A first-time home buyer's guide
Buying a first home is a sequence of steps, each of which depends on the last. Doing them in order — money first, house second — keeps you from falling in love with something you cannot finance.
Last reviewed August 2026
The sequence
- Set a payment budget using the 28/36 rule, then trim it to what fits your real monthly spending.
- Total the cash you need: down payment plus 2–5% of the loan for closing costs, and keep an emergency fund untouched on top.
- Get pre-approved. This is a verified review of income, assets, and credit — stronger than a pre-qualification and expected with any serious offer.
- Shop with an agent, make an offer with contingencies, and put earnest money into escrow.
- Inspection, appraisal, and final underwriting. Then the Closing Disclosure, three business days, and closing.
Contingencies protect your deposit
Earnest money is at risk if you back out for a reason the contract does not protect. The three standard contingencies — financing, inspection, and appraisal — let you walk away with the deposit if your loan falls through, the inspection turns up serious problems, or the home appraises below the price. Waiving them makes an offer stronger and riskier.
Terms in this guide
- Pre-approval — A lender's conditional commitment to lend up to a stated amount, based on a verified review of your income, assets, and credit. It is stronger than a pre-qualification and signals to sellers that your financing is solid.
- Earnest money — A good-faith deposit — commonly 1–3% of the price — the buyer puts into escrow when an offer is accepted. It is credited toward the down payment at closing, or forfeited if the buyer backs out for a reason not protected by a contingency.
- Contingency — A condition written into a purchase contract that must be met or the buyer can walk away with their earnest money. Common ones cover financing, the home inspection, and the appraisal.
- Down payment — The portion of the purchase price you pay in cash up front. A larger down payment lowers the loan amount, can eliminate mortgage insurance at 20%, and often earns a slightly better rate.
- Closing costs — The one-time fees paid to complete a home purchase or refinance — lender origination charges, appraisal, title insurance, recording fees, prepaid taxes and insurance, and escrow setup. They typically run 2–5% of the loan amount.
- Underwriting — The lender's formal review of your income, assets, credit, and the property appraisal to decide whether — and on what terms — to approve the loan. It is where documentation gaps and DTI limits get tested.
Frequently asked questions
How much do I need for a down payment?
Conventional loans go as low as 3%, FHA as low as 3.5%, and VA and USDA can be zero for eligible buyers. Below 20% you pay mortgage insurance on a conventional loan. Do not forget closing costs, which are separate and run another 2–5% of the loan.
What credit score do I need to buy a house?
Roughly 620 is the floor for most conventional loans, 580 for FHA with 3.5% down. Higher scores earn lower rates and cheaper mortgage insurance, so it is often worth a few months of credit cleanup before applying.
Should I get pre-qualified or pre-approved?
Pre-approved. Pre-qualification is an informal estimate from stated numbers. Pre-approval involves document verification and a credit pull, and it is what sellers expect to see attached to an offer.