First-Time Homebuyer Guide: How to Financially Prepare for One of Life’s Biggest Purchases
Buying your first home is one of the most exciting — and overwhelming — financial milestones you’ll face. Between navigating the mortgage process, understanding how much house you can afford, and budgeting for hidden costs, there’s a lot more to the homebuying process than scrolling through listings online.
Whether you’re years away from making the leap or feeling ready to get serious, setting yourself up for success starts with the right preparation. In this guide, we break down what every first-time buyer needs to know — and the financial steps that can help make your homeownership journey a confident one.
The Biggest Homebuying Myths — and the Truth
One of the most common misconceptions for first-time buyers is that you need to save a massive down payment to get started. While a larger down payment can lower your monthly payment, it’s not always necessary — or even realistic — for everyone.
Depending on the loan type and your eligibility, many buyers can purchase a home with as little as 3% down. Waiting to save 20% isn’t always the best route, especially if you’re staying in an expensive rental for years just to reach that goal.
Another myth? That you should wait for the "perfect time" to buy based on market trends. Predicting the housing market is about as reliable as predicting the stock market — no one has a crystal ball. Instead, the better question to ask is: Are you financially and personally ready?
How to Know You’re Financially Ready to Buy a Home
While every buyer’s situation is unique, there are a few key indicators that signal you might be ready to purchase your first home:
1. Steady Income
A consistent, reliable income is essential — not only for mortgage approval but for your own peace of mind. If your income fluctuates or you’re in an unstable job situation, it might be wise to hold off until things are more stable.
2. Healthy Savings Habits
You don’t need to drain your bank account to buy a home, but you should have enough set aside for the down payment, closing costs, and those inevitable first few expenses. If you’re able to consistently save money each month, you’re already building the habits that set successful homeowners apart.
3. A Solid Credit Profile
A higher credit score can help you secure better loan terms, but you don’t need perfect credit. Generally, a score of 650 or higher puts you in a good position, though some loans accept lower. More importantly, your credit should be in good standing with no major issues.
4. Realistic Expectations
Your first home doesn’t need to be your dream home. Most first-time buyers compromise on things like square footage, location, or cosmetic details to find a property that fits their budget and lifestyle. The key is understanding your must-haves versus your nice-to-haves — and staying open-minded.
Determining How Much House You Can Afford
One of the biggest mistakes new buyers make is house hunting based on the maximum loan amount their lender approves — rather than what feels comfortable for their budget.
A useful rule of thumb is the “28/36 Rule,” which suggests spending no more than 28% of your gross monthly income on housing costs and keeping total debt payments (including your mortgage) under 36%.
But it’s not just about the mortgage. Consider these often-overlooked expenses:
Home Maintenance: Expect to spend roughly 1% of the home’s value each year on repairs and upkeep.
Property Taxes and Insurance: These costs are included in many mortgages but often increase over time. Build some wiggle room into your budget.
Closing Costs: Typically 1–6% of the purchase price, covering fees like inspections, lender charges, and legal expenses.
Move-in Expenses: Furniture, appliances, tools, and small home upgrades can add up fast. Budget $1,000–$3,000 for these essentials.
Want a practical way to test affordability? If your expected mortgage payment is higher than your current rent, practice saving the difference for a few months. If your budget feels stretched, you may want to aim for a lower purchase price.
The Importance of Finding the Right Agent and Lender
Buying your first home isn’t something you want to DIY — especially when it comes to building your team. Working with a real estate agent experienced with first-time buyers can make the process far less stressful.
The right agent:
Takes time to explain the process in detail
Helps you identify realistic options in your price range
Connects you with trusted lenders, inspectors, and service providers
Acts as your advocate during negotiations
Likewise, your lender plays a huge role in your homebuying journey. Look for one who is responsive, transparent, and willing to walk you through different loan scenarios to help you understand your options.
The “Five-Year Rule” — Why Time Horizon Matters
Generally, you should plan to stay in your first home for at least five years. Here’s why:
It allows time to build equity and offset closing costs
You reduce the risk of selling during unfavorable market conditions
You position yourself for potential home value appreciation
Of course, life happens, but buying a home should be viewed as a medium to long-term commitment. Make sure the home fits your needs for at least the next several years, both financially and personally.
Buying vs. Renting — The Long-Term View
Deciding whether to buy or rent is deeply personal. For some, the flexibility and low-maintenance lifestyle of renting fits their current goals. But over the long run, owning a home can create stability and wealth-building potential.
Rent tends to increase year after year, while homeownership can “lock in” one of your largest expenses. Though costs like property taxes and maintenance fluctuate, your mortgage payment remains relatively stable, which can help with budgeting and future planning.
Additionally, homeowners often build equity as property values rise — giving you a financial asset rather than simply paying for a place to live.
That said, renting isn’t "throwing money away." You’re paying for shelter and lifestyle. But homeownership offers the added potential for financial return — provided you’re ready for the responsibility.
Key Takeaways for First-Time Buyers
Start your financial preparation early — long before you find a home you love
Build healthy savings habits and maintain steady income
Understand your comfort zone for monthly payments, not just what you’re approved for
Budget for the hidden costs of homeownership
Partner with experienced professionals who specialize in working with first-time buyers
View your first home as a stepping stone, not necessarily your forever home
Stay focused on your long-term financial goals and stability
Buying your first home isn’t about timing the market — it’s about preparing your finances, knowing your priorities, and making a decision that supports your lifestyle and future goals.
Want to dive deeper into the homebuying process?
We cover this topic in more detail — including personal stories, actionable tips, and real-world examples — in this week’s podcast episode.