How to Crack the US Housing Market as a First-Time Buyer
The ultimate guide for rookie purchasers hoping to achieve the American Dream.
Purchasing property looms large in the American psyche as a milestone of adulthood and success. To reach the promised land, wannabe homeowners face high prices, stubborn mortgage rates and serious competition — obstacles that have pushed the share of rookie buyers to the lowest levels on record in a National Association of Realtors survey dating back to the 1980s.
As a group, first-time purchasers have shifted demographically. They’re crossing the home-buying finish line at an increasingly older age: 38 in 2024, compared to their late 20s in the 1980s. They’re also collectively getting wealthier as costs rise. The median household income of first-time buyers in 2024 grew to $97,000, a leap from $71,000 in 2022, according to the NAR.
Affording the landmark expense is only one barrier to entry and hurling money at a “For Sale” sign won’t necessarily guarantee success. For anyone longing to break into the US housing market, here are suggestions for how to approach the challenge.
Ready Your Finances
Before firing up your real estate app of choice, determine a realistic price range and how much capital will be necessary.
Do the Cash Math
One hurdle to home ownership is saving for the down payment and closing costs, which both require money upfront. While a 20% down payment on the home price staves off mortgage insurance, the typical first-time buyer puts down far less, with the NAR reporting an average of 9% in 2024. Cristina Guglielmetti, a certified financial planner in Brooklyn, New York, said closing costs — including expenses such as legal fees and taxes — can range from 2% to 6% of the home price depending on the property type and location. She advised allocating an additional 1% to 2% per year to the home’s upkeep, from the expected (landscaping) to the surprising (a sinkhole in your backyard).
Gather Funds for Upfront Costs
Buyers have a few options to get their hands on a pile of cash, aside from simply squirreling money away. For those with significant investments, a bank may be willing to grant a pledged asset line, allowing you to borrow against your equities or securities, or you could opt to withdraw savings from your 401(k), though that comes with penalties. Over a third of homebuyers said they received down payment assistance from a family member or friend in a 2023 Lending Tree survey. If you are fortunate enough to be gifted a lump sum, lenders will require what’s called a gift letter to prove the money isn’t a loan.
Budget What You Can Afford
Decide on a monthly number by taking into account mortgage, taxes, insurance payments and any homeowners association or maintenance fees. Determining your range can be a balancing act. Financial institutions typically offer loan amounts based on a 45% debt-to-income ratio, though just because the bank will give you the money, doesn’t mean it’s the wise choice for your budget. On the flip side, the conventional wisdom often repeated by financial advisers — spend no more than 28% of your gross monthly income on housing expenses or 35% on all debt repayment — can seem restrictive, especially in light of current home prices. For those who feel lost, most lenders have online monthly payment calculators and Jeff Nicola, an area sales manager at Bay Equity Home Loans in Bellevue, Washington, said purchasers can ask a loan officer to assess what range best fits their needs.
Research Your Mortgage Options
Experts recommend buyers get a preapproval letter from a mortgage lender that confirms they qualify for a specific loan amount early in the process because pre-vetted bids are more attractive to sellers. Doing the legwork of applying in advance will save you valuable time at closing, too.
Prep Your Documents
You’ll be asked to complete an application to get preapproved for a mortgage, so gather the documents you may need, including recent pay stubs or other proof of employment, tax returns, W-2 or self-employment tax forms, gift letters and statements for all the bank and brokerage accounts, credit cards and loans you hold.
Reach Out to Lenders
Homebuyers can be reluctant to go to financial institutions early on for fear of damaging their credit scores. Nicola said they don’t need to worry. Only a “soft pull” of your personal information is required for preapproval, he explained, with no impact on your credit score and no commitment to stay with that lender.
Take Advantage of Government Programs
Members of the military, veterans and those living in select rural areas could qualify for no-money-down mortgages through Veterans Affairs or US Department of Agriculture programs. There are also state programs that offer grants and loans for low- and moderate-income buyers that are listed on the US Department of Housing and Urban Development’s website. First-time purchasers who earn more than the income limits imposed by these programs can also take advantage of a 3.5% down payment and lower closing costs with Federal Housing Administration loans. These loans limit borrowers to $524,225 in most of the country, just over $1.2 million in high-cost areas and $1.8 million in Alaska and Hawaii.
Decide on a Property
Touring real estate with an agent isn’t required, though these professionals can help navigate the industry competitively and develop an attractive offer.
Learn the New Real Estate Agent Rules
As the result of a 2024 settlement of antitrust lawsuits that rocked the real estate industry, sellers can now choose to no longer pay buyers’ agent fees, typically 2% to 3% of the property value, which had been the norm. Purchasers who use an agent must also sign a contract outlining the structure of the agent’s commission. David Palmer, a Redfin agent in Seattle, suggested meeting with a few agents before signing a representation agreement. While you don’t need an agent, Palmer said the biggest pitfall he’s seen with unrepresented buyers are offers that misread the market.
Think Long-Term
Instead of “falling in love” with a home, Taylor Welch, a Compass real estate agent in St. Petersburg, Florida, said to “consider yourself an investor buying a property for yourself to live in.” In other words: think practically. Estimate how much money and work will need to go into the premises and what you could sell it for after five to seven years, the typical timeframe experts say is necessary to turn a profit. Research the problems that could come with the home’s building materials or construction as well as any climate risks of the location.
Enhance Your Offer
When you submit a bid on a property, include the lender’s preapproval letter so the seller knows you can secure financing, an advantage if competing offers don’t have one. (That said, it’s unlikely to make a difference against an all-cash or significantly higher bid.) To entice the seller even further, you could include contract clauses — a guarantee to cover both sides’ closing costs, for example — or put down what’s called a good faith deposit, a sum paid into a third-party escrow account and which is non-reimbursable if you were to back out of the deal. In competitive markets, buyers may even agree to waive contract contingencies, such as a home inspection, to make their offer all the more appealing to sellers.
Finalize the Deal
Once your offer is accepted, both parties will sign a purchasing agreement and you’ll be “under contract,” a period of time when any remaining contingencies need to be met, such as securing financing and having the home appraised. This is the home stretch, lasting 46 days on average before closing, according to International Continental Exchange Inc.
Find Your Lender
Guglielmetti, the financial planner, recommends getting quotes from at least one bank and one mortgage broker for comparison’s sake. If the lender you’d prefer to work with doesn’t offer you favorable terms, see if they’ll compete for your business by matching or beating competitors. Nicola said borrowers could also “buy down” their interest rates with mortgage points. Each point will lower your rate, commonly by .25%, though it will require additional upfront money, usually 1% of the mortgage cost per point.
Consider the Economic Climate
Depending on your situation, it could make sense to opt out of the 30-year fixed-rate loan standard in the US in favor of an adjustable-rate mortgage with lower entry rates. The catch with an ARM is after the honeymoon three- to 10-year term ends, your monthly payments will change — generally every six months — to follow the benchmark index set by your lender. If rates go down, you’re golden, but if rates go up, your costs will rise, too. This could be fine for those who plan to pay off the mortgage quickly, sell before rates have a chance to increase or can afford the potential added expenditure. Nicola often suggests an ARM to borrowers taking out jumbo mortgages — those that exceed the Federal Housing Finance Agency’s maximum loan limit, which in 2025 is $806,500 in most counties — since the overall savings on interest can outweigh the risk of higher rates at the end of the term.
Endure the Appraisal
The lender will have the home evaluated by a state-licensed appraiser. If the appraisal value is less than the offer, both sides could agree to lower the purchase price, meet in the middle or have the buyer pay the difference. Be prepared to negotiate, unless you already baked in an appraisal gap guarantee, ensuring the buyer is responsible to make up the shortfall.
Stay Calm — and Then Close
Sticker shock isn’t uncommon at closing as buyers watch their down payment and closing costs — including attorney fees, inspection fees and property taxes — flow out of their accounts. There could also be additional expenses or challenges depending on your location and the type of home you’re buying; certain parts of the country add a “mansion tax” on high-value home purchases, and in New York City, you may even navigate your way through an intense co-op board approval process. Keep your cool. If all goes according to plan, the documents will get signed and you’ll cross the homeownership finish line, keys in hand.