The Ultimate Guide to Buying Your First Home

Buying a home is the biggest financial decision you’ll make. There’s a lot happening during the homebuying process and it can be overwhelming for the uninitiated.  Instead of going through the process blindly following the lead of a real estate agent, we want you to be informed and confident buyers. Here’s the ultimate guide to buying your first home with confidence.

Considerations before you buy

Before striking out and touring homes and open houses, take time to consider if buying a home is the best option right now. Don’t buy a house because everyone else is or even because interest rates are favorable. Buy a home because you want to be a homeowner. There are definite benefits of homeownership, but this decision should be based on what’s right for your current situation and lifestyle.

Here are some questions to consider when deciding to buy:

  • What are your motivations to buy a house now?
  • Are your finances in order?
  • Can you afford the costs of homeownership? Remember: this is more than just the mortgage payment. It also includes property taxes, home insurance, mortgage insurance and HOA fees (if applicable), and home maintenance.
  • How much can I afford?
  • Are you planning on staying in the area for the next 5 years?
  • Are you ready to manage home maintenance?

Do your financial homework

The next step is getting your finances in order. This part may take some time but don’t rush through the process. Working through each step will develop a stronger financial foundation and prepare to successfully manage your home purchase. Follow these important steps:

Review your credit score. Having a good credit score is required to get a mortgage. Request a free copy of your credit report and carefully review it. Report any mistakes to the credit bureaus or creditors to have them addressed or removed. If your credit score is less than ideal, use this time to pay down debt, pay your bills on time, and limit your use of credit cards. It can take at least six months before seeing any changes in your credit score so give yourself plenty of time before applying for a mortgage!

Start saving. As you’re paying down debt, you should consider saving for the main homebuying costs. These costs include: the down payment (typically between 3.5% to 20% of the purchase price), closing costs (ranges between 2% to 5% of the mortgage), and move-in expenses. Be sure to factor in private mortgage insurance if you have a less than 20% down payment.

Prepare your financial documents. Begin collecting the financial documents you’ll need to apply for a mortgage. These documents are used to verify your finances: paystubs, W-2s, 1099s, bank and investment statements, and tax returns.

Determine how much you can afford. A home affordability calculator can help estimate how much you can afford based on your income, current debt, down payment, credit score, and the area you plan to buy. Ideally, you try to keep your total housing payment under 30% of your gross monthly income (this may be difficult in an expensive real estate market) to make sure you’re able to cover monthly expenses in addition to the mortgage.

Research mortgage options

This step shouldn’t be left to the last minute. Don’t risk missing out on a home because another buyer already had their financing in order while you still need to secure a mortgage.

There are a variety of mortgage options with varying eligibility and down payment requirements and terms. Take time to research these programs to understand your options and choose the right product for your financial situation. Here’s a quick rundown of the most common loan types:

Conventional mortgages. Conventional mortgages are the most common loan offered by lenders. While these loans aren’t backed by a federal agency. These loans have options that fit a wider range of buyers and properties, and are usually the best option for home buyers with strong credit that can contribute at least a 3% down payment (depending on their credit score).

FHA loans. FHA loans are backed by the Federal Housing Administration (FHA) and allow borrowers to purchase a home with as little as 3.5% with a credit score of 580 and higher. Only an approved FHA lender can issue an FHA loan. These loans tend to be easier to qualify for than conventional loans.

USDA loans. USDA loans are insured by the U.S. Department of Agriculture and are typically used for rural and suburban home buyers. These loans do not require a down payment but there are eligibility requirements.

VA loans. VA loans are administered by the Department of Veterans Affairs. Current and veteran military service members and eligible spouses are qualified for this program without down payment requirements.

You don’t have to use your current bank to finance your mortgage! Shop around for lenders. Mortgage rates and fees can vary depending on the lender so find the most favorable loan terms.

Once you choose a lender, you may want to go through the preapproval process. The lender will pull your credit report and review your financial documents to determine the amount you’re qualified to borrow, loan program, and the expected down payment. This letter usually marks you as a serious buyer and can give you an advantage in a competitive market. Important to note: preapprovals are non-binding so you can still select a different lender if desired.

Start shopping for a home

Now the fun begins! It’s time to start looking for a new home. Here’s how you can find your new home:

Find a trusted real estate agent. Experienced real estate agents will help you find the right home, negotiate the best offer, manage all paperwork, and can be invaluable resources and provide insights into a particular neighborhood or area.

Determine what you want. Its impossible to tour every available home. Nor is it a smart strategy. Create a list of must have features your new home needs to have, and the neighborhoods you’re interested in. This will narrow down your options and help your real estate agent find the right homes in your budget to show you.

It’s important to remain flexible when home shopping. The ‘perfect’ home that ticks off all of your needs and wants, is in the right neighborhood, and is in your price range probably doesn’t exist. But you can be perfectly happy in a home that meets most of your needs if you’re open to exploring homes and neighborhoods that are outside your preferred list.

Make an offer. Once you find a home you’re excited about, its time to put in an offer. Your real estate agent will help you put together an offer, including any conditions you may want to ask for, and present it to the seller. The seller will either accept your offer or counter. You can continue to negotiate until you either agree or decide to continue your home search.

Seal the deal at closing. After completing the home inspection and agreeing to terms, your purchase will move into escrow. This stage involves signing all the paperwork, obtaining private mortgage insurance in applicable (usually if you put down less than 20%), and finalizing your mortgage. Once this process is complete, you’re officially a homeowner!

New homeowner. Now what?

You’ve signed the papers and now have the keys. What’s next? Now its time to schedule the movers and start preparing to move. But your work doesn’t end here!

Now that you’ll be responsible for all the maintenance, its important to keep saving. Create an emergency fund to cover unexpected repairs and replacement costs. You also want to stay on top of regular home maintenance tasks to keep your home in its best condition.

Owning a home is a major achievement! This guide will help you along the path to homeownership but be sure to educate yourself so you can make an informed purchasing decision. The more you understand about the homebuying process, the less stressful it will be.

Lexington Homes has been building exceptional new homes in desirable locations throughout Chicagoland for over 40 years. Enjoy a low-maintenance lifestyle in our communities at Lexington Trace and Parkside of Glenview. Visit us at to learn more about our available homes today.