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  • Writer's pictureMacFarlane Team

First-Time Homebuyer’s Guide

Updated: Feb 28, 2019

Essential 15 Step Checklist for 2017

Buying your first home will simultaneously be one of the most exhilarating and stressful moments of your life. This essential checklist will help first-time homebuyers get everything on your end in order so your house hunting can go as smoothly as possible..

Navigate the home buying experience with these 15 steps

There are similar guides online, but I couldn’t find any that put everything in one place for you to keep track of it all. Which is why I created this essential checklist!

Of course, you’ve heard the words “mortgage, credit score, and down payment” before. But when it comes to fully understanding what these terms imply and what you should do about them, there’s a lot to learn.

However, don’t be overwhelmed. Much of the home-buying process is simple ideas wrapped in fancy terms.

The basics boil down to three things:

1. Be clear on what you can afford

2. Prepare your finances

3. Hunt for the best rate

Easy, right?

Then let’s get into the specific steps you need to take before buying your first home.

Use this 15 step checklist to keep track of your progress as you go through our list. Click on any of the headings to jump to that section below.

15 Step First-Time Home Buyer’s Essential Checklist

Decide On A House You Can Afford

1. Define Your Ideal House

2. How Much You Should Spend on Your Mortgage

3. How Much You Will Spend: Use a Mortgage Calculator

4. Consider Unexpected Expenses.

Prepare Your Finances for the Mortgage Process

5. Check Your Credit Score

6. How’s Your Co-Buyer’s Credit?

7. Improve Your Credit

8. Calculate Closing Costs

9. Get Your Paperwork In Order

10. Start Saving.

Shop to Find the Best Mortgage

11. Understanding Mortgages

12. Find a Reliable Loan Consultant

13. Hire A Respected REALTOR™

14. Get Prequalified for your Mortgage

15. Get Pre-Approval for your Mortgage

Decide On A House You Can Afford

As simple as it may sound, a lot of people go about this process all wrong.

First of all, don’t treat buying your home like buying an investment.

Don’t get me wrong; your house can turn into an investment as it appreciates over time, and it’s always smart to check with trusted realtors to decide if you’re buying in a safe area that’s projected to grow in value.

But it’s not a good idea to think about buying your house like buying a growing stock option that is guaranteed to give you a return on investment.

Your first house isn’t something you should stretch to buy in the hopes that you can flip it for cash in a few years.

Your first home is a place to live in as you make significant changes to your life. And you’ll be paying for your home for many years. It’s smart to ensure you’ll be able to keep that roof over your head.

1. Define Your Ideal House

The goal is to find a happy medium between a cheap house and your dream house.

Check the neighborhood that it’s in to see the quality and their selling prices. Find a place that you can afford per our recommendations down below.

Within that budget, find a house and location that you love enough to call home. Start looking at neighborhoods you like right away.

However, get pre-approved for a home loan before you start doing any serious house hunting. You want to be fully prepared so you can act immediately when you find your dream home.

Finished step 1.

2. How Much You Should Spend on Your Mortgage

A good rule of thumb is to keep your mortgage payment below 30% of your monthly income. Spend more than that, and you risk becoming “house poor.”

You might be able to “afford” a more expensive, more beautiful home, but pay too much, and you might find it difficult to save monthly or cover other monthly expenses.

Aim to find a balance between owning your dream house and living your ideal lifestyle.

Finished step 2.

3. How Much You Will Spend: Use a Mortgage Calculator

You can use Caliber Home Loan’s mortgage calculator to run through some scenarios and get a sense of what you’ll be spending. At this stage, having an estimate of how much you’ll be spending is all you need.

What’s important now is figuring out what price range the houses you are looking at should be in based on how much you can spend on your monthly payments and what the length of your mortgage will be.

Again, keeping your mortgage payments below 30% of your total income is a good guideline to follow.

How much you’re actually going to spend is dependent on the many factors outlined in this post. Although, for an even better estimate, you can apply for pre-qualification or pre-approval of your loan as outlined in steps 14 and 15.

Finished step 3.

4. Consider Unexpected Expenses

Don’t forget to consider the cost of taxes and insurance. Some lenders will include these costs in your mortgage payments, and others will bill you separately.

Either way, your estimated mortgage payment may be deceptively low because it doesn’t include these costs. As a rough estimate, you can add these expenses to your monthly payments; a 1.5% property tax and another $50-100 per month for property insurance.

Remember to account for debts in the form of auto loans, student loans, and credit card payments when you are going through this process.

We recommend keeping total debt expenses below 10% of your total income. So if you have an unusually high amount of debts already, you might have to adjust and plan to spend less on your mortgage.

Other unexpected expenses you might incur are general maintenance costs. Buying new appliances, upgrading parts of your house, and repairs are all things you will have to pay.

Now that you’ll be owning your own home, there is no landlord to turn to for help. So set aside some money in your monthly budget because you will have to deal with these expenses.

On average, total housing expenses come up to be as much as half of your mortgage.

So you should expect to pay 45% of your income should be put towards your house each month, especially in a competitive market like Santa Barbara.

Now that you have a good idea of what you can afford, it is time to get your finances in order.

Finished step 4.

Prepare Your Finances for the Mortgage Process

In order to buy your house, you’ll need to be financially qualified. This includes having good credit, cash for a down payment, and a verifiable income.

Let’s get that ready.

5. Check Your Credit Score

Having a good credit score is hugely important for qualifying for a loan.

Knowing your credit score gives you a good overview of the health of your credit, but it does little to tell you about the specifics of where you may need to fix something or where you can improve your credit. For that, you need a credit report.

You can use this report to correct any mistakes you may have been unaware of before.

If your credit is in need of improvement, consider paying for a daily credit score monitoring service so you can keep track of how it improves.

Keep in mind it can take up to six months to make significant changes to your credit score. So plan ahead and get started now if you need to.

Finished step 5.

6. How’s Your Co-Buyer’s Credit?

If you’re buying your house with a spouse, partner, or co-buyer, their credit will also likely be checked in the application process.

They don’t necessarily have to have stellar credit also so you can be approved, but it is good to be aware of how their credit is.

Them having poor credit could cause a hiccup in getting approved, and them having good credit could give you peace of mind.

Use the tools from step 5 to learn what your co-buyer’s credit is as well.

Finished step 6.

7. Improve Your Credit

Even if you (and or your co-buyer) have good credit, it is smart to take measures to keep it that way.

If you need to improve your credit score, then it is even more important that you follow these basic steps.

Pay down credit card balances.Pay for all of your bills on time all the time.Avoid applying for credit until you’ve closed on your new home. So no new credit cards and no additional loans.

That’s it! At least, that’s the basics.

There are many more steps you can take to improve your credit score in case you need it.

Finished step 7.

8. Calculate Closing Costs

Remember that when you buy your house, there is a significant amount of money that you’re going to be putting down. Be aware of what that amount is so you can plan accordingly.

Primarily, you’ll be paying for your down payment, which runs from 3.5-20 percent of the purchase price.

The more you put down, the lower your interest and mortgage payments will be.

Putting down at least 20% also lets you avoid Private Mortgage Insurance (PMI). Putting down less than 20% puts your lender at risk, so they’ll likely ask you to pay for PMI as a monthly premium. You’ll be paying this until you have at least a personal stake in at least 20% of the property.

If you can afford it, a larger down payment saves you money in the long term.

Regardless, you will need to decide on how much you plan to put down and start saving for it.

You also need to consider fees charged by the lender, title and settlement fees, taxes and prepaid items like homeowners’ insurance or homeowners’ association fees, and so on. Collectively, these many, miscellaneous fees are referred to as closing costs.

Often, these fees can be estimated based on the state-wide averages for closing costs. They’re generally going to end up costing anywhere from 2-5% of your home’s total value.

Estimates are great, but when it comes to the brass tax, you will need to check with your lender and real estate agent what the closing costs will be. You can either pay for closing costs upfront, or with some lenders, you can negotiate these charges into your mortgage so you pay for them monthly instead.

The last thing you’ll want to account for is moving expenses, including moving vehicles, new furniture, possible renovations, appliances, and so on.

Put an appropriate amount of money aside in savings to make a successful, happy move. It will be expensive, but you can be prepared.

Finished step 8.

9. Get Your Paperwork In Order

As part of your application, you will need to submit proof of your income and proof that you’re a qualified buyer.

Collect pay stubs, tax returns for the last two years, W-2s, bank account statements, statements from current loans, statements from credit lines, and the names and addresses of your landlords from the past two years.

In this age of tight credit, you will need all this information to appease your lender. Even if they don’t ask for all of it, it’s good to be prepared.

Who knows, going through all of this may be a good chance to start organizing for your move.

Finished step 9.

10. Start Saving

This step is self-explanatory.

Buying a house is expensive, and most of us don’t have that type of money laying around.

Start preparing and put away all the money you can before you start applying for mortgages.

Avoid all “get rich quick” schemes that might pop into your head during this process. As appealing as fast money on the stock market might seem, there is too much volatility in such investments for you to bank your future on it.

Be conservative and save smart, like outlined in this awesome savings guide by

Finished step 10.

Shop to Find the Best Mortgage

This is the last section before you’re done! You’ve done well and are almost to the end, don’t give up yet.

Pay close attention because these next steps are the most important in preparing for the home buying process.

An essential tip: don’t wait until last minute to start mortgage shopping. Having your financing in order will make you look good and might give you priority on the home of your choice.

Arranging your mortgage ahead of time also ensures that you don’t make any last-minute decisions in what is already a complicated process. Avoid paying more than you should by getting mortgage pre-approval.

Mortgage pre-approval is free and non-binding, giving you a risk-free way to show sellers that you are a serious, qualified buyer. It also lets you know exactly how much you’ll be spending to avoid any unwelcome surprises as you transition into your first home.

More on how to do that later.

First, you need to get some things arranged like your mortgage, realtor, and loan consultant.

11. Understanding Mortgages

Mortgages are a daunting process, especially when buying one for the first time.

There are different types of mortgages to consider and some hidden fees that surprise people who aren’t aware of them.

Let’s clear up the confusion and help you find the mortgage that is right for you.

Don’t stress too much about this step. The only thing you can do wrong is not shop around for a mortgage. Don’t just show up to a bank and take what they give you.

Take your time to work out the best deal and pick out a mortgage that you’re happy with because you’ll be paying for it for some time.

Mortgage Types

The basic two types of mortgages are fixed-rate and adjustable rate mortgages.

Fixed rate mortgages have a steady interest rate that doesn’t “adjust” or “float” over the duration of the loan. Your interest will stay the same for as long as you’re making payments.

Because of this, these tend to be the more stable and predictable type of mortgage. It’s simple to understand and easy to pay.

However, fixed rate mortgages still come with some disadvantages. Namely, if you wanted lower rates (say because the economy shifted and mortgage rates fell, or you want to renegotiate your loan), you would have to refinance your mortgage.

Adjustable rate mortgages, also called ARMs, have interest rates that fluctuate, within limits, according to the economy.

With a healthy economy, ARMs can lead to nice savings. Especially early on, new homebuyers can take advantage of lower rates and early payments.

However, these possible savings also lead to some risks and disadvantages. ARMs have many more adjustable variables than fixed rate mortgages, making them much harder to understand, and impossible to predict.

In a volatile market, your interest rates can change by as much as 6% in one year. You could be hit with an unexpectedly large payment that you have no control over. These types of mortgages tend to be better suited for buyers who know they won’t be in a house for long.

For more on the difference between mortgage types, you should read through Consumer Finance’s comparison of fixed rate vs. adjustable rate mortgages.

I understand mortgage types.

Fixed vs. Adjustable Rate Mortgage: Which One Should You Choose

For the first-time buyer, I recommend fixed rate mortgages. They’re more straightforward, which translates to having less on your mind as you make an already stressful move.

However, to say that everyone should be getting 30 year fixed rate mortgages is wrong. Everyone is in their own unique financial situation that requires a unique solution.

Which is why we recommend working with a loan consultant. They’ll be able to provide their expertise and guide you to picking the right home loan.

Read about finding a reliable loan consultant in step 12.

Ultimately, your monthly mortgage payments are going to depend on the type of mortgage you choose, how much you owe, the length of the loan, and the interest rate that you’re able to lock in upon approval.

A good habit to get into, even if you’re working with a loan consultant, is to compare mortgage rates online regularly. Sometimes lenders run “sales” to attract buyers, and you might be able to jump onto one of these to lock in serious savings.

Another good habit is to check in on how the economy is doing as the overall state of the economy will affect what rates are available to you.

Caliber’s weekly market commentary is an easy way to get a snapshot of the overall economy in a few paragraphs, perfect for those of us that aren’t market analysis experts.

I understand the difference between fixed rate and adjustable rate mortgages.

Mortgage Fees

What you pay monthly for your mortgage is summed up as PITI; principle, interest rate, taxes, and insurance. Together, these four costs will make up your consistent, monthly home payments.

Then there are extra fees you might have to pay for that aren’t reflected in PITI.

These fees can be for appraising the home, checking your credit, and preparing documentation.

You might even be offered the option to pay for “points” to reduce your interest. Which can be smart if you plan to be in your home long term and can afford to put down the extra cash.

Prepare for these costs ahead of time by putting extra money aside to handle them.

I understand mortgage fees.

Private Mortgage Insurance

Another unexpected cost that may come into play is private mortgage insurance (PMI). If you put down less than 20% of the property value, you will likely be paying for this.

Putting down less than 20% puts your bank at risk. PMI mitigates that risk by providing insurance for your bank. In the event that you default on your loan or the value of your home declines significantly, your bank will be covered.

Of course, this cost is handed off to you. At least you’ll be paying for it until you have a 20% personal stake in your property.

Finished step 11.

12. Find a Reliable Loan Consultant

As you’re probably starting to realize, mortgages are a complicated process. There are a lot of available options, which is great for flexibility, but it also opens the door to mistakes.

Especially for first-time buyers in a competitive market, having a loan consultant can give you an edge in the housing market.

Loan consultants do the hard work for you and talk with banks to compare rates and find you the mortgage that fits best. They use their expertise to scope out the market and understand trends that will affect how much you pay.

They provide you with everything you need to be prepared for buying your dream house. It will impress lenders and sellers, making you look good and giving you priority.

They will also answer any questions about mortgages you might have, and help you navigate through all of the costs that come along with buying a house.

Our parent company, Caliber Home Loans, actually provides excellent home loan consultant services to homebuyers. Using their branch locator, you can find if our services are available in your area. If you’re in Santa Barbara you’re in luck, Diana MacFarlane’s branch of Caliber Home Loans is one of the best in the nation. In fact,

Regardless of if you use our services or not, find a reliable loan consultant company to work with. They will make a huge difference in your home buying experience.

The extra money you spend on a loan consultant will save you time, headache, and money later down the road.

Finished step 12.

13. Hire A Respected REALTOR©

Someone else you’ll want on your dream team is a reputable REALTOR© or real estate agent. We specifically recommend hiring a REALTOR© because they are held accountable to the standards of the National Association of Realtors.

Do some research to find the best REALTOR© in your area. A simple Google search for “best realtor in YOUR CITY” should be sufficient for learning what you need to know. Or talk to your friends and family and find who they recommend.

Hiring a good REALTOR© is recommended because they will provide their expertise to help you understand the areas you should buy in, what deals are available out there, and they will help negotiate a better price with your seller.

They will guide you through the important processes of deciding if a house is worth buying. Such as arranging for a home inspection, determining how your property value is projected to grow or decrease, and deciding if the house fulfills your needs.

And finally, they (like your loan consultant) will help guide you through the closing process to make sure you wrap up your home buying process the right way.

Finished step 13.

14. Get Prequalified for your Mortgage

If I had to pick one step for you to do out of all the rest, it would be this one.

Prequalifying for a loan gives you a definite idea of the mortgage amount you will be able to qualify for. Which translates into knowing exactly what house you can afford.

It takes into account almost everything we’ve discussed here and puts it all together. It leaves out a few pieces that will be considered in your actual mortgage approval, but it gives you a good enough idea of what you can afford.

You can talk to a bank, lender, or loan consultant to get pre-qualified. It is a simple process that doesn’t take much more than a phone call to complete.

It is smart to do this before even looking at neighborhoods because it is so simple to do.

As you start getting deeper into the process, having a predefined figure of what you can afford will make for a much smoother experience.

Finished step 14.

15. Get Pre-Approval for Your Mortgage

Last step before you should start looking seriously for homes!

This is more or less a follow up of the above step. And as such, it is more involved.

At the latest, start getting pre-approved once you think you are close to buying and have your eye on a few houses you are seriously considering.

Or, even better, you can do this at the same time that you get pre-qualified so you don’t waste time looking at homes you can’t afford, and are ready to buy a home at any moment in case the opportunity arises.

For pre-approval, you’ll complete an official mortgage application, which will likely include a fee, and supply your lender with all the necessary documentation. Including your current credit rating, which is one of the main differences between prequalification and pre-approval.

You’ll need to know what type of mortgage you’re getting beforehand. So working with your loan consultant here is highly recommended.

Once pre-approved, you will have the specific mortgage amount you are approved for. Which also gives a more accurate estimate of the interest rate you will end up paying.

Now you have official documentation of how much you can afford to show to sellers for houses in your price range. Any house that is at or below your pre-approval amount is affordable to you.

This gives you a huge advantage as a buyer because it communicates to sellers that you are serious, prepared, and the real-deal. They know they won’t be wasting their time with you.

It lets you move quickly when you’ve decided on the house you want to buy. Commitment won’t depend on obtaining financing because you’ve essentially already been approved.

It can give you priority over another potential buyer and ensures that you don’t get passed over for a buyer that already has their mortgage pre-approval.

Especially if you are in an area with a competitive market, this step is key to your home buying success.

After that, all that’s left is to buy the house of your dreams!

Finished step 15.


Nice! That was a long checklist, and if you actually went through it all, that was a lot of work.

15 steps later and now you hopefully have a much better understanding of the home buying process. You can now get everything you need in order so you can be ready to buy your dream home the second it pops up.

If you haven’t finished (in fact I’m sure most of you have not even started) refer to this checklist as often as necessary until it’s complete. Bookmark this page for easy access as you go through all the steps.

We guarantee that following the steps outlined in this list will make buying a home a much simpler process. Of course, there will be stumbles and stress along the way, but at least you will be following a trusted guide.

Good luck!


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