First-Time Home Buyer Guide 2025: How to Buy a House

The most important step in buying a house is to know it’s okay if you don’t.

Many people buy a house because their friends are doing it or they fear missing out on the market.

Let go of all the non-reasons to buy. Instead, examine if you really want to. It’s okay if you don’t. If you want to become a homeowner, why?

I was 26 when I bought my first home. I had all the feels: FOMO, wanting to “get ahead.” But I also knew it was the right next step. My wife and I had great credit, always paid rent on time, and would likely be in the area for the foreseeable future. We weren’t financial stretched as it was.

All the stars aligned, but that doesn’t mean that’s the case for you, whether you’re 26, 36, or 46. You end up worse off if you buy a house when you’re not ready.

So, are you ready to buy a house? If so, keep reading. If not, it’s okay to come back later.

Step 1: Create a Budget

Creating a budget is the only way you’ll know how much you bring in, how much you spend, and how much is left over.

If you bring in $8,000 per month but spend $8,500, you shouldn’t increase expenses by owning a home. Examine your budget to see where you can cut and how you can “fit” a mortgage payment in.

Don’t overcomplicate it. But do look at actual expenses over the past three to six months and average out the categories (since many expenses happen only every few months).

In the following example, total expenditures went up even though the homebuyer cut certain expenses. Life as a homeowner is almost always more costly than renting.

Step 2: Contact a Lender

It might seem early, but the second step is to talk to a lender. You might be thinking, “I can figure things out on my own and I don’t want to be sold.” I get that. I avoid talking to salespeople at all costs. But make an exception in this case. Here’s why.

• Lending rules are insanely complex. A lender can pinpoint issues with your scenario so you can address them early. I once worked with a client whose company changed him from a W2 employee to a 1099 contractor — technically self-employed. It was with the same company doing the exact same job. We were able to get him approved for an FHA loan despite lacking two years of self-employment due to an FHA provision for such cases. But this could have easily set him back two years in his buying journey. Luckily, he didn’t assume he could or couldn’t buy – he asked a lender.

• It’s hard to calculate how much cash you’ll need to close the transaction. Down payment is easy: zero, three, or five percent down based on the sales price. But how much are closing costs? Could be $7,000, could be $15,000. Does your situation require extra cash reserves? Give or take another $6,000. Without talking to a lender, you don’t know if you need $10,000 or $40,000. At that point, you’re shooting a target in the dark.

• Your best loan program may not be obvious. FHA has a bad reputation because of permanent mortgage insurance. But it’s often cheaper than conventional by hundreds of dollars per month due to often-cheaper mortgage insurance. A lending professional can point out pros and cons of each program so you can decide.

• You may under- or overestimate your home price. There are plenty of stories of buyers who fall in love with a $400,000 house they see online only to find out they can only qualify for $300,000. For example, an auto loan can decrease your buying power by $100,000.

• You may have credit issues that take time to resolve. I helped my friend by his first home years ago. His credit was in the 600s, raising his rate and payment too high to qualify. He had some maxed out credit cards. He was able to get gift money from his grandparents which he used to pay them down to zero. His credit score shot up by 100 points within weeks and he was able to qualify for a great rate. This was a quick fix, but most credit issues can take 12 months or longer to resolve – all the more reason to discover them early

Step 3: Save Upfront Costs

This is where that conversation with the lender in Step 2 pays off. You now have an accurate savings target.

To be honest, I don’t have the best advice on how to save for upfront costs because I’ve never had to do it. When I purchased a home, I got a zero-down loan. I paid only $1,100 out-of-pocket thanks to an agent credit and seller credit covering most of my closing costs. So my best advice is to not save, but instead, find loan programs and credits to reduce that amount as much as possible.

That being said, I’ve helped clients who have been able to save a $50,000 to $100,000 to put down. They were high-income earners who loved to save. To them, saving this much was more a personal goal than a necessity.

You can look into:

• Seller concessions: Funds from the seller to cover closing costs.

• Lender and agent credits: Closing cost help from the lender or real estate agent.

• Family gift funds: Eligible family members can cover your down payment or closing costs.

• Down payment assistance: Grants or loans from eligible government agencies and non-profits.

• 401k Loans: Withdraw or borrow retirement funds for your upfront costs.

Since 2022, inflation has destroyed the ability for many people to save anything. Still, it’s worth reviewing your budget and cutting everything possible. Create a goal to put a certain amount in a high-yield savings account each month. Then you’ll know how many months it will take you to hit your goal.

Step 4: Mortgage Pre-Approval

Now’s the time to get an official pre-approval if you didn’t receive on in a previous step.

A pre-approval is simply a document from the lender that shows the home price you can buy. You can use it to hire an agent (Step 5) and seriously start looking for homes online.

Requesting a pre-approval sounds scarier than it is. You can apply and submit documents online with most lenders. Or you can call and speak with a lender. For straightforward situations (W2 income, plenty of savings, great credit) you can receive a pre-approval in minutes. Other scenarios take longer, like when you’re self-employed or have a spotty employment history. Either way, there’s no cost to getting pre-approved and the worst that can happen is that you learn next steps.

I can think of many cases where I got a request for a pre-approval from a client at 4 PM on a Friday afternoon. By Saturday morning, they were shopping for homes with a Realtor. It can be that fast.

Step 5: Hire an Agent

A 2024 National Association of Realtors settlement means that buyers don’t have it as easy as they used to. Now, you may have to pay for your buyer’s agent. That’s unfortunate, but not insurmountable.

Hiring an agent is still worthwhile. When I bought my first home, my agent helped me negotiate away a large sewer capacity fee from the county that would have fallen to me as the new owner. Discovering and dealing with these issues means the agent pays for themselves in a lot of cases.

Finding a good agent can be tough, though. There are plenty of part-time or newer agents who don’t have the experience to avoid pitfalls. Don’t be their guinea pig.

You’ll sign a buyer-broker agreement before touring the first home. It defines agent responsibilities and cost. Don’t sign anything until you’ve interviewed a few agents, received references, and are sure they are a good fit.

Step 6: Shop for Homes

You’ve put in the hard work. Now the fun part. Shopping for homes can be exciting. Your mileage may vary, though.

I personally had an accepted offer on both homes I’ve purchased, within days of looking. I only viewed two or three homes before making an offer. In both cases, the market was white-hot and we had to make a decision quickly.

Some former clients of mine took six to twelve months.

Both styles are okay.

The important thing is that you’re happy with your decision and the home meets your needs. It helps to have a needs/wants checklist so you can make a quick decision if needed.

• Will the home suit your needs over the next five years (kids, pets, work)?

• Is a yard a must-have or a nice-to-have?

• If it doesn’t come with an open kitchen, are the walls around the kitchen load-bearing?

• Are there nuisance neighbors?

US News says 60% of homeowners under 35 wish they had purchased a bigger home. Sometimes, this isn’t possible due to price constraints. But growing out of a home too quickly is expensive: you lose 10% of the home’s sale price when you sell, then pay moving and closing costs when you buy again.

Step 7: Make an Offer

You will work with your real estate agent to craft an offer that you’re happy with and you think the seller will accept.

This is an art form. You don’t know the details of other offers submitted. Lean heavily on your agent’s knowledge of the market to make an educated guess on price, closing cost assistance, and other terms.

However, don’t be afraid to push back. A friend of mine offered a lower purchase price than his agent recommended. The seller accepted. Had he followed his agent’s advice, he would have paid more. Remember: it’s your money, not the agent’s. Hot take: the agent’s first priority might be getting the deal closed quickly so they can collect the commission, not necessarily getting you the absolute best deal (don’t tell my agent friends I said this).

Contingencies

Request contingencies so you can get out of the deal in case something goes wrong:

• Financing contingency: kicks in if your loan is denied.

• Inspection contingency: you can back out if a major defect is found during the inspection.

• Appraisal contingency: in case the home doesn’t appraise for the purchase price.

It’s tempting to waive all contingencies to win the house. But almost no house is worth a five- or six-figure issue discovered after closing.

You can also ask for seller concessions, a.k.a closing cost assistance. However, sellers could reject your offer if they have ones with no concession requests.

Resist Emotional Attachment

Most important, don’t get emotionally attached to a home at this point. That causes you to offer more than you’d like to spend or get trapped in a bidding war.

Clever Real Estate says two-thirds of first-time buyers feel they overpaid for their home. Many of these buyers likely got too emotionally invested too soon.

If your offer is not accepted, look for another home. If it’s accepted, submit the purchase agreement signed by all parties to the lender. Then, move on to the next step.

Step 8: Get a Home Inspection

A home inspection costs $300-$600 depending on where you live. But it’s well worth it to avoid a costly issue.

Homebuyers occasionally skip the home inspection because the lender doesn’t require it and they may have waived the inspection contingency anyway. But you can avoid a downright scary situation with an inspection.

You may also want a specialty inspection, such as for a roof, sewer line, radon, or buried oil tank. Imagine discovering an oil tank on the property after closing that requires a $50,000 decommissioning or removal cost.

A home inspection is different than the appraisal, despite the latter being called the “appraisal inspection.” The appraisal won’t uncover most issues, just obvious dangers and malfunctions.

Ninety percent of buyers get a home inspection according to American Home Inspectors Training.

Step 9: Close the Loan

All the pieces are falling into place. But there are a few more steps before the home is yours.

Underwriting

Your file will go through underwriting. You will probably need to provide a few more pieces of documentation if the underwriter has additional questions.

For example, the lender may see a former address on your bank statements. You receive emailed bank statements, so you never noticed. The underwriter wants to make sure you don’t have another residence somewhere. There are dozens of these kinds of innocent inconsistencies that the underwriter may ask about. This is normal.

Insurance

Finalize your homeowner’s insurance provider and send contact information to your lender. The lender will request policy details.

Appraisal

Your lender will order an appraisal and request updated documents from you, depending on how long it’s been since you were pre-approved.

Signing

Upon final approval, the lender will send final loan documents to the escrow company. You will go to the escrow office or sign in a convenient location with a traveling notary.

Funds to Close

The escrow company will let you know the final amount to wire. Your total will include the down payment and closing costs less any seller concessions or down payment assistance.

Closing costs for a mortgage can vary but generally include the following:

• Loan Origination Fees: These fees cover the lender's cost of processing your loan.

• Appraisal Fee: This fee pays for an appraiser to assess the value of the property.

• Title Insurance: This insurance protects both the lender and the buyer against any claims against the property title.

• Attorney Fees: If an attorney is involved in the closing process, they will charge a fee.

• Property Taxes: You may need to prepay a portion of property taxes.

• Homeowners Insurance: You'll need to show proof of homeowners insurance and may need to prepay a year's worth.

• Survey Fee: This fee covers the cost of surveying the property boundaries.

• Recording Fees: These are fees charged by the local government to record the transfer of property ownership.

• Credit Report Fee: The lender will charge a fee to pull your credit report.

• Underwriting Fee: This fee covers the lender's cost of underwriting the loan.

• Private Mortgage Insurance (PMI): If you're making a down payment of less than 20%, you'll likely have to pay PMI.

Be careful when wiring funds. Some homebuyers have wired funds to scammers who reached out pretending to be the escrow company. Read more from the FTC.

Finalizing the Loan

The lender will receive the signed loan documents. Don’t leave town. Homebuyers always inadvertently plan a vacation for their closing date (I’m guilty of this). You may need to supply last-minute documents or answer questions on the day of “funding” — the day your lender issues loan funds.

Unless an issue arises, your loan will fund and the house is yours. Well, almost.

Getting the Keys

The county still needs to record the ownership change in public records. Sometimes this can’t happen until the day after funding. When “recording” is complete, coordinate with your agent on when and where to pick up the keys.

Step 10: Move In

Congratulations. This is the moment you’ve been working toward, potentially for years. Take a minute and enjoy what is truly a major accomplishment and life milestone. You’re a homeowner, potentially against great odds, due to your hard work and sacrifice.

Moving

Quick tip: don’t plan the moving truck too early. I had clients who booked the truck early. Their closing was delayed. They had to get the truck early, then keep it long past their return date since no other trucks were available anywhere. It was an expensive and stressful situation.

Ask your real estate agent for a list of utilities providers that service the home. Start transferring or setting up services.

Budget

You’ve achieved homeownership, but that doesn’t mean you can forget about your budget. Track expenses in coming months. They will change. Your utility costs will rise, and you will have maintenance costs. Set aside money each month for major repairs that may only happen every few years. That way, you don’t have to borrow when something breaks.

It’s normal for many things to break the first year of homeownership for no apparent reason.

It’s also a great time to examine tax breaks. Talk to a tax advisor about your mortgage interest deduction, propert tax deduction, business use of the home, and more.

A Range of Emotions

It’s normal to feel all sorts of emotions, from joy to buyer’s remorse.

It can also be scary to think about upcoming costs.

Just know that yes, your costs will be higher for the next few years. Sometimes, you’ll miss your days as a renter. But after about five years, inflation and rents will rise, but your housing costs will stay relatively flat. Eventually, you’ll be paying less for your house than many people pay to rent a small apartment.

Homeownership is tough, but renting is tougher. As a homeowner, you are not subject to the whims of the rental market or your landlord. And, you’re the beneficiary of rising home values. Keep all this in mind your first few years of owning a home.

Your Homeownership Journey

Buying a home isn’t for the faint of heart but there are also few accomplishments in life that compare with it. After buying two homes and helping many families do the same, I’ve seen the massive rewards that come with buying and holding real estate. Not just financially, but building a sense of security and ownership in your community.