Getting ready to buy your first home

For many of us, scrolling through real estate websites is a daily routine. It’s fun to mix and match square footage, neighborhoods, and amenities to find the perfect home. But when you think about actually buying a home, it’s easy to get overwhelmed. It’s so much money, tons of paperwork, and all those unfamiliar words. Seriously, does anybody know what an escrow account is?

We do, and we can help you overcome the unknown territory of buying a home.

Below are some general tips to get you started, but you should also know that there are many types of home loans for various incomes, credit scores, and down payments. A mortgage advisor can help you navigate your home loan journey and find a mortgage that’s right for you. (And we just so happen to know a few mortgage professionals who can help.)

Set up a system to stay organized.

Buying a home involves a lot of paperwork, so start with a designated space to keep everything together, whether that’s on your computer, in the cloud, or on your desk. Here’s a simple way to approach it:

• Real estate agent folder: Most first-time homebuyers hire a buyer’s agent to represent them and guide them through the process. Keep the signed agency agreement in a folder.

• New house folder: Keep offers, counteroffers, home inspection reports, warranties, manuals, and any other costs and contracts involved with the house here.

• Mortgage application folder: When you apply for a home loan, you’ll submit recent tax returns, bank statements, and, if needed, proof of recent large deposits. Gathering this information ahead of time will help prevent a last-minute rush. This is also a good place to keep your Loan Estimate, Closing Disclosure, and final loan documents.

Boost your credit score.

Every homebuying how-to has a credit score section. It’s that important. Your score could determine whether your mortgage application (or loan application) is approved or not and how much interest you’ll pay. A high credit score usually means a lower interest rate and lower overall costs for the loan, so give yourself time to get your number up if possible.

• Check your current score. Sign in to your Flagstar account and select My Credit Score. You’ll get your number, an easy-to-understand breakdown of how it got there, and personalized advice on how to increase it. For more about this feature, see How to keep an eye on your credit score.

• See a mistake? Contact Experian, TransUnion, and Equifax to start a dispute.

• Pay down or pay off outstanding debt. Aim to keep your credit card balance below 30% of the limit—under 10% would be even better.

• Don’t apply for new loans or credit cards for 6-12 months before buying a home. The inquiry alone can slightly lower your score, even if you are approved.

Save, save, save!

If you have time, pile up as much cash as you can for a down payment. At one time, that was 20% of the home price, but it’s not a hard-and-fast rule today. In 2024, the median down payment for first-time buyers was just 9%, according to the National Association of Realtors^®.

It’s still a good idea to save as much as possible, though. It depends on the mortgage type and number of years, but a high down payment could lead to a lower interest rate, lower monthly payments, and not having to pay for private mortgage insurance, which is required on some mortgages with less than 20% down.

Even if you don’t use all of it on your down payment, the cash will come in handy for paying closing costs (more on that later) and furnishing your new home. Here are a few ways to save up:

• Press pause on subscriptions, such as streaming services, apps, games, and news.
• Save bonuses, birthday checks, and tax refunds.
• Pick up overtime, freelance, or part-time work.
• Sell clothing, furniture, and other items that you no longer use.
• Put your money to work with a higher interest rate. If you have $25,000 or more, open a Flagstar Performance Savings account . Less than $25,000? Open a High Yield Savings Account from My Banking Direct, a service of Flagstar Bank, NA.

Learn a few words that will help you down the road

You don’t need to know all the strange words that come with buying a home, but there are a few key ones that will prevent confusion later.

• Appraisal: This is not a home inspection. A lender or another party will hire a professional appraiser to develop an estimate of value for the home you want to buy by comparing it to similar houses in the area.

• Escrow account: Your mortgage payment may cover more than just the loan. It can also include your homeowners insurance, flood insurance and property taxes. An escrow account holds the money until a bill comes due, then the lender pays it on your behalf. As these bills change over the years, your mortgage payment will change, too, to reflect the new cost.

• Closing costs: Typically around 2-5% of the loan, these fees go toward finalizing your loan and the purchase of your new home, such as the appraisal, title search, and prepaid property taxes and homeowners insurance. 

• Principal: The amount of money you borrow to buy the house.

• Interest: The ongoing cost to borrow that money.

• Annual percentage rate: This is the annual cost of your mortgage—the interest rate plus any points, fees, and other charges. You will receive two documents, a Loan Estimate and Closing Disclosure, that break down these numbers so you can see exactly what you’re paying for.

The Consumer Financial Protection Bureau website offers definitions of dozens of financial terms and a sample Closing Disclosure and Loan Estimate.