First-time homebuyer? Here’s what you need to know

Open full sized image

What kind of home are you looking for?

© Jakub Krechowicz, seanlockephotography, yuliachupina/stock.adobe.com; Photo illustration Encyclopædia Britannica, Inc.

Buying your first home can feel intimidating. It’s complicated and expensive, and once you’ve signed the documents and received the keys, there’s no turning back. It’s a feeling that’s both exhilarating and nerve-racking, and if you’ve been slow-walking the whole “adulting” thing, buying that first home is the ultimate leap.

Before you decide to buy a home, you have to answer many personal and financial questions. Are you ready to settle down? Do you plan on staying where you are for a while? How much can you really afford?

As you flip through the listings on your favorite real estate app, keep these things in mind.

If you like where you’re living and plan to stay a while, the first decision is whether to rent or buy. Depending on where you want to be, how much money you have for a down payment, and the type of home you’re looking for, buying or renting could be the cheaper option. But the financial question isn’t just about your monthly costs.

Buying a home is an investment, and one that can appreciate over time (see figure 1). A home is also an asset you can borrow against if you need money. And owning a home can help you predict your housing costs into the distant future.

Open full sized image

Figure 1: APPRECIATE THIS. Although the housing market has seen its share of downturns—typically in and around recessions—median home prices have appreciated over time.

Sources: U.S. Census Bureau; U.S. Dep't of Housing and Urban Development, Median Sales Price of Houses Sold for the United States [MSPUS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MSPUS#, August 12, 2026

If you decide to buy a home, one of the first things you want to consider is the type of home you want. If you have a family, or are planning to start one, the size of the home is a priority. How many bedrooms do you need? Will you need a home office? Will you have guests come to stay?

Location is important. How long will your commute be? How close are you to family and friends? If you travel frequently, how close is the airport? The services offered by the town, such as its schools, library, and park district, are worth looking into. Is there a community pool? Will you be close to restaurants and the grocery store?

You may also have a vision of your dream home. Do you want to live in a no-hassle condominium where someone else handles the maintenance and repairs? Do you want to live in an apartment in a big city? Do you want a suburban cul-de-sac where your children can play with other kids nearby? Or do you dream of a house on a big plot where you can’t see or hear your neighbors?

The next step is to determine your budget. Some mortgage options allow for a modest down payment, but the lower your down payment, the more likely it is that you’ll have to pay a private mortgage insurance (PMI) premium in addition to the monthly mortgage payment. To avoid PMI, you’ll generally need at least 20% of the home’s value for a down payment.

Check your savings and see how much you can set aside for the down payment. If you have $60,000 available and plan to put 20% down, for example, that would cover the down payment on a $300,000 home, leaving $240,000 to finance. But having enough for the down payment doesn’t necessarily mean you can afford the home.

You’ll also need money beyond the down payment. Buying a home typically involves closing costs, which can include lender, appraisal, inspection, title, insurance, and other fees. And it’s not just about what you can pay up front. You should also use a mortgage calculator (like the one below) to see how much you’ll be paying each month.

Remember: The mortgage payment is only one part of the home’s monthly cost. Be sure to include estimated property taxes homeowner’s insurance to have a clear idea of how much a home purchase will affect your budget. And leave room in your budget for the other costs of homeownership, including utilities, maintenance, and unexpected repairs. If your home is part of a homeowners association (HOA), make sure you know the cost and what it covers.

loan calculator

loan calculator by

Your credit score is also important when buying a home. A higher score may help you qualify for a lower mortgage interest rate, while a low score can make it more difficult to qualify for a loan. You should also have your financial documents in order. Applying for a mortgage can be a lengthy process, and lenders may ask for tax returns, recent pay stubs and W-2s, bank and investment statements, and documentation of other income and assets.

Once you decide what kind of home you’d like to buy and what your budget is, it’s time to look at the housing market to see what’s available.

With some luck and planning, your budget and your vision of a dream home will align. Once you know what you’re looking for and what fits your budget, consider getting preapproved for a mortgage and finding a real estate agent to help you start your search.

But if they don’t align, then you may want to consider a starter home—a less expensive home, preferably in your desired area—that lets you begin building equity while leaving room in your budget for other financial priorities.

Or you may choose to keep renting and save diligently until you have enough to buy your “forever” home.

For many generations, buying that first home has been the “American dream.” But it’s not a dream that comes in one-size-fits-all packaging, and it doesn’t come according to a specific timeline.

And when you dream this dream, make sure you do it with your financial eyes wide open.