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First-Time Homebuyer? These 10 Tips Are For You

Written by:  

Lauren Hargrave

Lauren Hargrave

Lauren Hargrave

Personal Finance Writer

Lauren Hargrave is a writer from San Diego who focuses on technology, finance, and healthcare. She worked in finance for seven years before pivoting to a career in writing, and now, instead of putting numbers into spreadsheets, she writes about them instead.

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Fact Checked by:  

Dan Silva

Dan is the Vice President of Marketplace Lending at Own Up. Throughout his career, he has held executive leadership positions in the mortgage and banking industry.

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Two people looking at houses on a laptop

Buying your first home is often one of the most important events in your life. It’s most likely the largest purchase you will have made up until that point, and it can affect every facet of your life from your daily routine to future financial opportunities. Navigating this process for the first time can feel like stepping into a maze with a to-do list a mile long.

These 10 tips can help you to not only prioritize your to-do list but improve your home buying experience overall. Let’s get started.

1. Know Your Budget

Before you start house hunting or even apply for loan pre-qualification or pre-approval, it’s a good idea to know how much you can comfortably afford to spend on a house, both in terms of a down payment and closing costs, and your monthly mortgage payment.

Here are some reasons this is a good first step:

  • It can help to narrow down the number of houses you’re looking at. This can help make the home buying process go quicker.
  • It can prevent you from falling in love with (and even purchasing) a house that’s not comfortably affordable.
  • Some lenders will offer a higher loan amount than home buyers can comfortably afford. Knowing your budget can help you limit your loan to an amount that results in an affordable monthly mortgage payment.

In order to develop your budget for buying a home, you will need to know not only how much you can comfortably afford to pay each month, but how much you can afford to pay as a down payment on a house.

When thinking about your monthly mortgage payment, you should consider not just the principal and interest, but also property taxes, homeowners insurance premiums, repair costs, utilities, homeowners association fees, and any other monthly expenses. You might also want to build in a buffer for any unexpected expenses that could arise.

Additionally, when thinking about the total price of the home, you should consider not just the listed home price, but your real estate agent’s fees and closing costs that are associated with buying a house. You can use our mortgage calculator to help you get an idea of how large of a mortgage you can afford.

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2. Improve Your Credit

The interest rate of your home mortgage will help determine how much of a loan you can afford to take out, which will affect the price of the home you can afford to buy. The lower your interest rate, the more money you may be able to borrow. And one of the major factors that affects how high or low of an interest rate a lender will offer on a home mortgage is your credit score.

Your credit score is determined by three separate credit bureaus: Equifax, Experian, and Transunion. It’s based on many factors that include:

  • Debt payment history (how many late payments you have on your record and how late they were)
  • The length of your credit history
  • The percent of your available credit you’re using
  • The type and number of your credit accounts.

To make sure you get the best interest rate possible when you look for a mortgage, pay down your revolving debt (such as credit cards), check your credit report for any errors, and restrain from making any large purchases until after you purchase your home.

3. Look into First-Time Homebuyer Programs

Some states, counties, and cities offer assistance programs for first-time buyers that can help with down payments, grants, or forgivable loans you don’t have to pay back, and even mortgage credit certificates or tax credits.

A first-time home buyer is defined as someone who, either as an individual or with their spouse, hasn’t owned or occupied a principal residence in the last three years.

4. Determine the Type of Mortgage That’s Best for You

There are four major types of mortgages:

  • Conventional loans (with either fixed or adjustable interest rates)
  • FHA loans
  • USDA loans
  • VA loans.

Conventional Loans

These are the most common types of mortgages. These loans can come with fixed interest rates or adjustable rates.

You can arrange for a conventional mortgage through a financial institution or mortgage broker. Each financial institution will have its own credit and income requirements and will price its loans accordingly.

With this type of loan, if you are planning to put down a down payment that’s less than 20% of your home’s purchase price, you will likely have to pay for private mortgage insurance (PMI). Conventional loans typically come in the form of a 15-year mortgage or a 30-year mortgage.

FHA Mortgages

These loans are insured by the Federal Housing Administration (FHA) and can have lower income and credit score requirements than conventional loans. Some borrowers can qualify with a down payment as low as 3.5%.

USDA Loans

These are mortgages insured by the U.S. Department of Agriculture (USDA) for properties located in eligible rural areas.

VA loans

These are loans secured by the Veterans’ Affairs office and are reserved for active or retired service members and their families. They usually do not require a down payment.

5. Shop Around for Home Mortgages

To ensure you’re getting the best interest rate and mortgage terms, it pays to shop around. Collect your financial information, including:

  • Your monthly income
  • Your debts and other expenses
  • How much you have saved for a down payment
  • Your credit score.

The best way to see an apples-to-apples comparison of your mortgage options is to get loan estimates from different lenders for the same type of mortgage on the same day. When asking for your loan estimates ask for a breakdown of estimated closing costs, including origination fees, as many of these can be negotiated.

6. Get Mortgage Pre-Approval

Once you’ve zeroed in on the lender and mortgage you desire, it can help smooth out your home buying process if you are able to receive mortgage pre-approval for the loan. To receive mortgage pre-approval, the lender will validate the financial information you submit. This can help speed up the home-buying process later because:

  • Mortgage pre-approval makes your home purchase offer more attractive to sellers (which is helpful in a competitive market).
  • It can help you actually close your mortgage quicker because the lender has completed some of their due diligence up front.

7. Consider using a Real Estate Professional

There are many websites and services that cater to the home buying process. But it can be difficult as a first-time buyer to navigate the wealth of information that’s available. A real estate agent can help you not only find a home, but they can help you navigate the buying process, including which contingencies are necessary, how to make an attractive offer, and more.

8. Stay Within Your Budget

When you’re looking for a home, you should stay mindful of your budget as well as the temperature of the market. If it’s a competitive market for home buyers, it could be helpful to look for homes with purchase prices at the low end of your price range. That way if you get into a bidding war with another prospective home buyer, you might not be as tempted to go above your budgeted price.

9. Determine Your Must-Have Contingencies

Contingencies are often property and market driven, but there may be some that are necessary for your situation. For instance, if your lender is requiring that the home receive an appraisal for at or above a certain amount, you may want to submit your offer with an appraisal contingency.

Alternatively, if it’s a competitive housing market, you might have to submit an offer without contingencies. If you’ve hired a real estate agent, they can help you navigate which contingencies are necessary.

10. Lock Your Interest Rate

Even if you’ve been pre-approved for a mortgage, the interest rate you were quoted might not be the interest rate you receive. That’s because interest rates move based on market conditions.

In order to ensure you get the interest rate you want, it may be beneficial to lock your mortgage rate as soon as it makes sense. Interest-rate locks typically last for 30, 45, or 60 days, so you want to make sure you have enough time between when you lock your rate and when you close your loan. The process to lock your rate could differ depending on your mortgage lender, so make sure to ask up front.

The Bottom Line

As a first-time home buyer, the sheer amount of things you have to do in order to complete the purchase can feel daunting. Wherever you are in the home buying process, these 10 tips can help make the experience smoother and even speed up the timeline it takes to get you into your first home.

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See What You Qualify For

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