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If you are looking to take your first step up the property ladder in 2023, you are certainly not the only one. According to Redfin’s predictions for the upcoming year, over 4.3 million house sales are expected to take place over the next 12 months. 

But even though owning a home is a dream shared by many, the process of purchasing a real estate property is still among the hardest ones to navigate. And, this is even more true for first-time buyers!

So, how do you get started? The quick-start guide below can help. Let’s dive in!

Assess Your Finances by Looking at Key Metrics

Taking out a mortgage to buy a home can be a life-changing financial decision. That is why before going ahead with your plan, it is important to understand whether you can afford it and how your finances will be affected by your decision. 

So, the first step is to take a hard look at your finances, assessing them by the same indicators used by lenders to determine your creditworthiness and borrowing risk. These include:

• Credit score – your FICO score offers a snapshot of your financial health. Ideally, you should have a credit score of at least 620, but the higher your score is the better mortgage rates you’ll be able to access. 
• Debt-to-income ratio – your debt-to-income (DTI) ratio refers to the percentage of your after-tax income used to repay your debt each month. Lenders will consider candidates with a DTI of 28% or lower (or 36% including your mortgage payments).
• Income and employment history – Generally, borrowers with a stable income and a reliable employment history are considered to be less risky, which gives them access to high-quality mortgage options. 

Determine Your Budget and Available Down Payment

The next step is to figure out how much you can comfortably spend on your home and how much down payment you have available. While putting down a 20% down payment is considered to be the norm, the average down payment among first-time home buyers is 6%. 

But don’t forget that opting for an uninsured loan such as a conventional mortgage (as opposed to government-backed loans such as VA and USDA mortgages) without a 20% down payment can cause you to deal with higher interest rates and added costs such as PMI. In this case, you might consider the benefits of buying a smaller home for which you might have a larger down payment available. 

Work With a Reputable Lender and Compare Mortgage Options

Before diving into your next home shopping spree, you’ll need to get pre-approved by your chosen mortgage lender. This will give you a better idea of the type of mortgage you are eligible for and how much you can realistically spend on your home. 

To get pre-approved, prepare by consulting reliable resources such as the SoFi home buying guide and talk to a trusted lender to compare mortgage options and start the pre-approval process. 

Partner With an Experienced Real Estate Agent

Once you know how much you can spend on a real estate property, it is time to start looking for your dream house. But what should you look for in your family home?

If you are unsure how to get started, partnering with an experienced real estate agent in the area can help you navigate a hot housing market, identify convenient deals, and avoid common pitfalls. 

Compare Mortgage Rates and Find the Best Time To Buy

Over the past months, the rising inflation and skyrocketing house prices have created a major affordability issue among first-time homebuyers. 

However, predictions by Bloomberg show that, in 2023, house prices will fall the most since 2009, and mortgage interest rates will remain stable. These factors might make the next year a great time to buy a home for those with a stable income and reliable finances. 

Make sure to spend time bulletproofing your family finances, lowering your DTI, and boosting your credit score before applying for a home loan.

Understand What To Expect From the Home-Buying Process

Before diving into the mortgage application process, consult your lender about what to expect from the journey ahead. Indeed, mortgage applications can be highly bureaucratic, and they might require you to produce several documents and evidence of your finances. 

What’s more, buying a house comes with a few, less obvious costs, including moving expenses and closing costs, which can add up to 3-5% of the loan amount. Carrying out your homework before shopping for a home can help you avoid unpleasant surprises!