With a clear plan and an understanding of the costs and risks, first-time home buyers can make confident decisions without costly surprises.
In this article, we’ll cover essential tips for first time home buyers, common mistakes to avoid, and strategies to navigate the home-buying process smoothly.
Tips for First-Time Home Buyers
Buying a home is a major financial and lifestyle decision, and first-time buyers often underestimate the full scope of what it takes. Here are a few tips to consider before buying your first home.
Run the numbers
It’s easy to get caught up in the excitement of homeownership without fully grasping the financial commitment. Before you start looking at homes, take a hard look at your numbers.
- Factor in all the costs, including mortgage payments, property taxes, homeowners insurance, maintenance, HOA fees, and unexpected repairs.
- Compare renting vs. buying in your area. In some cities, renting can be a better short-term financial move.
- Use a mortgage calculator to estimate your monthly payments and see how they fit into your financial plan.
A house might feel like a great investment, but if it strains your finances, it could do more harm than good. Make sure your budget is sustainable for the long run. You can also read my guide, How To Buy a House: A Guide for Homebuying, for more information about the process and how to prepare for purchasing a home.
Save for more than just the down payment
First-time buyers often focus on saving for a down payment, but there are many other upfront costs that can quickly add up, and you need to factor it all in while saving for your dream home.
- Closing costs: These can range from 2% to 5% of the home’s purchase price.
- Moving expenses: Truck rentals, professional movers, and utility setup fees aren’t cheap.
- Furnishing and home repairs: Even small purchases like tools, cleaning supplies, and minor renovations can take a chunk out of your budget.
- Maintenance fund: Homeowners are responsible for upkeep, and a good rule of thumb is to set aside 1% to 2% of the home’s value annually for maintenance and repairs.
Failing to account for these extra costs can leave you financially stretched right after moving in. The more cushion you have, the better prepared you’ll be.
Get pre-approved for a mortgage
Many first-time buyers confuse pre-qualification with pre-approval, but they’re not the same.
Pre-qualification is a quick estimate of how much you can borrow, but it’s not verified by a lender. Pre-approval, on the other hand, is a thorough process where a lender checks your credit, income, and financial history to determine exactly how much they’re willing to lend you.
A pre-approval gives you a realistic budget and makes you a stronger buyer in a competitive market. But just because you’re approved for a certain amount doesn’t mean you should spend it all. It’s always smarter to choose a home that fits within your financial goals rather than stretching your budget to the max.
When you’re thinking about getting a mortgage, you should also have a realistic game plan for how you will pay off that mortgage. For ideas on how to pay off your mortgage earlier than some, read my guide, Pay off mortgage early: How to pay $70,000+ less on your loan.
Work with the right professionals
Buying a home isn’t just about finding the perfect property; it’s also about having the right team to guide you through the process. A skilled real estate agent can help you navigate the market, negotiate a better deal, and ensure you’re making informed decisions. However, not all agents are equally knowledgeable, so take the time to find one with experience in your target area.
Your lender also plays a crucial role, as mortgage rates and fees can vary significantly between providers. Shopping around for the best terms can save you thousands over the life of your loan.
Lastly, a reliable home inspector is essential. They can identify potential issues that may not be visible at first glance, helping you avoid costly surprises down the road.
Don’t skip the home inspection
A home might look perfect on the surface, but hidden issues could turn into expensive repairs later. A professional home inspection provides an in-depth property evaluation covering structural integrity, plumbing, electrical systems, roofing, and more.
Even in a competitive market, it’s never worth waiving the inspection to close a deal faster. The risks are too high. If the inspection reveals significant problems, you may be able to negotiate repairs or a lower purchase price before finalizing the deal.
In some cases, walking away from a bad investment is the best decision. A thorough inspection ensures you know exactly what you’re buying and helps protect your financial future.
When Is the Right Time to Buy a Home?
Many people assume homeownership is the next step simply because it’s what they have been told, without questioning if it fits their lifestyle and long-term financial goals. Instead of rushing into a decision, take the time to assess whether owning a home aligns with what you truly want.
Is homeownership part of your Rich Life?
Owning a home can be a source of pride and stability, but it’s not the only path to financial success. The key question is whether homeownership enhances your life or if you’re considering it because of societal pressure.
A home is more than just a place to live. It’s a long-term financial commitment that comes with responsibilities. If you value flexibility, enjoy being able to relocate easily, or prefer to put your money into investments rather than a down payment, renting may be the better choice. Homeownership isn’t a requirement for a Rich Life. It’s just one option among many.
To see why I personally choose to rent, even though I could easily afford to buy, check out my YouTube video where I break it all down:
Financial readiness checklist
Many first-time buyers focus on whether they qualify for a mortgage, but financial readiness goes beyond getting approved for a loan. Buying a home comes with long-term costs that can affect your lifestyle and financial stability for years. Before committing to homeownership, evaluate your financial position with these key questions:
- Can I comfortably afford the monthly payment? This includes the mortgage, property taxes, homeowners insurance, and maintenance costs. A house might seem affordable at first, but ongoing expenses can add up quickly.
- Do I have at least a 20 percent down payment saved? A smaller down payment may mean additional costs, such as private mortgage insurance, which increases monthly expenses.
- Am I financially secure if home values drop? Home prices don’t always go up. If you needed to sell within a few years, would you be prepared for the possibility of breaking even or even losing money?
- Have I accounted for closing costs and hidden expenses? Many buyers focus on the down payment but forget that closing costs can add thousands to the upfront cost. There are ongoing costs like home repairs, utilities, and property maintenance.
Being able to answer yes to these questions means you’re in a much stronger position to buy without financial stress. If you hesitate on any of them, it may be a sign to hold off and strengthen your finances first.
Renting as a strategic decision
Renting is often seen as throwing money away, but that’s a myth. It can be a smart long-term choice depending on your financial and lifestyle goals. It offers flexibility, removes the financial burden of maintenance, and allows you to save and invest in other ways.
If you’re unsure where to live long-term, renting gives you time to explore different areas without the pressure of a mortgage. It also provides financial predictability since renters don’t have to worry about major home repairs or fluctuating property values.
Owning a home can be rewarding, but it also comes with risks and costs that many people overlook. Renting isn’t a waste of money. It can be the right financial move that allows you to build wealth in ways that homeownership might not.
Real-life example
Meet Justin and Deepika. They make a solid income, but their finances feel like a revolving door—money comes in, and somehow, it all disappears. They dream of buying a home and growing a business, but without a clear strategy, they’re stuck in a cycle of spending and debt. This is a perfect example of how having money doesn’t automatically mean financial security.
[00:27:46] Deepika: That’s what we struggle with a lot, is trying to create a better future for our son, but not really understanding how to do that. We live in Queens, New York, right on the border of Nassau County and Queens County. And Justin and I have always agreed that if we wanted to take our money and do something with it, we’d really want to buy a home, have space for our son. I want to be able to have pride in saying that my husband owns his own business and is successful with it, and I can support him with my own physical contribution of helping him lay the groundwork for that.
[00:28:22] Ramit: What about for you, Justin? What’s the vision with money?
[00:28:24] Justin: The same. Me and Deepika agree on in terms of future goals and stuff, in terms of buying a home, having things saved up for our son, whether it’s for college funds or whether it’s for him to have the things we didn’t have education wise. And then like she said, being able to have this business grow where we’re bringing in a decent amount of income where we’re not constantly– I work a lot of hours to make my income. I don’t want to have to do that where I’m just a slave to the punch clock.
[00:28:58] Ramit: So you make $260,000 a year. It’s a lot of money. Your housing costs are very low. And for a couple that has this income, it doesn’t seem like you’re really getting ahead. I can see that because you don’t have any dedicated savings per month. You don’t have any dedicated investments per month.
[00:29:21] And you have told me that you are constantly in a cycle of getting into credit card debt and then paying it off. But I can also hear it just from the way you talk about money. There’s several clues. The clue about how Deepika is the one who manages the money, but even she admits she’s not particularly good at it.
Justin and Deepika know what they want, but they realize their approach to money isn’t setting them up for success. They’re making decisions instead of building a plan for the future. They’ll keep treading water instead of moving forward until they focus on their priorities and create a system to follow through. This is something that needs to be addressed for first-time home buyers.
Why Buying a Home Isn’t Always the Right Choice
Buying a home is one of the biggest financial decisions you’ll ever make, but it’s not always the best one. Many people assume homeownership is the logical next step in building wealth, yet the reality is far more complex.
Renting isn’t throwing money away
Some believe that renting is a waste of money because it doesn’t build equity. But equity isn’t free. It comes with mortgage interest, maintenance, property taxes, and other costs that renters don’t have to deal with.
Homeowners are responsible for repairs, homeowners insurance, and unpredictable property values. If the market doesn’t appreciate as expected, you could end up losing money rather than gaining wealth. Renters, on the other hand, can invest their savings elsewhere and potentially earn more than they would through homeownership.
Renting also provides a level of predictability. There are no surprise expenses like a broken water heater or roof repairs, and you’re not tied to a long-term financial commitment if your priorities change. The key is understanding that both renting and owning come with costs. One isn’t automatically better than the other.
For a deeper look at this topic, check out my article, Is Renting a Waste of Money? Ramit Sethi Explains.
The myths around homeownership
Homeownership is often promoted as a smart financial move, but that isn’t always true. Real estate markets can be unpredictable. Home values don’t always increase, and when you account for inflation, property taxes, and maintenance, the actual return on investment can be much lower than expected.
Some believe buying is always cheaper than renting, but in high-cost cities, that’s simply not true. Monthly rent payments can be significantly lower than the total costs of owning a home, even after considering appreciation. Renting also provides financial flexibility, allowing you to allocate money to investments that may offer better returns.
Owning a home isn’t a guaranteed path to financial security. It’s just one option, and depending on your goals, renting could be the smarter financial decision.
Why I choose to rent
Long-time readers know that I rent, even though I can easily afford to buy a home. The reason is simple. I value flexibility more than homeownership. I would rather invest my money in opportunities that align with my financial goals instead of locking it into a mortgage and ongoing property expenses.
Renting allows me to live where I want without being tied down to a long-term financial commitment. There are no unexpected repair costs, no property taxes to worry about, and if I decide to move, I don’t have to deal with the hassle of selling a home.
This doesn’t mean buying a home is a bad decision, but it does mean homeownership should be a deliberate choice. You should buy a home because it truly benefits your lifestyle and financial future, not because it’s what people expect you to do.
The Hidden Costs of Homeownership
Unlike renting, where the landlord is responsible for major fixes, homeowners are on the hook for every repair, upgrade, and emergency. If these costs aren’t planned for, they can strain your finances seriously.
Phantom housing costs
Most first-time buyers budget for their mortgage but forget about the extra expenses of owning a home. Property taxes, homeowners insurance, and maintenance fees can add thousands of dollars to your annual costs.
Repairs and unexpected expenses are another reality of homeownership. A leaky roof, plumbing issues, or a broken water heater can set you back thousands of dollars. These aren’t one-time costs either. Homeowners should expect to spend one to two percent of their home’s value yearly on maintenance.
Even small expenses add up over time. Lawn care, pest control, HOA fees, and routine maintenance can quietly take a big bite out of your budget. Homeownership can become more stressful than rewarding if you’re not prepared for these costs.
Here are some of the most common hidden costs first-time homebuyers overlook:
- Property taxes and homeowners insurance: These ongoing costs can increase over time and add hundreds or even thousands of dollars to your yearly budget.
- Maintenance and repairs: Homeowners should expect to set aside money each year for things like HVAC servicing, plumbing issues, and unexpected repairs.
- HOA fees and utilities: Homeowners in certain communities may need to budget for association fees, while utilities can be higher than in a rental.
- Furnishing and upgrades: New homeowners often underestimate the cost of buying furniture, appliances, and even minor renovations.
These costs can catch buyers off guard, especially in the first few years of homeownership. Failing to plan for them can lead to financial stress and even regret over purchasing a home too soon.
Why renting costs less upfront
Renting requires far less money upfront than buying a home. A renter usually needs a security deposit and the first month’s rent. On the other hand, a homebuyer has to cover a down payment, closing costs, and immediate move-in expenses.
In addition to the down payment, buyers must budget for closing costs ranging from two to five percent of the purchase price. These fees include lender charges, title insurance, and other administrative costs. Once you move in, furniture, appliances, and home improvement expenses can add up quickly.
When you rent, you avoid these major upfront costs, leaving you with more money for savings, investments, or other financial goals. Homeownership might pay off in the long run, but the initial financial burden is much heavier than most expect.
Mistakes First-Time Home Buyers Should Avoid
Buying a home is an exciting milestone, but rushing into it without a solid plan can lead to expensive mistakes. Here are some of the biggest ones to try to avoid:
Rushing into a purchase
Some buyers feel pressure to buy quickly because of rising home prices, advice from family and friends, or the fear of missing out. However, purchasing a home is a long-term financial commitment that shouldn’t be rushed. Jumping into a purchase without fully understanding the costs, the market, or your financial situation can lead to regret later. It’s always better to wait and buy when you’re genuinely ready than to force a decision just to check a box.
Buying more house than you can afford
Lenders may approve you for a high loan amount, but that doesn’t mean you should spend it all. Many first-time buyers take on a mortgage that stretches their budget, leaving little room for savings, travel, or unexpected expenses.
Homeownership comes with costs beyond the mortgage, including property taxes, maintenance, and repairs. If a large percentage of your income goes toward housing, it can limit your ability to invest in other financial goals.
Forgetting long-term financial goals
Focusing only on affording the monthly mortgage payment can lead to financial strain in the future. Homeownership should fit into a larger financial plan that includes retirement savings, investments, and an emergency fund. If buying a home means depleting all of your savings or cutting back on important financial goals, it may not be the right time to buy. A balanced approach ensures that homeownership supports your financial future rather than holding you back.
Real life example of home renovations adding to debt
Meet Paul and Morgan. Like many first-time homebuyers, they were excited to move into their new house and make it their own. But without a clear financial plan, their renovation quickly spiraled into a much bigger project than expected. Instead of sticking to a set budget, they kept uncovering new issues, forcing them to spend more and more.
[00:38:16] Paul: We’re redoing the bathroom right now.
[00:38:19] Ramit: How much? There’s no budget.
[00:38:21] Paul: There’s no budget. We started redoing it, we found bigger issues in the house that had to be dealt with. It wasn’t just taking off a finish and replacing a finish like we had hoped for. I’m doing it myself, so saving money there.
This is a perfect example of how homeownership can become overwhelming when expenses aren’t planned out. A simple renovation became a major financial strain because they didn’t set clear limits. Without a structured budget, unexpected costs can pile up quickly, putting unnecessary stress on your finances and peace of mind.
Alternatives to Homeownership
If you’re unsure about settling down, prefer to invest your money elsewhere, or want to avoid the hidden costs of homeownership, these alternatives can help you make the best decision for your future.
Renting for the long-term
Some view renting as a short-term solution, but it can be a smart long-term choice. Renting provides flexibility, fewer unexpected costs, and the ability to live in desirable areas without the commitment of a mortgage.
Unlike homeowners, renters don’t have to worry about maintenance costs, property taxes, or fluctuating home values. This makes it easier to plan finances, save, and invest in opportunities that align with long-term goals. For those prioritizing financial security and lifestyle flexibility over homeownership, renting can be the better option.
Co-living or sharing spaces
Co-living arrangements can be an excellent option for those looking to save money while maintaining a comfortable living situation. Sharing a home with roommates, living in a multi-generational household, or joining a co-living community reduces housing costs and provides greater financial flexibility.
Splitting rent, utilities, and other expenses frees up more money for savings, investments, or travel. In high-cost cities, co-living makes it possible to afford a better location while keeping housing costs manageable. For people who value social connections and cost savings, this approach can be a smart alternative to traditional homeownership.
Maximize Your Budget With the Conscious Spending Plan
The Conscious Spending Plan helps you allocate your money strategically so you can afford a home without sacrificing your long-term financial goals.
Cut costs strategically
One of the main points of my Conscious Spending Plan is you don’t have to cut costs on everything. Instead, you can focus on reducing expenses in areas that don’t add value to your life. Small adjustments can free up money for your home purchase without making your finances feel restrictive.
Here are a few ways to free up extra cash:
- Cancel unused subscriptions: Streaming services, gym memberships, and other recurring costs can add up fast.
- Negotiate lower bills: Call your internet, insurance, and phone providers to see if they can offer better rates.
- Cook at home more often: Reducing takeout and dining out can significantly lower your monthly spending.
- Refinance or consolidate debt: Lowering interest rates on loans or credit cards can free up more money for savings.
The goal isn’t to deprive yourself but to redirect spending toward what truly matters. A few smart changes can make a big difference in how quickly you reach your homeownership goals.
Earn more to buy faster
There is a limit to how much you can cut but no limit to how much you can earn. Increasing your income is one of the fastest ways to save for a home while still enjoying life.
Asking for a raise, switching to a higher-paying job, or starting a side hustle can help you build your down payment and cover homeownership costs more comfortably. Even an extra few hundred dollars per month can speed up the process and reduce financial stress once you become a homeowner.
Optimize your spending
Many assume they must sacrifice everything to afford a home, but smart budgeting is about prioritization. Tracking where your money goes allows you to shift spending without feeling like you’re giving up too much.
Using a system like the Conscious Spending Plan ensures that fixed costs, guilt-free spending, and savings stay in balance. This approach helps you work toward homeownership while maintaining financial stability and flexibility.
The Bottom Line on First-Time Home Buying
Buying a home is a major financial decision, and the right choice depends on your personal goals, financial situation, and lifestyle. Taking the time to run the numbers, save beyond the down payment, and understand the hidden costs of homeownership can help you avoid costly mistakes. These tips for first time home buyers will ensure you make a smart financial decision instead of rushing into a purchase that could lead to years of stress.
Renting isn’t a bad choice; in some cases, it can be the smarter option. Homeownership isn’t the only path to financial success; there’s nothing wrong with waiting until the time is right. The most important factor is making a decision that supports your version of a Rich Life.
Whether you buy now, wait, or keep renting, focus on what works best for your finances and lifestyle. Home buying is just one piece of the bigger financial picture. I cover this and many other key money topics in my New York Times bestselling book, I Will Teach You to Be Rich.
