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First time buying a home? Start with these 3 steps 

Part of: First-time homebuyer’s guide

What we'll cover

  • Best practices for first-time homebuyers

  • Calculating how much home you can afford

  • How to prepare your finances for homebuying

The decision to transition from a renter to a homeowner is a big one, personally and financially. You have a lot to consider — such as location, size and cost. Buying a home is a big investment. Here's how to get started.

1. Consider all the costs

As a first-time homebuyer , you probably have a good grasp of how much money you’ve saved for the house. But do you know exactly how much you can afford to spend on your new home?

As you think through how much to spend, keep in mind the full price tag of buying a home goes beyond the selling price and your down payment. Be sure to factor in things like closing costs, which can be 2% to 5% of a home’s purchase price, and other potential expenses like inspections, homeowner association fees and the typical homeowner costs like maintenance, utilities and more.

As you think through how much you’re ready to spend, keep in mind the full price tag of buying a home goes beyond the selling price.

Once you’re house hunting, it’s easy to get caught up in the excitement. Now is the time to sit down and do the math. If you’re not sure where to start, this free calculator may help you identify your ideal price tag for your first home.

2. Check your credit score

If you have rented before, you’ve likely had your credit score checked. It’s a quick way for landlords to verify your financial reliability as a tenant. As you prepare to buy a home, the strength of that number is even more important and can impact how large your home loan is and your mortgage rate. Higher scores make you eligible for lower interest rates. This three-digit number gives lenders a glimpse into your financial history.

Chart of credit scores and their ratings.
Credit Score Rating
<580 Poor
580-669 Fair
670-739 Good
740-799 Very Good
800+ Exceptional

Typically, those with a score over 670 are considered by lenders to have good creditworthiness. Most mortgage loans require a score of at least 620, so you may want to improve your credit score before applying. By paying your bills on time, avoiding opening new lines of credit and maintaining a low credit utilization rate, you can begin to boost your score.

3. Know your debt story

Another essential element of your financial journey as a new homebuyer is your debt-to-income ratio ( DTI ). This percentage shows lenders how much of your money goes toward debt, providing a clear picture of how much you can put toward your mortgage payment each month. As you prepare for homeownership, a low DTI (36% or below) may make it easier to get a loan.

If you’re not sure where your debt stands, use this calculator to quickly find your DTI:

The key to success = preparation

Before you head off to open houses, nail down the details. With a strong understanding of your assets and what you’re looking for, you can start home shopping with confidence in your finances and your future.

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