13 Essential First-Time Homebuyer Tips

How to Prepare to Buy Your First Home

The homebuying process can sometimes feel overwhelming as a first-time buyer. You may not understand financial requirements or what mortgage loan is best for your homeownership goals. Finding the right real estate agent and the right home can also be challenging.

The good news is that following these 13 simple homebuying tips for first-timers can make your journey to property ownership a success. Here's what you need to do.

1. Consider Attending Homebuyer Classes

Homebuyer classes can be very helpful when you're buying your first home. These classes can walk you through the buying process and the important steps involved in your purchase.

Some down payment assistance programs and certain types of mortgages require you to attend these classes. But even if they are optional, getting advice from trained professionals makes buying much simpler and helps you avoid mistakes.

2. Set Your Budget for Buying a Home

You don't want to overspend on your home and experience financial stress to afford your monthly payments. To avoid this, set a realistic budget based on what you can comfortably spend.

Some first-time buyers incorrectly assume that the monthly payments on their mortgage are the only cost of homeownership. This is simply not true. In addition to your mortgage principal and interest, you may also have to pay property taxes, insurance, HOA fees, and home upkeep and maintenance.

Consider all these costs before deciding how much room there is in your budget for housing. Then, choose an amount you can comfortably afford. A good rule of thumb is to keep housing costs below 25% to 30% of your income, but you may want to spend less if you have other major goals (like early retirement).

3. Check Your Credit Score

Your credit score gives lenders a snapshot of how well you manage your debts, which helps them determine the level of risk for your home loan.

Your credit score is based on information in your credit report, so it’s always recommended to check it for errors and work with the credit bureaus to get mistakes removed. If your credit score isn't very high, you may want to work on improving it.

Tip: Unless you have a near-perfect credit score, avoid making any big purchases on credit until after you’ve bought the house because mortgage companies look at your credit again right before the sale of the house closes. You might be excited to furnish your new home, for example, but wait until after the deal is done. That way, you won’t complicate getting final approval for your mortgage right before you are ready to close on the house.

4. Choose the Right Loan for You

The vast majority of American homebuyers use a mortgage to buy their homes. Finding the right loan is important to keep payments affordable and to make sure you aren’t spending more money than necessary.

There are different types of mortgage loans to consider, so you can find which makes the most financial sense for your goals.

• FHA loans: These loans are insured by the Federal Housing Administration and are easier to qualify for because of it. You can qualify with a down payment as low as 3.5% with a minimum 580 credit score or 10% with a 500 credit score. You will need upfront and ongoing mortgage insurance required by the FHA.
• VA loans: These loans are guaranteed by the Department of Veterans Affairs and have very flexible qualifying requirements for eligible members of the military and their families. No down payment is required, although most borrowers pay a funding fee (disabled veterans are exempt from the VA funding fee).
• USDA loans: These loans help buyers purchase, build, or substantially improve homes in rural areas. They are available through the U.S. Department of Agriculture. There are different types of USDA loans with differing credit requirements, and different income limits.

5. Find Federal and State Assistance Programs

Saving for a down payment can be one of the most challenging parts of buying your first home. The good news is that there are payment assistance programs in many areas that provide grants or other assistance with down payments to qualified borrowers.

If you're eligible for a grant or money from a down payment assistance fund that doesn't have to be paid back, affording your first home may be simpler than you think.

Freedom Mortgage is always happy to help you find any eligible first-time homebuyer down payment assistance.

6. Get Prequalified for a Mortgage

Once you've learned about different types of loans, you should get a mortgage prequalification. During the prequalification process, you'll provide financial information to a lender who will tell you how much you can borrow and what your loan terms will be.

You then provide proof of prequalification to sellers to show you are serious about moving forward with the purchase. This helps you get your offer approved. You also won't waste time looking at homes that are outside of your price range once your lender has determined what you are likely to afford.

7. Hire a Real Estate Agent Who Works for You

Most first-time buyers find working with a real estate agent helpful because agents can guide them through the purchase process and help them understand the local market.

Your agent will help you make an offer to buy the home for a fair price and will guide you through all necessary steps after your offer is accepted, such as getting a home inspection and negotiating any repairs. Your agent's advice can help you get the right home at the best price.

8. Make a “Need to Have, Nice to Have” List

Chances are good you can't afford every item on your home-buying wish list. So, write a list of everything you want, then prioritize the items.

Choose things you need to have (like enough bedrooms and bathrooms), things that are nice to have (like a finished basement), and deal breakers (like a long commute to work). This will help you find houses that are right for you. Going to open houses can help you make your list.

9. Think About the Future

While you are thinking about what you’ll need in a house today, also think about what you might need from your house in the future.

For example, consider if you want to have children and what you might want for them. Think about the space you’ll need for them in the house and what kind of school district you want. Lastly, think about whether you’ll want to sell the home in the future and consider the home’s resale value.

10. Make a Great Offer

When you've found the right property, it's time to make an offer on the home. Your offer should be competitive so it's attractive to the seller and more likely to get accepted. It should also include clauses that protect you, such as a clause making the sale contingent on the home appraising for at least what you're paying and contingent on it passing a home inspection.

Your real estate agent can help you prepare an offer, providing insight into the local market and what a fair price would be.

11. Be Ready for Closing Costs and Earnest Money

If your offer is accepted, you will most likely need to make an earnest money deposit. This is a deposit that shows the seller you are serious about the deal. If you walk away from the contract after an offer is accepted and without an acceptable reason, you will lose your deposit.

An earnest money deposit is usually several thousand dollars. This money typically goes towards closing costs when the house closes. Closing costs usually add up to around 2% to 5% of the home's value and include things like loan origination fees and appraisal fees.

12. Understand Home Inspections and Appraisals

Many buyers make offers contingent on a home inspection and home appraisal to avoid overpaying for a home (or buying a money pit). During an inspection, a professional examines the home to identify issues. If problems are found, you can request repairs, walk away, or ask for money off your purchase price. During an appraisal, a state-licensed professional determines the fair market value of the home to confirm you don't borrow (or pay) more than it's worth.

13. Plan for Home Maintenance

Finally, you should set aside money for home maintenance. You'll have routine maintenance tasks to take care of, including things like gutter cleaning and replacing HVAC filters. You may also have major repairs over time, so you should save so you're ready when they come. A good rule of thumb is to expect to need about 1% of your home’s purchase price for annual maintenance.

Final Thoughts: Tips for First-Time Homebuyers

Buying your first home is an exciting life milestone as you can set down roots and begin building equity (often referred to as generational wealth). Following these 13 tips will help make your purchase a financial success. If you're ready to move forward, start your homebuying journey by getting prequalified today.