Buying a home will be one of the biggest purchases you will make in your lifetime. But the home buying process can be confusing for many first-timers. Below I share 5 things that first-time home buyers should do before they go house shopping.

#1 – Check your credit score

The better your credit score, the easier it will be for you to be approved for a mortgage. Most A Lenders, such as the big banks, require a minimum credit score of 680.

I usually suggest this as the first step in the home buying journey because it gives you time to improve your credit score if need be.

#2 – Save for your down payment

The minimum down payment you need is generally 5% of the purchase price of the home that you will be buying.

But, it is important to know that:

If your down payment is under 20% of the purchase price, then you are required to pay for mortgage insurance.

Mortgage insurance is an insurance policy that protects the mortgage lender in case of default.  It also ensures you get a reasonable mortgage interest rate, even with a smaller down payment. The cost of mortgage insurance is added to your mortgage payments at the start of your mortgage.

You will also need a minimum down payment of 20% if you want to amortize your mortgage over a period that is longer than 25 years.  Learn more about amortization terms and how to pay off your mortgage faster here.

#3 – Budget for closing costs

When you buy your first home, you will be responsible for paying closing costs such as land transfer tax, legal fees and appraisal fees. These costs cannot be added to the mortgage amount you are borrowing.

My recommendation:

First-time home buyers should set aside 2% to 5% of their purchase price to pay for closing costs.

#4 – Calculate upkeep costs

First-time home buyers are often so focused on buying a home, that they forgot what comes next!

Home ownership comes with annual expenses like mortgage payments, property taxes, home insurance and maintenance.

Want to avoid being “house poor”?

Money experts usually recommend that you spend no more than 30% of your take home pay on housing costs.

#5 – Get pre-approved for a mortgage

Before you start your home search, it is important for first-time home buyers to get a mortgage pre-approval.

Here’s why:

A pre-approval tells you how much you can borrow.

It will save you lots of time during the house hunting process by focusing on properties that are within your price range.

It will also give you the confidence to put down an offer when you find your dream home.

Are you thinking of buying your first home? Contact me for a mortgage pre-approval today!

Joseph Kwan, CPA, CA, CPA (IL)
Mortgage Agent
Founder of RethinkCPA