First-time homebuyers can prepare by checking their credit, setting a realistic budget, and understanding down payment options. Getting prequalified, attending inspections, and avoiding overspending can help you make a more confident decision.
Learning Center / Home Ownership / 9 Essentials for Those Looking to Purchase Their First Home
First-Time Homebuyer Guide: What You Need to Know Before You Buy
Key takeaways
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Check your credit early so you have time to correct errors or improve your score before applying for a mortgage.
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Understand your down payment options and choose a monthly payment that fits your budget—not just the maximum amount you can borrow.
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Never skip the home inspection; it can reveal repair costs, support price negotiations and help you plan for future expenses.
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Work with a knowledgeable mortgage loan officer early to understand loan options and get prequalified, organize documents and make a stronger offer when the right home appears.
Buying a home is the American dream for many but it can quickly become a nightmare without the proper information. To help avoid those pitfalls, we sat down with Scott Lindner, National Sales Director at TD, to find out how first-time buyers can stay on budget, avoid overpaying and land a dream house they'll love for years to come.
Here's what he had to say:
How does your credit score affect buying a home?
Buyers should pull their credit months in advance, using free credit services such as https://www.annualcreditreport.com to see if there are any potential issues or mistakes.
If there's an issue, it could take some time to correct. While a credit score is one factor lenders consider when evaluating a mortgage application, borrowers with stronger credit profiles are often viewed as lower risk. As a result, they may be more likely to qualify for competitive interest rates and loan terms, though approval and pricing decisions depend on a range of financial factors.
Anyone thinking about purchasing a home needs to get a copy of their credit report. It allows people the opportunity to contest things that may not be accurate and/or bring any accounts current before applying for a mortgage. It's hard to get that fixed in the middle of the process because it can take months to get things cleaned up off a credit report.
How much down payment do you need to buy a home?
In most cases, it's recommended that a buyer have at least a 3% down payment. If they're able to put 20% down, it may provide additional benefits depending on their situation and loan program. So, they should think about how much they have saved for a down payment.
Obviously, this isn't a one-size-fits-all situation, but it's not recommended that anyone puts less money down up front and borrows more just to get a bigger home.
We'll go into detail more later but buyers should think about the monthly payment and work with their loan officer to make a down payment that's best for their situation.
Why is a home inspection important before buying?
Because of soaring demand for single-family homes and lack of inventory, some people are buying homes sight unseen in an effort to win a bidding war. That's never recommended.
Instead, a buyer should view the property and request an inspection. They should always attend the home inspection. Inspectors will show the buyer where repairs will be needed and can give them cost estimates for those.
If the inspector says the roof is good for another five years, it's good to know how much it'll cost and make a note of that. That can also help with negotiating the purchase price of the home. Or at the very least, the buyer will understand how much future repairs may cost and mentally account for it. If the buyer knows they'll need to spend $10,000 on a new roof, they can create a plan for that, such as putting money aside on a monthly basis..
How quickly should you make an offer on a home?
As mentioned above, there's very little inventory on the market. Now, this doesn't mean rushing a decision or skipping the due diligence part of the process. But if a home really checks all the boxes, a buyer shouldn't wait a week to see it.
In fact, they should go that day and connect with the realtor. Also, expect to possibly make an offer above asking price if there are multiple offers. Again, this shouldn't force anyone into a bad decision, so if the price gets out of one's comfort zone, it's best to walk away.
How much house can you afford based on your budget?
Most lenders use a debt-to-income (DTI) ratio to help determine how much you can borrow. This includes your mortgage payment, taxes, and other debts like credit cards and car loans. Acceptable DTI ratios can vary based on the loan type, program requirements, and a borrower's overall financial profile.
But what you can borrow isn’t the same as what you can comfortably afford.
Your monthly budget should also leave room for everyday expenses, savings, and unexpected home repairs. A lower monthly payment can give you more flexibility and reduce financial stress over time.
Should décor influence your homebuying decision?
First-time homebuyers shouldn't get fooled by the furnishings. Homes are staged for sale with great furniture, nice artwork and more. All that amazing décor may look good, but it's important to pay attention to the home inspection and understand what's really underneath it all.
And conversely, when someone is looking at a house and they don't like the carpet or paint color, they need to be able to look beyond that. It may actually create more of a buying opportunity, because the five people behind them may have felt the same way.
When should you talk to a mortgage loan officer?
I always tell homebuyers to meet with a knowledgeable mortgage loan officer at the very start of their homebuying process.
Meeting with a loan officer is going to help them understand exactly what they need to do. They're going to ask about credit and make suggestions like paying off a loan or consolidating debt.
What buyers want to be able to do from a basic level, is get a prequalification, identify a property, get all of the documents ready in advance of applying for a mortgage, and get a full approval within two or three weeks of application.
Should you spend your full mortgage pre-approval amount?
While a buyer may be pre-approved for a certain loan amount, it's important to consider what they feel comfortable borrowing based on their financial goals and circumstances. Buyers should focus on a budget that works for them, rather than relying solely on the amount for which they are pre-approved.
No one should go looking for a home over the amount they are comfortable with. The houses realtors will show clients will probably be more and agents may try to stretch their budget to what they're approved for, if they see a pre-approval that's higher than their budget. It's not a knock on them, it's what they are trained to do – so, stick to what you feel comfortable with from a budget perspective, not what the pre-approval says.
How can I get more information about buying a home?
There are several free services available to educate oneself.
- The TD Bank Learning Center offers modules and information on how to manage money, owning a home, debt management, budgeting and more.
- The TD Finance 101 website provides tips and tools on how to build financial health as well as a First-time Homebuyer Kit to help anyone with a homebuying journey.
No matter where buyers turn, they should always try to understand the basics of budgeting and finance, so that the loan officer and realtor can do the rest!
FAQs
Start by checking your credit report months before you plan to apply. That gives you time to correct errors, bring accounts current and understand how your credit score may affect your mortgage options.
Some buyers may be able to put down as little as 3%, while a larger down payment may provide certain benefits depending on the loan program and borrower qualifications. The right amount depends on your savings, monthly budget and long-term financial comfort.
Not necessarily. Your pre-approval shows what a lender may allow you to borrow, but your personal budget should guide your decision. Make sure the mortgage payment leaves room for repairs, emergencies and everyday expenses.
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