Rules of thumb for first-time home buyers

A home purchase is the biggest investment many people will ever make. Though the housing market can fluctuate, prospective homeowners still look at home ownership as a way to secure their financial futures while also putting a roof over their heads.

Because it is such a significant investment, the home buying process can be intimidating, especially for first-time home buyers. But even though the housing market can be unpredictable, there are some things that prospective buyers should know regardless of whether it's a buyer's or seller's market when they begin their search.

* Be ready to commit to a location. Buying a home is not like renting an apartment. If renters need to break a lease, they might be able to do so at little or no cost to them. In addition, many renters sign a 12-month lease, which gives them some flexibility with regard to moving should they need to relocate for a new job or simply decide they need a more accommodating living arrangement.

That flexibility is far more costly to home buyers, who must pay transaction costs when buying or selling a home. Those fees can be considerable, so prospective home buyers should be ready to make a long-term commitment to living in the area where they're searching for a home. Buyers may end up losing money if they're forced to sell shortly after buying a home. But even those who break even will be stuck with costly transaction fees at least twice in a short period of time.

* Address bad credit. Unless a buyer can afford to buy a home with cash, the buyer will need a mortgage to purchase a home. Mortgages come with an interest rate, which will be higher for those with poor credit scores and histories than those with solid ones. Buying a home is not an overnight process, but one that should begin long before buyers look at any properties. The best way to begin the home-buying process is for a buyer to obtain a copy of his or her credit report, examine it to make sure it is accurate and then work to raise that credit score to a level that makes one attractive to prospective lenders. A low interest rate can save you thousands of dollars over the course of a typical 30-year mortgage, and a credit score and history goes a long way toward determining what that interest rate will ultimately be.

* Be ready to put down 20 percent. When buying a home, first-time buyers might be surprised to learn the down payment is typically 20 percent of the cost of the home. That down payment does not include transaction fees, closing costs or the often considerable cost of moving into the home. So buyers hoping to purchase a $400,000 home should be ready to pay an $80,000 down payment. While it's possible to qualify for a low-interest mortgage that allows buyers to make a smaller down payment, a smaller down payment will also result in a higher monthly mortgage payment. For those who aren't prepared to put down 20 percent, it might be in their best interests to put off the home-buying process until they can comfortably afford to do so.

* Don't underestimate the value of a real estate agent. Veteran home buyers might be confident that they can navigate the home-buying process on their own. However, first-time buyers should enlist the help of a professional real estate agent, ideally one who specializes in buying homes. A real estate agent can help make the process less stressful and provide valuable advice as to where to look for a home, how to make an offer and a host of other suggestions first-time buyers may not be knowledgeable about.

* Buy a home in a good school district. A good school district isn't just beneficial for home buyers with children. Buyers who don't have children and don't plan to have children should still look for a home in a good school district, as numerous studies have shown buyers will pay more for a home that's in a good school district. Good schools help maintain demand for property, and consistent demand should ensure a property appreciates in value over time, making a home in a good school district a better investment than a home in a bad school district.

* Get pre-approved. Many first-time buyers fail to get pre-approved before beginning their search for a home. Failing to get pre-approved means buyers won't know how much lenders feel they can afford, and buyers may spend lots of time looking at homes they like but will never be able to buy. Pre-approval also enables buyers to more easily make an offer when they find a home they like.

Buying a home can be both frustrating and fun. First-time buyers should employ a few time-tested tricks of the trade to ensure the process goes as smoothly as possible.