How Hard Is It to Buy a House for the First Time?

Buying your first home is a huge milestone, but the process can feel daunting if you haven’t gone through it before. There are a few tricky obstacles, chief among them the financials.

“Technology has streamlined parts of the mortgage application process, but there’s still an awful lot that’s required to get approved for a loan,” says Pete Boomer, a mortgage executive at PNC Bank.

Just how hard is it to buy a house for the first time? Here are the four challenges you could face and how to overcome each of them.

CHALLENGE NO. 1: SAVING UP FOR A DOWN PAYMENT

The median sales price of an existing home rose to $341,600 in April, according to the National Association of Realtors. That means the standard 20 percent down payment is more than $68,000.

It would take the typical American household 21 years to save for a 20 percent down payment, according to a recent study by U.S. Mortgage Insurers. It’s no surprise, then, that coming up with that money is the most common barrier for first-time homebuyers, a Realtor.com survey found.

While there are options for getting a home loan without 20 percent down, if you can meet that threshold you avoid having to pay private mortgage insurance — or PMI — a premium that can come to about 0.58 percent to 1.86 percent of your loan amount per year.

Pro tip: So if you know you want to buy a home, make it a part of your financial plan and start setting aside money for a down payment as a savings goal. Look at your budget and see if you can automate a certain amount toward that on a regular basis. And whenever you get a windfall, like a bonus or tax refund, consider putting a portion of it toward your down payment fund.

Also, look into first-time homeowner programs. Many states will offer down payment assistance or low-interest loans for qualified borrowers who are buying their first house or who haven’t bought a house in several years.

CHALLENGE NO. 2: IMPROVING YOUR CREDIT SCORE

Lenders will look at your credit score when assessing your mortgage application. The better your score, the more likely you’ll qualify for better mortgage terms — or even qualify for a loan at all. Most major lenders require a credit score of at least 620 to qualify for a conventional loan. And borrowers typically need a credit score of 740 or higher to qualify for the best mortgage rates, Boomer says.

Pro tip: To ensure your credit is in tip-top shape, Boomer recommends checking your credit report for errors. “Cleaning up errors on your credit report can boost your score significantly depending on the type of error,” Boomer says. If you find a mistake, alert the credit bureau and creditor immediately to get it removed. You can get a free copy of your credit report at AnnualCreditReport.com. There are other steps you can take to boost your credit score, like reducing your credit card debt and making all your payments on time.

RELATED CONTENT: Want to learn more about this topic? Our complete guide to buying a home can help you prepare for one of the largest purchases you’ll ever make. 

CHALLENGE NO. 3: DECIDING ON WHAT YOU WANT IN A HOME

It’s a common pain point for first-time homebuyers, and it’s easy to get distracted once you start looking at homes online. But having a clear idea of what you want before you start looking at houses can help you save time and energy (not to mention prevent yourself from falling in love with a property too soon).

Pro tip: Create a list of your musts and wants so you can narrow your search to only true contenders. “It's really important to separate wants versus needs, because it may be difficult to get every single thing you want in your price range,” says Peggy Yee, a real estate broker in Vienna, Virginia.

If you’re buying a home with a partner or spouse, have a frank conversation about what you’re both looking for. Do you want a single-family house, condo, or townhome? How many bedrooms and bathrooms do you need? Do you want a quiet or lively neighborhood? Are you looking for a starter home or a home where you can put down roots? Aligning your visions is crucial.

CHALLENGE NO. 4: FINDING THE BEST MORTGAGE RATE AND TERMS

With mortgage rates on the rise, many buyers are clamoring to purchase a home ASAP in order to lock in a low interest rate, Boomer says. If you’re financially ready to buy a home, moving quickly isn’t such a bad idea, he says, because “from an affordability perspective, getting a low mortgage rate can change the dynamics of how much home you can afford.”

Pro tip: It’s a simple step, but it can lead to big savings: Shop around. According to a Freddie Mac study, borrowers who get one additional rate quote save an average of $1,500 over the life of their loan, and borrowers who get five quotes save an average of $3,000 — yet nearly half of homebuyers don’t shop for better rates.

“Lenders have different programs, different fees and different appetites for risk,” says Boomer of why rates can vary. Proof of that is a Consumer Financial Protection Bureau report that found the rates offered to a conventional loan borrower with a good credit rating and a 20 percent down payment can still vary by more than half a percent. Boomer’s advice: Talk to a bank, credit union and local mortgage lender before deciding which lender you want to go with.