Who Counts as a First-Time Home Buyer?

More people qualify than think they do. The label sounds like it only applies to someone who has never owned anything, and that is the most common misunderstanding I hear in a first meeting.

Both of the programs most first-time buyers in California end up looking at use a three year lookback. Fannie Mae, for its 97 percent loan-to-value options, treats a buyer as first-time when at least one buyer has not owned any residential property in the past three years.[3] The California Housing Finance Agency defines a first-time homebuyer as someone who has not owned and occupied their home in the last three years and has not lived in a home owned by a spouse in that period, and it notes that exceptions may apply.[5]

So the renter who sold a condo in Costa Mesa five years ago and has been leasing in Irvine ever since may well be a first-time buyer again on paper. Ask the question before you assume the answer.

The definition is not the same everywhere

One program cares about ownership. Another cares about ownership and occupancy, and about a spouse’s home too. CalHFA’s Dream For All shared appreciation loan goes further still, with first-generation criteria that look back seven years and at whether your parents currently own a home in the United States.[5] Each program writes its own rule, and the loan officer is the person who reads them against your actual history.

Get Pre-Approved for a Mortgage Before You Tour

Before you look at a single house, get pre-approved. It tells you how much you can borrow, and it keeps you from falling in love with a home that sits outside your budget. That advice was the first item on this list when we published it in 2023, and it is still the first item now.

A pre-approval is the lender’s written view of you after it has reviewed your finances and pulled your credit. In Orange County it is also the piece of paper a listing agent asks for before taking your offer seriously. An offer on a Huntington Beach bungalow that arrives without one tends to go to the bottom of the pile, however good the price.

Talk to more than one lender

The Consumer Financial Protection Bureau tells buyers to contact several lenders and not to stop with just one, and it says borrowers who shop around can save thousands of dollars.[7] Ask each loan officer to show you the interest rate, the APR, the estimated fees and the monthly payment on a couple of loan options, so you are comparing the same things side by side.[7]

People skip this because they are afraid of damaging their credit. The CFPB is direct about it: within a 45 day window, multiple credit checks from mortgage lenders are recorded on your credit report as a single inquiry, as long as the last check falls within 45 days of the first.[2] You can get multiple preapprovals and official Loan Estimates and compare them.[2]

Once you have a number, run it through our mortgage calculator to see what the payment actually looks like with taxes and insurance on top. The approval amount and the payment you are comfortable with are rarely the same figure.

How Much Down Payment Do First-Time Buyers Really Need?

Less than most people assume, and more than the advertisements suggest once you count everything.

Fannie Mae allows a standard purchase at 97 percent loan-to-value, which is a three percent down payment, when at least one borrower is a first-time buyer.[3] The fine print matters here. The property must be a one-unit principal residence, which can include an eligible condo or PUD, the option is limited to fixed-rate loans with terms up to 30 years, and high-balance loans and adjustable-rate mortgages are not eligible for 97 percent financing.[3] If every borrower on the loan is a first-time buyer, at least one of them has to complete homeownership education.[3]

That high-balance line is where Orange County buyers should slow down. Ask your lender early whether the loan amount you are aiming for would be a high-balance loan here, because that single answer decides whether three percent down is on the table at all for the homes you are looking at.

California’s own help: CalHFA MyHome

The California Housing Finance Agency offers MyHome Assistance, a deferred-payment junior loan that can go toward the down payment and closing costs. Paired with a CalHFA government (FHA) first loan it is up to the lesser of 3.5 percent of the purchase price or appraised value. Paired with a CalHFA conventional first loan it is up to the lesser of 3 percent.[4] You have to be a first-time buyer, meet CalHFA’s income limits, and live in the home as your primary residence, and non-occupant co-borrowers are not allowed.[4]

One occupying first-time borrower per loan has to complete homebuyer education and get a certificate. CalHFA accepts one online option, an eight-hour eHome course for $100, or live sessions through NeighborWorks America or a HUD-approved housing counseling agency.[5] CalHFA does not take applications directly, so all of this runs through a CalHFA-approved lender.[5]

CalHFA’s own page says rates can change daily and does not promise funding at any given moment, so confirm availability with an approved loan officer before you build a plan around it.[4]

• Ask whether your target loan amount is conforming or high-balance in Orange County.
• Ask whether you meet the three year first-time buyer test for each program you are considering.
• Ask which homebuyer education course the program accepts before you pay for one.
• Ask whether the assistance loan is deferred, and what triggers repayment.
• Keep reserves for the move and the first repair. A buyer who arrives at closing with zero dollars left is one water heater away from a credit card balance.

Research Neighborhoods the Way You Will Actually Live

Location still decides most of what a house is worth and most of what living there feels like. Take the time to research neighborhoods that fit your life and your budget, and think hard about commute times and schools.

The trick is to test them at the hours that matter to you. Drive from a Tustin townhome to your office at 7:30 on a Tuesday, not on a Sunday afternoon. Walk the street in Fullerton or Orange after dark. Sit in the parking lot of the grocery store you would actually use. A neighborhood that looked perfect at the open house can feel very different at the hour you would be coming home.

In Irvine and parts of south Orange County, look at the tax bill as carefully as the floor plan, because some newer communities carry special assessments that change the monthly number. I wrote about that in detail in Should You Buy a Home With Mello-Roos in Irvine?. If you are weighing coastal areas, how to pick the right Newport Beach neighborhood walks through how much the micro-location matters there. Our community pages are a good place to start a shortlist.

Questions to answer before you write an offer

• How long is the commute at the time you would actually drive it?
• Which school is the home assigned to, confirmed with the district rather than a listing portal?
• What does the HOA charge, and what does it cover?
• Are there special assessments on the property tax bill?
• Where is the nearest freeway on-ramp, and can you hear it from the backyard?
• What is planned for the empty lot down the street?

Hire a Real Estate Agent Who Works With First-Time Buyers

A good agent negotiates for you and keeps the transaction moving when something goes sideways. Look for one who has worked with first-time buyers specifically, because the questions you will ask in week one are different from the questions a move-up buyer asks.

What you want from an agent on your first purchase is someone who will tell you no. No, that price is above the comps. No, that inspection item is not something to walk away over. No, do not waive the appraisal contingency on this one. An agent who agrees with everything you say is pleasant company and expensive representation.

The way buyers and agents put their working relationship in writing has changed in recent years, and I covered it in The NAR Lawsuit Settlement: What Home Buyers and Sellers Need to Know. Read your buyer agreement before you sign it, and ask how your agent is being paid. A good agent will answer that in one sentence. If you want more on why representation matters, Why It’s Important To Work With A Realtor goes into it, and you can meet our team of experienced agents here.

The Home Buying Process, Step by Step

Here is the order most of my first-time buyers move through. The timing stretches or shrinks with the market, but the sequence rarely changes.

1. Check your credit and savings. Know your number and your cash before a lender tells you.
2. Get pre-approved by more than one lender. Compare Loan Estimates line by line.
3. Choose an agent and agree on terms in writing.
4. Shortlist neighborhoods and tour homes. Test the commute.
5. Write an offer. Your agent pulls comps and structures the contingencies.
6. Open escrow and deposit earnest money.
7. Inspect the house and read the disclosures while the appraisal is ordered. This is where most deals are won or lost.
8. Remove contingencies when you are ready, not before.
9. Review the Closing Disclosure and sign. It arrives at least three business days before closing.[1]
10. Get the keys and move.

Ten steps. They mirror the ten things in the original version of this article, just in the order you will actually meet them.

Understand Closing Costs Before They Surprise You

Closing costs add up quickly. They include fees tied to the loan, the title search, the appraisal, escrow, prepaid interest and insurance, and the first deposits into your escrow account for taxes. The good news is that federal rules give you two documents that show you the numbers in advance.

Your lender sends a Loan Estimate within three business days of receiving your application, summarizing the loan you applied for. At least three business days before closing, it sends a Closing Disclosure showing the final terms and costs.[1]

Read the Loan Estimate the day it arrives. Most people glance at the rate and the payment and file it. The pages behind those numbers are where the lender fees and the third party charges live, and they are the part you can still shop.

When the Closing Disclosure comes in, put it side by side with the Loan Estimate. If a number moved, ask why before closing day, not at the signing table with a notary waiting.

Don't Skimp on the Home Inspection

A home inspection is one of the most important steps in the purchase. It can uncover hidden problems and save you thousands of dollars over the life of the house. Please do not skimp on this expense. Choosing the cheapest inspector, or skipping the inspection to make an offer look cleaner, is the kind of saving that tends to cost money later.

A general inspection is a starting point. In Orange County I almost always recommend a sewer line camera inspection on older homes, and on houses in neighborhoods like the older tracts of Garden Grove or Anaheim, the line from the house to the street is a frequent source of an expensive surprise. Depending on the house, a roof inspector or a termite report may also be worth ordering. Your general inspector will often flag where a specialist should look next.

The inspection is not the appraisal

First-time buyers mix these up all the time. The appraisal is for the lender and answers whether the house is worth what you are borrowing against it. The inspection is for you and answers what is wrong with the house. A home can appraise at full price and still need a new roof.

Go to the inspection. Walk the house with the inspector and take your own photos. A report is a list. Standing in the attic while the inspector points at the stained sheathing is an education.

Read the Seller's Disclosures Like a Contract

California requires sellers of most residential property to give buyers a written disclosure statement about the condition of the home. The statute requires delivery as soon as practicable before transfer of title.[6]

The part first-time buyers rarely know: if a required disclosure, or a material amendment to one, is delivered after you have made your offer, you have a window to terminate. That window is three days after delivery in person, five days after delivery by mail, or five days after delivery of an electronic record when the parties agreed to do the transaction electronically, and you terminate by delivering a written notice to the seller or the seller’s agent.[6]

That is a legal right with a short clock. If the disclosures arrive on a Friday afternoon, read them that weekend.

Then compare the disclosures with the inspection report. Where they disagree, you have a question for the listing agent and sometimes a negotiation.

Consider Resale Value, Even on Your First Home

Even if you plan to stay for a long time, think about resale. Most first homes are not forever homes. Life changes, and the house that worked as a couple may not work with two kids and a dog.

Location matters most for resale. In practice it often comes down to whether the house has a flaw a future buyer cannot fix. A busy street. A backyard that backs onto a freeway wall. A floor plan where the only bathroom is off the kitchen. You can renovate a kitchen in six weeks. You cannot move a house away from an arterial road.

My opinion, and plenty of agents disagree with me on this: a first-time buyer is usually better off with the smaller house on the better street than the larger house on the compromised one. The smaller house will be easier to sell, and it usually appreciates in a straighter line. I have seen the other choice work out when the price was low enough, so it is not a rule, but it is where I start.

Stick to Your Budget, Not Your Approval Amount

It is easy to get caught up in the excitement of buying a home. Do not let it talk you into spending more than you planned.

Your pre-approval is a ceiling. It tells you the most a lender will let you borrow, and the lender is not the one who has to cover groceries and daycare out of what is left. Set your own number, based on the monthly payment you can carry comfortably, and give it to your agent as the limit.

Then plan for the costs that do not show up on the listing:

• HOA dues and any special assessments.
• Property taxes, including any special taxes on the bill.
• Homeowners insurance, which you should quote before you remove contingencies.
• Utilities in a larger space than you rent now.
• A repair fund, because something always breaks in the first year.
• Furniture for rooms you did not have before.

If you are still deciding whether buying is the right move at all, Should I Rent or Buy a Home? lays out the comparison, and Things You Shouldn’t Do When Buying a Home covers the mistakes that tend to blow a budget in the middle of escrow.

Is a Home Warranty Worth It for a First-Time Buyer?

A home warranty can give you some peace of mind and some protection from unexpected expenses. It typically covers major appliances and home systems, such as the furnace or the water heater, depending on the plan you choose.

Here is where I come down. A home warranty is a reasonable thing to have on an older house in the first year, especially when the seller is paying for it as part of the deal. It is not a replacement for an inspection, and it does not fix what an inspection would have found. Read the coverage limits and the exclusions before you rely on it. Check whether the plan caps what it pays per item, how it treats conditions that existed before you bought, and what each service call costs you.

If the seller offers a warranty as a credit, ask yourself whether you would rather have the warranty or the same dollars off the price. Sometimes the warranty is the better choice. Sometimes it is not.

Prepare for Closing Day

Closing day can be hectic, but with a good agent and an escrow officer who communicates, it should hold no surprises. Have your documents in order and expect to sign a lot of paperwork.

What you sign is not a mystery. Alongside the Closing Disclosure and the initial escrow statement, you will sign a promissory note, which sets out the amount owed, the interest rate, the payment dates and the length of repayment, and a mortgage or security instrument, which explains your rights and duties and allows the lender to foreclose if you stop paying as agreed. There are also state and local documents and lender documents, such as an affidavit of occupancy.[1]

The CFPB suggests asking your lender for a full set of the documents in advance so you have more time to review them.[1] Do it. Reading a deed of trust at the escrow office with someone watching is the worst possible way to meet it for the first time.

Before you wire anything

Confirm wiring instructions by phone, using a number you already had, not one from an email. Treat any email that asks you to send funds to a “new” account as suspect until you have confirmed it by phone with your escrow officer.

Plan for Moving Day

Finally, plan the move itself. That means booking movers or a truck and starting to pack well before the date.

Book movers early, especially for the end of a month, when every lease in Orange County seems to end on the same day. Do not schedule movers for the same day escrow is supposed to close. Recording can slip by a day for reasons nobody in the transaction controls, and paying a moving crew to wait in your driveway is an expensive way to learn that.

Change the locks the day you get the keys. Transfer the utilities before you move, not after. And keep one box for the first night in your own car: toilet paper, phone chargers, coffee, a shower curtain and the bedding.

Buying a home for the first time can feel overwhelming. With the right preparation and an honest team around you, it is also one of the more rewarding things you will do. For a deeper walkthrough you can keep, download our free buyer’s guide.