

First, take a look at your credit report (you can get free copies from each of the three major credit reporting companies through Make sure there aren’t any mistakes or that someone hasn’t been fraudulently using credit in your name.

Check your credit score as well. You may be able to check it through your credit card company, or you can use one of the reputable online services and apps that let you check your score for free.

In general, you’ll need a score of at least 620 to even be considered for a mortgage, though some loan programs allow you to go lower. However, lenders typically prefer scores well above this. Plus, better scores can afford you more favorable terms, like a better interest rate.

If you’re able, start paying down as much debt as you can. Not only will paying down revolving debt like a credit card improve your score by lowering the amount of available credit you’re using, but eliminating some of your debt will lower your debt-to-income ratio as well, which is another big factor lenders consider when you apply for a mortgage.

If you have any significant blemishes on your credit report, such as any recent delinquencies, you may find it pretty tough to get approved for a mortgage. If you had a bankruptcy, you’ll likely have to wait 2 to 4 years or more after discharge, depending on the type of loan, before you can apply for a mortgage.

If you’re working on building or rebuilding your credit, focus on making on-time payments every single time, as this makes up the largest portion of your credit score.

Savings, Savings and More Savings

When you go to buy a house, you’re going to need a significant chunk of money in the bank.

Think about how much you’ll realistically be able to put down on a house. Some loans allow you to put down as little as 3.5% or even 3%. However, if you want to avoid paying mortgage insurance, you’ll need to put down at least 20%.

Lenders don’t just want to see that you can cover your down payment. They also want to know that you’ll be able to cover at least a few mortgage payments if you were to unexpectedly lose your regular source of income. Depending on the lender and your credit profile, you may need to prove you have 6 months’ worth of mortgage payments saved up.

You’ll also need to save enough money to cover your closing costs, which can be between 2 and 5% of the purchase price.

Say you’re buying that $200,000 house. You plan on putting down 3%, which means you’ll need $6,000 for your down payment. Your lender has told you your monthly payment will be $1,300 and requires you to have at least 2 months of reserves in your bank account, meaning you’ll need $2,600. Your closing costs are estimated to be about $4,000.

In this scenario, you’d need a total of at least $12,600 saved up in your bank account just to get into the house. If you want to make a larger down payment, end up with higher closing costs or have a lender that requires more reserves, you’ll need even more.

Since that kind of money can take a long time to save up, start thinking now about what your own home-buying scenario would look like and how much you need to start saving now to reach your goals down the road.

What Can You Afford?

While it’s a lot of fun to browse house listing sites and look at the most expensive homes in your area, you should probably get an idea of what price range you’ll be looking at when you’re ready to get serious.

Find out how much house you can afford by using an online home affordability calculator, which takes your income, debts, down payment savings and credit score into account to give you an estimate of how much you’d be able to borrow based on current mortgage rates and how large a monthly payment you can afford.

Do Some Market Research

Even if you’re still a while away from actually starting the process, it can help to do a little preliminary house hunting and market research for the area you’re thinking of buying in.

When you begin seriously looking, your real estate agent will know the nitty gritty, but doing some basic research on what inventory is like in your city or state, whether it’s a buyers’ or sellers’ market and what asking prices are like in your area will help you go in with realistic expectations.

Figure Out What You Want

One of the first things your agent will ask you, aside from price range, is what sort of house you’re looking for. How many bedrooms and bathrooms will you need? Do you require a one-story? Something with room for a growing family?

Your preliminary house hunting can help you figure out what you want and how realistic your expectations are in the current market. Online tools like the Rocket Homes Real Estate LLC home search will show you useful information for the listings in your area, including a home’s main features and features of the neighborhood and school district it’s located in.

Shopping For A Mortgage

House hunting isn’t the only shopping you’ll do. You’ll also need to shop around for the mortgage and rate that’s best for you.

Since you aren’t ready to apply for a mortgage just yet, right now you should focus on learning about the different loan products available to you.

Keep in mind that once you decide to begin the home buying process, your first step should be to apply for a mortgage and get preapproved before you even start shopping or get in touch with a real estate agent.

A Loan Program Fit For You

There are a variety of different loan options available to hopeful home buyers, all with slightly different requirements. Let’s do a quick rundown of what some of your options are.

  • Conventional: Conventional mortgages aren’t insured by the federal government. They typically have tougher credit requirements than other loan types, although they allow slightly lower down payments than some other types; you can go as low as 3%. Unlike with FHA loans, if you put less than 20% down, you’ll be able to cancel your mortgage insurance once you reach 20% equity in the home.
  • FHA: These loans are insured by the Federal Housing Administration. Because they have slightly more lenient requirements, they’re good options for first-time home buyers or buyers with less-than-stellar credit. You can put down as little as 3.5%, but you’ll likely have to refinance into a conventional loan to be able to get rid of mortgage insurance once you hit 20% equity.
  • VA: VA loans are mortgages insured by the Department of Veterans Affairs and offered to qualifying veterans, service members and spouses. These loans come with more lenient credit requirements, no mortgage insurance and a 0% down payment option.
  • USDA: This is another 0% down payment loan option, guaranteed by the U.S. Department of Agriculture (USDA). These loans are meant to provide affordable home financing for people in rural areas. If you aren’t in or around a major population center, it’s likely that you qualify. You can check the USDA’s eligibility map to be sure.

In addition to finding the loan program that’s right for you, you’ll also need to think about how different terms and rate types would work with your individual financial situation.

Traditionally, mortgages are offered with either a fixed interest rate or an adjustable rate. With a fixed-rate mortgage, your interest rate remains the same throughout the life of the loan, meaning your payments will remain the same. On an adjustable rate mortgage (ARM), the interest rate remains the same for a certain amount of time and then is periodically adjusted based on current rates.

Fixed-rate mortgages provide stability but come with slightly higher rates and don’t allow you to take advantage of falling rates without refinancing. ARMs offer lower rates upfront, but once your initial rate period is up, you’re at the mercy of the market. If rates go lower, your monthly payments will go down. But if rates go up, you may suddenly find that your monthly payment is more than you can handle.

Fixed-rate mortgages are good if rates are currently low or you need the stability of a fixed monthly payment. ARMs can be useful if you don’t plan on staying in the home for longer than the introductory period, but be sure you understand all the terms of the ARM before agreeing to one.

A mortgage term refers to how long you’ll need to make payments before the loan is paid off. Thirty-year terms tend to be the most popular, because they have smaller monthly payments. However, you can also get a shorter term, such as a 15-year, if you’re interested in paying off the loan more quickly.

Ready, Set, Go!

After all that thinking and preparing, you’re finally feeling mortgage-ready and you know what you’re looking for. Ready to start the process?

Once you’re ready, you’ll want to get preapproved for a mortgage and find a real estate agent who can help you get into the home of your dreams. The right agent is someone you can trust who you feel understands what you want and will advocate for you when it comes time to make an offer.

If you’re looking for the right agent to help you buy with confidence, Rocket HomesSM will match you with a proven, highly rated agent who is an expert in your local market.

Molly Grace

Molly Grace is a staff writer focusing on mortgages, personal finance and homeownership. She has a B.A. in journalism from Indiana University. You can follow her on Twitter @themollygrace.