First-Time Homebuyer Guide

Buying your first home is thrilling, empowering, and a bit overwhelming.

Illustration of a house with a directional compass

First-Time Homebuyer Guide

As exciting as it is to look at homes and imagine what your daily life could look like there, the home-buying process can seem intimidating, especially for first-time homebuyers. 

But, with this first-time homebuyer’s guide, you’ll learn what to expect from the buying process, including:

  • The benefits available to first-time buyers (as we’ll explain in the next section, you might qualify as a first-time buyer even if this isn’t technically the first time you’ve owned property).
  • The three steps to take even before you start your home search.
  • How to find the right home for you.
  • How to make an offer on a home.
  • How to navigate the contract period and successfully close on your home.
  • What to do once you become a homeowner.

You’ll also get quick answers to five popular homebuyer FAQs. 

Bookmark this page to revisit this First-Time Homebuyer’s Guide throughout your buying process.

Who Is Considered A First-Time Homebuyer?

You might be surprised to learn that you can be considered a first-time buyer even if you have owned a home before.

According to the U.S. Department of Housing and Urban Development (HUD), any individual who meets the following criteria is considered a first-time homebuyer:[1]

  • An individual who has had no ownership in a principal residence during the three-year period ending on the date of purchase of the property. This includes a spouse (if either meets the above test, they are considered first-time homebuyers).
  • A single parent who has only owned with a former spouse while married.
  • An individual who is a displaced homemaker and has only owned with a spouse (for example, a stay-at-home spouse who has been divorced and has never owned property alone).
  • An individual who has only owned a principal residence not permanently affixed to a permanent foundation in accordance with applicable regulations.
  • An individual who has only owned a property that was not in compliance with state, local, or model building codes and which cannot be brought into compliance for less than the cost of constructing a permanent structure.

Special Assistance For First-Time Homebuyers

To make homeownership more accessible, governmental departments and mortgage lenders have created programs specifically for first-time buyers, including:

  • Lender-based down payment assistance. Individual lenders may offer grants or special loan terms for first-time buyers. Take a moment to review Specialized Loan Options to find out if your home-buying situation could make you eligible for favorable loan terms or closing cost assistance from PNC Bank.
  • Homeownership Vouchers for low-income buyers.[2] As part of HUD’s Housing Choice Voucher Program, low-income buyers can apply for homeownership vouchers to help pay monthly housing expenses.
  • State-specific DPA (down payment assistance) programs for first-time buyers.[3] State and local governments may offer first-time buyer incentives in an effort to attract more residents to their areas. You can check the HUD website for first-time buyer assistance in your state. 
  • Favorable home loan options.[4] Many first-time homebuyers choose a government-backed mortgage, like an FHA loan , VA loan (reserved only for military service members, veterans, and their spouses), or USDA loan (reserved for qualifying properties in areas with lower population density). These home loans are secured by the U.S. government, which allows lenders to offer lower down payment options to qualified applicants. To learn more about home loan options, check out The 5 Main Types of Mortgage Loans.

Steps To Take Before Starting Your Home Search

To make the most of your home search, there are a few tasks to complete even before you start looking for your new home. Investing a little time upfront to prepare for your home search can save you considerable anxiety and frustration. It can also speed up the process and get you into your new home sooner.

Understanding your financial situation is critical in determining your budget for the new home. And, if you’re planning to get a mortgage loan to finance the purchase, your credit and finances are even more important because they are a significant factor in determining the loan terms that lenders can offer.

Here is what you need to know about your credit and finances before starting your home search:

Your Credit Score

Your credit score is a record of how well you have managed debt repayments over time.[5] Your score is a factor in determining whether you qualify for a home loan and at what interest rate. Your interest rate is important because it impacts your monthly mortgage payments (the higher the rate, the higher the payment amount). The higher your credit score is, the better. 

You can pull a free copy of your credit report from[6] Start by reviewing your credit report for accuracy. A 2013 study by the Federal Trade Commission (FTC) found that as many as one in five people have an error on their credit report, with around 5% of consumers having an error that could result in less favorable loan terms[7]. If you happen to find an error, you can report it to the credit bureau that reported the error (the three major credit bureaus are Equifax, Experian, and Transunion).

If you have concerns about your credit score, reach out to a local mortgage lender who can help you understand if you can proceed with the home-buying process with your current credit score. 

Your Verifiable Income

Your income is important to the home-buying process, particularly if you plan to take out a mortgage for the purchase. Lenders want to see a steady income. You might need to provide recent paystubs, W2s, or tax returns to confirm your income. Your lender may also contact your employer (if applicable) to verify your position and your salary or wages.

Your Debt-to-Income Ratio

Your debt-to-income ratio (DTI) shows how much of your current income is already allocated to cover current debt payments (such as auto loans, student loans, medical loans, or credit card debts). This is an important metric for mortgage lenders who want to make sure that borrowers can comfortably afford their new mortgage payments in addition to any other debt payments.

To calculate your DTI, divide your total monthly debt payments by your gross income (the amount you make before taxes are taken from your paycheck).

Your DTI is just one factor of many that determine your eligibility for a home loan, so there is no hard-and-fast percentage that you need to hit. But, generally speaking, the lower your DTI, the better.

Getting pre-approved for a home loan means having a lender review your credit and finances to determine how much of a loan you can qualify for.[8]

Completing this quick process before starting your search provides multiple benefits to first-time homebuyers. First, your pre-approval can help direct your budget decisions. Imagine falling head-over-heels for a home only to learn that you can’t get enough of a loan to buy it. Knowing how much you can borrow can keep you from this kind of heartbreak.

Secondly, being pre-approved can make your offer more appealing to sellers, perhaps increasing your chances of getting your offer accepted. This is because sellers want to know that you can qualify for the funding needed to close the deal before they agree to put the property under contract with you, essentially taking it off the market. 

How To Get Pre-Approved

You can get pre-approved for a mortgage conveniently online. Simply visit PNC Bank’s online pre-approval application. You’ll answer some basic questions about yourself and any co-borrowers, compare available loan options, and upload your financial documents. 

A mortgage professional then reviews your application to confirm whether you qualify for a mortgage loan and, if so, at what interest rate.

Getting pre-approved can help you understand how much you can spend (as in, how much money the bank is willing to lend you for your purchase). But it’s important to determine how much you’re comfortable spending. 

Creating a budget will help you objectively assess your income and expenses to determine how much you want to spend. You can use the Home Insight® Planner as a template for creating your budget.

You’ll have two types of expenses to consider: upfront and ongoing.[9] Here are some tips for deciding how much you want to spend in each category.

Upfront Expenses For First-Time Homebuyers

Upfront expenses include the following:

  • Earnest money: This acts as a security deposit to demonstrate to the sellers that you are a serious buyer with every intention of completing the purchase. The amount of the earnest money varies, but in many markets, 1% to 3% of the purchase price is customary. Assuming the deal proceeds as expected, this amount may be applied toward your down payment or closing costs (more on this coming up).
  • Down payment: This is the amount of the purchase price that you are paying out-of-pocket. The amount needed for a down payment depends on your financial situation and your home loan type. Many buyers put between 3% to 20% down, but some loan types offer 0% options under certain circumstances. It is important to note that you may need to purchase private mortgage insurance if you put less than 20% down. This is an insurance policy that helps to protect the lender from borrower default; this additional protection is what enables lenders to issue home loans with a down payment of less than 20%.
  • Closing costs: Closing costs cover a wide range of additional fees and expenses necessary to facilitate the home purchase. For buyers, this includes expenses like appraisal fees, loan origination fees, and prorated property taxes and insurance. These costs may add up to around 2% to 6% of the purchase price.

If you have concerns about covering these upfront expenses, you might consider looking for a down payment assistance program (DPA). Depending on current housing market conditions, you might also be able to negotiate with the home sellers to have them pay a portion of your closing costs out of their proceeds from the sale. 

Ongoing Expenses For Homeowners

Ongoing expenses for homeowners include:

  • Monthly mortgage payments: Monthly mortgage payments typically include four components, collectively known as PITI:[10].
    • Principal: The amount of the original loan to be repaid.
    • Interest: The cost of borrowing money.
    • Taxes: Property taxes due to the local tax collector.
    • Insurance: Homeowner’s insurance premiums plus any mortgage insurance premiums if your loan requires mortgage insurance.
  • Maintenance: Expected monthly maintenance expenses, like landscaping and cleaning supplies. 
  • Maintenance reserves: An amount set aside every month so that you have funds available to cover the repair or replacement of items like the heating system, A/C, or roof when needed. 

You might choose one of these commonly-used mortgage affordability models for deciding how much of your monthly income you’re comfortable spending on your mortgage payments and maintenance expenses.


How Much You Can Afford?

Use our Affordability Calculator to help you get a general estimate of the home you can afford.

Get Ready

Get Pre-Approved

Get pre-approved to help guide you when searching for your new home!

Finding The Right Home For You

Here are a few quick tips to help you find the right first home. 

  • Get professional representation early in the process. Real estate agents don’t just show you through properties and help you with the paperwork. They can also keep an eye on the market, potentially giving you a heads-up about new properties that meet your criteria. You’ll also appreciate your agent’s expertise later in the process as you negotiate terms and work through the contract period (more on that coming up). In many markets, the seller pays real estate agent fees, so you might be able to hire a real estate agent to represent you at no expense to you. Contact your local PNC Bank Mortgage Loan Officer for a referral to a well-qualified real estate agent.
  • Clarify needs vs. wants. Make a list of your must-haves. And then list the things that would be nice to have if possible. This can help keep you focused on properties that could work for you. Remember, you don’t need to find a perfect home. You just need to find a place that works for you and can get you on the property ladder so you can start building equity. 
  • Choose the location carefully. You can change many things about a property, but not the location. The location makes a big difference in the potential future value of your home, so choose wisely. 

Making An Offer On A Home

When you find the right home, you get to make an offer. The offer outlines the price you’re willing to pay and the terms under which you’re willing to buy the property. Your real estate agent can help draft an offer that reflects your desired terms. 

As you work with your agent on your offer, pay special attention to the contingencies. Contingencies are conditions that must be met before the deal can close. For example, you might have a home inspection contingency that allows you to back out of the deal (and potentially get your earnest money deposit back) if the home inspection uncovers issues you feel are too much.[11] Take note of the deadlines on contingencies because failure to meet these deadlines could potentially result in forfeiture of the earnest money deposit. 

When you make an offer, the seller can address it in one of three ways:

  1. Accept: If the seller accepts your offer, congratulations! You have the house “under contract,” and you are one big step closer to becoming a homeowner. 
  2. Reject: The seller could deny your application flat out. The seller may have accepted a competing offer or may have felt that your offer was too far from the terms they would accept. 
  3. Counteroffer: The seller may be willing to negotiate with you by countering with a different price point and/or different terms. If you receive a counter, you can accept, reject, or make a counteroffer of your own. 

Navigating The Contract Period

There is a period of time between getting your offer accepted and closing the deal. This is called the “contract period” (or, in states that traditionally use escrow accounts to hold funds during the transaction, the “escrow period”).

Many administrative tasks are completed during this period to prepare the property to transfer from the seller to the buyer. 

Typical contract period tasks include:[12]

  • Home inspections to assess the condition of the property.
  • An appraisal to confirm the fair market value of the property. 
  • A title search to see if any other parties have an ownership claim or financial claim against the property.
  • Securing financing and signing loan documents. 
  • Wiring the down payment and closing costs to the designated holding account. 

There could be other steps as well (such as land surveys if boundaries are unclear), so you’ll want to stay in close contact with your real estate agent and their team, as well as your lender, as you work toward closing day.

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Closing On Your First Home

When the money is transferred, and the paperwork is signed, you get to collect the keys to your new home. Congratulations on becoming a homeowner!

What Happens Next?

After closing day, you might have an exciting, somewhat frenzied few weeks (or months). You might be doing renovations, you’ll be moving, and you’ll be spending time settling in and enjoying your new home.

In the midst of this happy chaos, here are a few things to keep in mind as a new homeowner:

  • Change the locks right away. There’s no way of knowing how many copies of the keys the previous owner had. So, for security’s sake, it makes sense to change the locks so that you can control access to the house.
  • Follow up on the deed recording. Your real estate agent, escrow officer, or lender might record the deed on your behalf. Just make sure to confirm that the deed has been transferred to your name. 
  • Make your house payments on time. Making on-time payments can boost your credit score over time and help you avoid potential financial trouble from falling behind on payments. It’s also important to note that contractors who work on your home can place a “lien” against the property if they don’t get payment for their work. A lien is a legal claim that could prevent you from selling the property in the future, so it’s important to pay any contractors and vendors on time. 
  • Watch your home equity grow. As you pay down your debt, you own a greater and greater share of the home’s value. This is important because you could potentially remove your private mortgage insurance when your equity hits a pre-determined percentage (ask your lender if this applied to your home loan). Your home equity also gives you an idea of how much to expect in profits if you sell your home. Furthermore, you can potentially tap into your home equity with a Home Equity Line of Credit (HELOC) or Home Equity Loan if you need cash in the future to cover large expenses (like renovations, for example).

Homebuyer FAQ

Maybe not. There are several mortgage loan types available. Some of these require a down payment of less than 5% for well-qualified buyers, while some offer 0% down payment options for well-qualified buyers of qualifying properties. Having said that, there are benefits to putting down 20%, such as securing a lower interest rate and avoiding private mortgage insurance.

Maybe. Different loan types have different credit requirements. FHA loans are particularly useful for buyers with lower credit scores. But you should contact a mortgage lender to help you understand the loan types available to borrowers with credit scores in your range. 

Pre-qualification is a quick, cursory review of your financial situation, while pre-approval is a more in-depth evaluation. With pre-approval, a lender reviews your credit, income, and assets to determine the maximum loan amount you can qualify for. Pre-approval carries more weight and shows sellers that you are a serious buyer. This can potentially help you get an offer accepted when you find the right home.

A home inspection is a thorough examination of a property's condition by a licensed inspector. While not legally required, a home inspection is highly recommended because it helps identify potential defects and necessary repairs. This can be useful in re-negotiating the purchase price or deciding whether to proceed with the purchase at all.

Closing costs are various fees and expenses associated with finalizing a home purchase. Closing costs for buyers can include lender fees, appraisal costs, title insurance, and prorated taxes and insurance. Buyers often incur closing costs equal to somewhere between 2% to 6% of the purchase price. 

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The Bottom Line

Buying your first home is an impressive milestone on your path to financial stability. With this first-time homebuyer guide, you’ll be well-prepared to take this important step.