02.06.2024 By Amy Miller, AFC

First-Time Homebuyers: Where to Start

Excited! Scared! Anxious! Nervous! These are all normal emotions when starting the home-buying process for the first time. There are a lot of things to research, review, consider, and do throughout the process that can seem overwhelming for most first-timers.

Excited! Scared! Anxious! Nervous!

These are all normal emotions when starting the home-buying process for the first time. There are a lot of things to research, review, consider, and do throughout the process that can seem overwhelming for most first-timers.

We’ve put together a list of steps to take that will get your home buying process started and help you make it to the closing table. 

Start Saving

It’s important to start early and save for a down payment but you’ll also want to be prepared to cover moving expenses and any necessary purchases associated with setting up a new home. You may also need to have extra funds set aside for home repairs and upgrades. Start with our Spending And Savings Plan – it can help give you a clear view of your finances and create a personalized plan to meet your goals.

Check Your Credit Report & Score

Your credit report and score are one of the top things considered by lenders when applying for a home loan, also known as a mortgage. A credit report reflects how you have handled past debt and how you are paying your current obligations and helps lenders determine how likely you are to repay in the future.

You’ll want to check your full credit report and scores from each of the three credit reporting agencies in the U.S. – Equifax, Experian, and TransUnion. You can review each of your reports from these agencies using www.annaulcreditreport.com.  This site is run by the three credit bureaus and allows all U.S. consumers to pull their reports for free at least once per year. (Some states have laws in place that provide free access up to 3X per year).  

Unfortunately, most sites do not provide a FICO score for free. However, many financial institutions including banks, credit unions, and credit card companies often provide scores to their customers regularly. You can also request your scores from each of the reporting agency’s websites directly, but a fee may apply.

The website, myfico.com offers options to receive scores from all three bureaus including the specific scores used by mortgage lenders. It’s important to know that there are many versions of the FICO scoring model in existence as well as a second scoring model called VantageScore. This score is often the free score provided by credit card companies and is seen on many of the popular free credit monitoring apps available. Although this scoring system is gaining popularity and will be used more frequently in the future, the FICO score is currently used by 90% of lenders in the country.  You can learn more about credit scores and the different versions by checking out our article “What is a Credit Score”.


Determine What You Can Afford

In addition to credit, lenders will look at what is called your debt-to-income ratio or DTI to help determine the amount a buyer can qualify for when making a home purchase. DTI is calculated as a percentage and compares the amount of debt you have to the amount of income you have coming in each month. This helps lenders figure out what is reasonably affordable for the buyer. Typically, lenders don’t like DTI ratios to exceed 35-36%, but these thresholds vary by lender. Lenders can also make exceptions for higher ratios for buyers with excellent credit history or a large downpayment.


Seek Housing Counseling

Housing counseling provides education and tools that can assist buyers in determining if they are ready to purchase and provide additional insights and guidance through the process. Studies show that buyers who sought housing counseling before purchasing were more likely to avoid high-cost loans and less likely to fall behind on mortgage payments once in their homes.

The U.S. Department of Housing and Urban Development (HUD) offers free or low-cost housing counseling. You can schedule a session with a certified housing counselor online or by calling (800) 569-4287.

You can also use the Consumer Financial Protection Bureau’s website search tool to find Housing Counseling Services across the U.S.


Choose an Agent or Realtor  

A good agent or Realtor by your side can make all the difference in the home-buying process. You’ll want to be sure you are working with someone who is licensed and familiar with your area and market. A buying agent will assist in finding homes that meet your needs and that are in your price range. They will arrange for showings and provide guidance on negotiating with sellers and making offers. They will also work with the lender to make sure all the necessary information required to move forward with the loan has been provided.  

It's recommended to interview at least three agents before signing an exclusivity agreement with them. You’ll want to ask about their experience, recent home sales, references from past clients, and their commission rate.


Research Lenders & Interest Rates  

Finding the right lender and the best rate possible can be a challenge. In addition to rates, you’ll want to consider the fees associated with the loan, average approval and processing times, length of rate lock, and whether you’ll be working with a mortgage originator or broker in person or online.

Fortunately, a lot of the pre-work can be done online as many lenders now publish their daily rates and fees on their websites.  As with agents, narrow down your search and compare three lenders before deciding and applying.

If you’re ready to get ready to start the homebuying process, take the America Saves Pledge today and choose Homeownership as your savings goal. We’ll be your partner and will send you texts and emails full of tips and tools to keep you motivated along the way.



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