Buying your first home is likely the biggest financial decision of your life. Planned well, it is a sound investment and a source of stability. Planned poorly, it can weigh on your finances for decades.
1. Before shopping for houses: fix your numbers
Start by knowing your real take-home pay and your debt-to-income ratio. A DTI above 40% takes you out of most lenders. Then check how much you have saved and how far you are from covering down payment plus closing costs.
2. The down payment rule: 20% + closing costs
In most of Europe you'll need 20% down plus 10–12% for taxes and closing. In the US, FHA loans allow as little as 3.5% down but require PMI. Below that combined 25–30%, closings are hard.
3. Improve your credit before applying
Lenders offer better rates when you show stable income, low card balances and no revolving debt. A quarter-point rate difference is worth $15,000–$25,000 on a 30-year mortgage.
4. Shop at least three lenders
Never accept the first offer. Ask your main bank, an online lender (usually more aggressive on pricing), and a mortgage broker. Compare APR, not just interest rate. Key questions: relationship discounts, origination fees, prepayment penalties, and flexibility on payment holidays.
5. Choose your rate type wisely
Fixed gives stability; variable / ARM can win in low-rate cycles but hurts in high-rate cycles (like 2022–2024); hybrid ARMs are a good compromise if you plan to sell or prepay before the fixed period ends.
6. Hidden costs people forget
- Closing costs: title, escrow, taxes (typically 2–5%).
- Home inspection ($400–$800).
- Homeowner's insurance and, if applicable, PMI.
- Property tax and HOA every year.
- Immediate repairs and small upgrades.
7. Closing day
You'll sign the deed and mortgage documents in escrow. Bring recent pay stubs, statements showing the source of your down payment, and photo ID. Verify the payment, rate and term match the loan estimate you signed earlier.
8. Your first year as an owner
Reserve 1% of home value per year for repairs: HVAC, plumbing, appliances. Don't buy a car or take on new debt until you've lived through the new expense rhythm for at least 12 months.
Recommended tools and guides
Simulate the deal in the mortgage calculator, compare with rent vs buy, and confirm the payment fits with the guide can I afford this mortgage?.