Buying your first home is one of life’s biggest milestones. It represents independence, pride, and a new chapter. But while it's tempting to focus on open-concept kitchens and your future herb garden, it’s far more important to understand the financial ramifications of homeownership.
As someone who achieved financial independence partly through real estate, I’ve seen countless examples of both triumph and regret. What separates the two often comes down to preparation and perspective. A home can be your greatest asset—or your biggest liability.
Financial Factors For First-Time Homebuyers
For more context, I bought my first home at 26, my second at 28, my third at 37, my fourth at 42, my fifth at 43, and my sixth home—our forever home—at 46 in 2023. Today, living in our forever home feels incredibly satisfying and comforting. But make no mistake, the climb up the property ladder was far from easy. I made plenty of mistakes along the way, some of which caused more stress than necessary.
Here’s a deep dive into the key financial considerations every first-time homebuyer must understand, beyond the daydreams and Pinterest boards.
1. Budget Beyond the Listing Price
Most people look at the list price and ask, “Can I afford this?” But the smarter question is, “What are the ongoing costs of ownership, and how will they affect my lifestyle and financial goals?”
The mortgage is just the appetizer. You also have to factor in the following ongoing homeownership expenses:
- Property taxes
- Homeowner's insurance
- HOA dues (if applicable)
- Utilities (likely higher than you're used to)
- Maintenance and repairs (budget 1% of home value annually)
- Opportunity cost (what that down payment could have earned elsewhere)
A helpful rule of thumb is the 28/36 rule: Spend no more than 28% of your gross income on housing costs and no more than 36% on all debt obligations. Another suggestion is to follow my 30/30/3 home-buying guide if you want to sleep well at night after purchasing your home.
To get a realistic estimate of your monthly payments, try plugging numbers into a home mortgage calculator—it can help you visualize how different down payments, interest rates, and loan terms affect your budget.
2. Know Your Credit Score and Mortgage Options
Your credit score is one of the most powerful levers in determining your mortgage rate. A difference of just 0.5% in interest could mean tens of thousands of dollars over the life of your loan.
Check your credit early, pay off high-interest debts, and dispute any errors. Also, take the time to compare loan types:
- Conventional Loans – Best if you have 20% down and strong credit.
- FHA Loans – Good for first-timers with lower credit or minimal savings.
- VA and USDA Loans – Great options if you qualify, with little or no down payment.
Shopping for a mortgage is just as important as shopping for a home. And don't just go with your current bank out of convenience. You're not buying a toaster—this is hundreds of thousands of dollars we're talking about.
Just know that the average credit score for approved mortgages is well about 700 now, or excellent. If you want a home mortgage, you must have great credit.
3. Don’t Underestimate Down Payment and Closing Costs
Too many buyers think the down payment is the only hurdle. But closing costs—appraisal, title insurance, escrow fees, prepaid taxes—can easily add 2–5% of the purchase price.
If you’re buying a $500,000 home, that’s $10,000–$25,000 you need on top of your down payment. And then there’s moving expenses, furniture, appliances, and your first property tax installment.
Rule of thumb: Have at least 10%–15% more cash than you think you’ll need. You don’t want to start homeownership stressed and cash-poor. However, if you do, the good thing is you'll watch your expenses and do everything you can to boost your liquidity.
After I purchased our forever home in late 2023, I slashed our expenses by about 25% and took on a consulting job at a startup to boost our cash savings. The first six months was stressful, but I did what I had to to improve our financial cushion.
4. Buy for the Life You Have, Not the Life You Hope For
A lot of people stretch for more house “just in case.” Maybe they plan to have two kids, get a dog, and host Thanksgiving every year.
But life rarely goes as planned. People change jobs. Couples split up. Kids get expensive. Sickness and accidents happen.
Instead, buy for the life you’re living now. If things go well, you can always trade up later. It’s better to have a smaller home with financial freedom than a dream house that becomes a debt trap.
A big, expense house can derail your path to financial independence. Don't let your ego buy a bigger house than you really need. Only once you have those two kids and that dog, should you buy the best home you can comfortably afford.
5. Develop A Strong Emergency Fund
Before you even think about homeownership, make sure you have at least 3–6 months of living expenses saved—after you’ve set aside money for your down payment and closing costs. Part of my 30/30/3 rule means you have 20% for the down payment plus 10% in cash for emergencies.
Owning a home means you’re responsible for everything—from the roof to the water heater. And those expenses never come at a convenient time.
One friend bought a starter home with zero margin for error. Six months in, a $12,000 plumbing problem wiped out their savings and forced them to take on credit card debt. That’s the kind of financial stress that can spiral fast. House rich cash poor is not a great feeling.
6. Get Pre-Approved, Not Just Pre-Qualified
Sellers and agents take you more seriously when you're pre-approved. It also forces you to face the numbers. You'll know exactly what you can borrow, at what rate, and what your monthly payments will look like. Getting pre-qualified really doesn't mean much.
Better to get sticker shock early than after you’ve emotionally committed to a home that will stretch you too thin. If you are pre-approved, this means that the bank has approved your loan.
You can put in a no-financing contingency offer in such a scenario, which makes you look more attractive to the seller. This is a strategy that's almost like paying all cash for your home without having all cash.
7. Don’t Let Emotions Dictate Your Budget
Real estate agents are trained to sell you a lifestyle. Model homes, fresh-baked cookies, and phrases like “you deserve it” are all designed to nudge you past your price range.
But real life isn’t a brochure. Fancy finishes wear off, but mortgage payments persist.
Stay disciplined. If you can afford $700,000, consider looking in the $550,000–$600,000 range. That extra buffer can go toward investing, renovations, or simply sleeping well at night. There is always a nicer home on the market. And if you miss one dream home, another dream home will come along. Be patient, and stay disciplined.
To real estate agents, who work on commission, it's always a great time to buy or sell property! Here are 10 warning signs to look for before buying a home. I've experienced every single one of them. Real estate agents and sellers can be quite adept at hiding these potentially costly problems.
Final Thoughts on Buying Your First Home: A Launchpad, Not a Ball and Chain
Buying your first home should feel empowering, not suffocating. Yes, it’s an emotional milestone—but it’s also one of the biggest financial commitments you’ll ever make. Treat it like buying a business: run the numbers, plan for the downside, and focus on sustainable upside.
With proper planning, your first home can be more than just a dream—it can be the foundation for long-term wealth and peace of mind. The first year of homeownership is the most precarious. Adopt the survival mindset to make it through.
If you rush in, ignore the fine print, or let marble countertops override financial logic, and that dream can quickly become a nightmare. Always consider worst-case scenarios. For example, if you become DUPs—Dual Unemployed Parents—how many months could you survive before running out of cash? If the answer is less than six months, you’re likely buying too much house.
I learned this the hard way. I bought my first single-family home in 2005, right before the 2008 Global Financial Crisis hit. It was one of the most nerve-wracking and humbling periods of my life. For two years, I lived in fear of losing my job. If my wife had lost hers too, we wouldn’t have lasted long—we’d gone all-in. Never again.
So be smart. Be patient. And remember: it’s far better to own a modest home with confidence than to stretch for a mansion you can barely afford.
About The Author
Sam Dogen founded Financial Samurai in 2009, one of the leading independently-owned personal finance sites today. One of the pioneers of the modern-day FIRE movement, he was previously at Goldman Sachs and Credit Suisse, from which he retired at age 34. Dogen is a graduate of The College of William & Mary and received an MBA from University of California Berkeley. His passive investment income exceeds $300,000 annually. Dogen lives in San Francisco with his wife and two children.
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