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First-Time Home Buyer Resource Center

Where Should a First-Time Home Buyer Start?

Couple with keys to home | First time home buyers

Buying your first home is a major decision, but along with that first home comes some major benefits. A home gives you the ability to find the space that suits your needs. It offers potential tax benefits, the option to refinance later, and it could eventually produce a long-term financial gain by increasing in value. If you want to enjoy the benefits of homeownership, you may wonder where do you begin the process? There are several first-time home buyer programs that offer low rates so you can afford the house of your dreams.

Questions to Ask Before Buying Your First Home

Purchasing a home is one of the biggest decisions you will make during your lifetime, and you may be feeling anxious and a bit overwhelmed by the process.  Make the process even easier by taking the following steps when applying for a first-time home loan.

1. Do I need a credit report?

You can find a copy of your credit report at at no cost to you, but only one time a year.  In addition to the credit reports, you will need your credit score which you can find out by going to Credit Karma or other free websites.

You will want to examine your credit reports from the three major credit bureaus (TransUnion, Experian, and Equifax) to look for mistakes and contact the bureaus if you find any errors to file a dispute.

Mistakes can include:

  • Incorrect employers
  • Mistaken account information
  • Accounts that don’t belong to you
  • Late payments you actually made on time
  • Credit injuries which you did not authorize
  • Wrong current and former phone numbers and addresses

If your credit score is not as high as you would like it to be, there are steps you can take which can dramatically help. This includes keeping your credit card balance to below 15% of its limit, do not apply for new lines of credit, credit cards, or loans, and always do your best to pay your bills on time.

2. Do I need to get pre-approved?

Getting pre-approved for a mortgage is a must before you start looking for a home, which means speaking to a lender. The loan officer will look over your credit, and verify your income and assets according to your W2s, tax returns, bank statements, and paychecks.

Having your pre-approval letter is almost a requirement for a realtor to show you houses or have sellers accept any offers you may make.

This letter will likely include the maximum amount they will lend you. This does not mean, however, that you should spend this amount (see point #6).

3. How does my loan relate to my down payment?

How much you will need for a down payment depends on the kind of mortgage you have.  Loans with lower or no down payment required like FHA loans are typically popular among first-time home buyers.  With an FHA loan, you only need 3.5% of the purchase price of the home as a down payment.

Here are the down payment requirements for other types of home loans:

  • Conventional 97: 3%
  • Conventional loans: 5% - 20%
  • VA loans: no down payment
  • USDA loans: no down payment

4. Do I need a Real Estate Agent?

While many think not hiring a realtor will save them money, in reality the cost of hiring one is factored into the price of the home.  A good Real Estate Agent, on top of helping first-time home buyers through the often complex process, can also negotiate on your behalf.

5. How can I create a smart homeownership budget?

On top of paying your monthly mortgage, you also need to account for paying homeowner’s insurance, mortgage insurance, closing costs, and HOA fees.

FHA loans require mortgage insurance, no matter how much you put down, which is between 0.8% and 1% depending on how much the loan is and how much you put down.

Conventional loans don’t require private mortgage insurance if you can put down 20% or more.

6. What is a debt-to-income ratio?

Your debt to income ratio (DTI) is your monthly income compared to your debt obligations each month. 
The most your DTI should be prior to factoring in a mortgage loan is 28%, while it should not exceed 50% when you include your mortgage loan.

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Tips for First-Time Home Buyers

1. Research, Research, Research!

You want to know how much you can afford to spend before a loan officer tells you how much you qualify for. Why? You want your investment to be a sound one, made with premeditation and an understanding of your buying power.

If you are barely starting out, research can help you determine what you need to do now to purchase a home in the future, in essence research can help you create a home buying blueprint for yourself.

On top of the federal programs which offer beneficial terms to first time home buyers such as FHA and VA loans, certain states have their own assistance programs which may offer assistance with closing costs, down payment assistance, tax credits, or discounted interest rates.  It may be well worth your time to also research what your state or county may offer.

2. Stay on Top of Your Credit

Since credit is such a huge factor in buying a home, monitoring your credit is vital. Monitoring your credit shouldn't only be a priority when you are thinking about purchasing a home, overseeing your credit is something that should be done as soon as you start using and building your credit.

You want to make sure that everything on your credit report belongs to you and installment payments have no late fees.

Keep your credit score from dropping once you apply for a mortgage by not opening new credit accounts such as a credit account or an auto loan until your home loan closes.

Did you know you can access your credit report free once a year? Visit: Annual Credit Report

3. Assets & Liabilities

Assets are another important aspect of purchasing a home. It's all about understanding your monthly cash flow. Lenders will focus on how you spend your money, focusing on how much money you have left over every month based on your debt–to–income ratio.

4. Organize Your Paperwork

Sometimes the home buying process is delayed for less obvious reasons. If you do your research mentioned as mentioned above, you will likely find that lenders ask for proof of income and taxes. Having this documentation on hand can make the process a lot smoother and stress-free.

A good rule of thumb is to save 2 months' worth of bank statements, paystubs, and 2 years of tax returns and w-2s in an easily accessible place (for you). Make sure you update your bank statements and paystubs every 2 months and your taxes and W2s every year.

5. Get Pre-Qualified

After following the above tips, your next most important step before thinking about purchasing a home, is finding a lender to pre-qualify with. It's never too early to consult a lender.

If you need to make any corrections on your credit report, or gather a little more money for the down payment you want to make sure you aren't pressured or running against the clock to work out any kinks. Getting pre-qualified lets you and home sellers for that matter; know that you are serious buyer with real numbers and figures, not a lookie-loo.

First-Time Home Buyer Mistakes to Avoid

Estimate What You Can Afford

To determine the amount you can afford to spend on monthly payments based on your current income and expenses, you can use our handy mortgage payment calculator.

If you're unfamiliar with mortgages, we have resources like first-time home buyer programs and a Mortgage Glossary that can help educate you on the home buying process.

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