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  • Writer's pictureLauren Peterson Lancaster

Top 4 Steps to Buying Your First Home

Updated: Feb 16

When buying your first home it’s important to remember that this is not only a great step towards your future but it is likely the biggest decision, emotionally and financially, that you have made yet!

Any big decision requires an understanding of exactly what you need to have in order to be ready & what the process timeline will look like.

Below is what you should absolutely do before buying your first home:

#1. Meet with 3 Realtors in Your LOCAL Area

This step is so often overlooked as being a first step & only makes it harder to know your next steps. Every situation is different! For example, if you are in the medical field there might be specific lenders you should talk to to take advantage of grants or specialized programs. Or if you are looking to utilize a state first time home buyer grant, your agent will be able to direct you to the right person. Maybe you are looking to house-hack and purchase a multifamily house, this is also where having a real estate agent and lender that know those specific markets or going to play a big role.

Talking to a Realtor should always be your first step so you are pointed in the right direction of a lender that meets the needs of your individualized scenario.

#2. BUDGET (correctly!)

Next is to understand what your budget should be- not meaning saving money for a home (hopefully you have already started this!) but understanding what an affordable mortgage payment is for you. Many times we see people looking at homes out of their budget OR excluding homes that would be because they simply don’t understand what this budget should be.

Before you talk to a lender, think about the monthly payment that feels comfortable to you. The reality is, this is the payment you will live in, not the purchase price of the home. Keep in mind utilities, garbage and being able to budget at least $100/month for the random things that come up with homeownership!

#3. Get pre approved by a local lender

After you have selected a Realtor and defined your budget it’s time to start chatting with the local lenders they or your sphere suggested to you. I always recommend starting with a conversation first, this way you can determine who you feel the most comfortable talking to. They are a HUGE part of your team when buying, so liking them should play a part.

In the initial conversation ask these questions and share these things:

  1. Share your goals (purchasing for your family, utilizing a grant, house hacking, investing, least money out of pocket, etc.)

  2. If you have an idea of your credit, let them know and this will help give them an idea of a program that works best for you

  3. Share your income with them

  4. Share your monthly budget for your new home that you feel comfortable with

  5. “What are your working hours?”

  6. “If you are not available and my agent and I cannot get a hold of you but need a preapproval, what is your plan for this or who would we reach out to?”

  7. “Do you provide cost estimates when needed?”

  8. “What is your favorite part of being a lender?”

  9. Ask for a ballpark estimate of what they could see you approved for

Once you have had at least 3 lender conversations you should have enough information to understand whether buying a home is achievable now, in 6 months, a year etc. Make sure you are staying in touch with your agent to ensure everyone is on the same page.

Hint: If you do decide to wait or you just need more time your agent and lender should be checking in with you periodically. If they aren’t it may be worth revisiting the conversations with them and your 2nd favorites closer to when you are ready.

#4. SAVE…Not Just for Your Down Payment!

There are a lot of ways to finance a home and currently the most popular is to utilize a 3% or 5% down payment conventional loan for first time home buyers. That’s right, you DO NOT need 20% for your down payment.

Additionally you will want to save for your home inspection and any additional testing recommended by your real estate agent or inspector, your appraisal and closing costs.

The simple way to figure out your total out of pocket cost is to use this formula:

Down Payment + Closing Costs + Inspection Fee + Additional Testing + Appraisal=

Total Out of Pocket Cost

In Minnesota this is the most typical formula to estimate your cost for a home with a sale price of $350,000 (pending your lender, income and credit!):

3% Down Payment + 2-3% of Sale Price for Closing Costs+ $500 home inspection + $500 for additional testing (highly encourage sewer line and radon testing in MN) + $0- $550 appraisal* =

$10,500 Down Payment + $10,500 Sale Price + $1000 for inspection= $22,000

*appraisal is typically included in your closing costs in MN, make sure to check with your lender

Lastly, the other item many people do not know about is Earnest Money. This is essentially a “good faith deposit” written into the purchase agreement when you are offering. Depending on your state this amount will vary but I recommend 2% of the sale price. This is not transferred until you are fully under contract but is required soon after, because of this you should not begin looking at homes until you have the earnest money easily accessible.

You can absolutely do this and if you have any questions reach out! Make sure to check out the other blogs especially: Buying a Home in The Twin Cities & Condo, Townhome, House or Duplex?

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