A First Time Home Buyer's Guide

Purchasing your first home? Check out helpful tips to consider before you buy your first home. There are many options available that are beneficial to first time home buyers!

Buying your first home is a huge step toward building the quality of life you both want and deserve. Whether or not you are single, married or an expecting or established family, your first home is where many memories will be made. It is crucial to understand the ins and outs of being a first time homebuyer to make the most of your experience in your home, but also up front during the purchasing and closing procedures. Read 10 hot tips about what to know if you are a first time homebuyer and where to find the top nationwide first time homebuyer programs today.

Ins & Outs of Being a First Time Homebuyer

Qualifying for a home mortgage as a first time or repeat homebuyer is always largely dependent on your credit rating and financial situation. The three main reporting credit bureaus, Experian, Equifax and TransUnion all rate your credit score strength using a three-digit number called a FICO score. There are various types of mortgage loans available for first time homebuyers. Minimum FICO scores ranging from 580 to 640 are accepted for these various loan types. Lower FICO scores are some times also accepted when larger down payments are made. Down payments from three percent and more are most often generally accepted, however. Your debt-to-income ratio also plays a significant role in qualifying you for a first time homebuyer loan.

First Time Homebuyer Requirements

The main requirement for being considered as a first time homebuyer is not having owned your primary residence for three consecutive years or more. There are also redevelopment target areas offering first time homebuyer programs and rates to first time and repeat homebuyers alike. A person who has previously only owned a home with a spouse but is now residentially displaced also potentially qualifies as a first time homebuyer. Additional qualifying factors apply in accordance with state laws, regulations and specific circumstances.

Benefits of Being a First Time Homebuyer

There are benefits of being a first time homebuyer not applicable to repeat buyers. This is because purchasing a home is considered part of the American Dream scenario and encouraged by government and society alike. Down payment requirements for first time homebuyers are lower. Credit rating requirements are also more lenient overall. Additional benefits of being a first time homebuyer include the ability to withdraw up to $10,000 from a Roth or traditional IRA with no penalty. Benefits also include federal tax credits, potential grant money, access to the Fannie Mae-sponsored HomePath ReadyBuyer program and more.

Top Tips for a First-Time Homebuyer

It is crucial to understand the ins and outs of being a first time homebuyer to make the most of the experience in your new home, but also up front during the purchasing and closing procedures. Numerous tips and factors help make the process easier and more beneficial. 10 of the top tips for a first-time homebuyer include:

Decide How Much Home You Can Afford First
Check Your Credit Score Strength
Explore Mortgage Options (types of mortgages)
Research First Time Home Buyer Programs
Compare Mortgage Rates & Fees
Get Pre-Approved
Choose a Real Estate Agent Carefully
Decide the type of house and neighborhood you want to live in
Decide On A Budget and Stick to It
Make use of Open Houses (In person & Virtual)

1. Decide How Much Home You Can Afford First

The first step to make when buying your first home is to decide just how much home you can afford. Thoroughly assess your income vs. your expenses and do the same for/with every financially contributing household member. Knowing how much home you can afford in advance allows you to make the best, most informed choices when selecting options for your first home purchase.

2. Check Your Credit Score Strength

Your credit score is one of the major factors in qualifying for a first time homebuyer loan. The best way to initially assess your FICO and credit score strength is to use the multi-bureau report provided by AnnualCreditReport.com, which is authorized by federal law and free to use once per year. Knowing your credit score strength prior to any lender seeing it allows you time to make necessary corrections and dispute any unauthorized reported charges before submitting applications and being unexpectedly rejected.

3. Explore Mortgage Options (Types of Mortgages)

There are multiple types of mortgages to explore as a first time homebuyer. The most common types are fixed (conventional) rate and adjustable rate (ARM) mortgages. Common mortgage terms last either fifteen or thirty years, but other terms are available with certain lenders pending qualified credit approval. Other types of mortgages include interest only, FHA, VA, combo/piggyback, balloon and jumbo mortgages. Knowing which mortgage type is right for you is dependent upon a wide variety of qualifying factors. Do your research and talk to potential lenders before filling out applications and making final decisions.

4. Research First Time Home Buyer Programs

Some of the mortgage types as listed above also have specific programs designed for first time homebuyers. For example, a Federal Housing Administration (FHA) loan requires smaller down payments than do most conventional loan programs. Qualifying for an FHA loan is also a more lenient process than with many other mortgage lending scenarios. Numerous beneficial first time homebuyer programs exist. Researching and comparing them all helps make the best decision for you and your family.

There are numerous government, state and federal housing programs for both first time home buyers and seasoned home buyers. HUD Housing programs help alleviate the headache that comes with finding buying a home when you are in a lower income bracket. HUD First Time Home Buyer programs help assist in determining how much you can afford, what grants/loans you could be eligible for, and preparing you for your purchase. Goverment HUD Housing Programs for First Time Buyers are normally local branches with HUD-Approved Housing Counselors to assist. Check out the Housing & Urban Development site to get more information about HUD Housing Programs for First Time Buyers.

5. Compare Mortgage Rates & Fees

Every mortgage lender, whether private or government-sponsored, charges interest on borrowed money. That finance charge, known as an Annual Percentage Rate (APR), is simply the cost of doing business as a borrower. APRs vary based on how good or bad is your credit. They also vary per lender, program and applicable state laws and regulations. Lenders also charge fees for loans being completed/closed, processing applications and more. Compare all mortgage rates and fees between all lenders in consideration before making a decision to get the best prices and deal for you.

6. Get Pre-Approved

A pre-approval process involves a soft credit check and overall assessment of your financial situation. It is not a final approval, but it has its benefits. Being pre-approved lets you know how much money you are potentially qualified to borrow. This further helps you know which houses you are capable of affording. Running multiple full credit checks through various lenders in a short period of time lowers your credit score. A soft credit check as used for a pre-approval process, however, does no damage to your credit score while simultaneously giving you insight to your borrowing and home buying potential.

7. Choose a Real Estate Agent Carefully

It is important to choose a real estate agent carefully when buying your first home. There are many complicated nuances and legalities involved in purchasing a home, especially for a first time homebuyer with no experience in the business or market. Find a reliable agent with many years of qualified experience. Make certain he or she is a good communicator having strong knowledge of your local purchasing market. Read all their client reviews online and make certain you and everyone involved in the purchase are capable of establishing a strong rapport and positive working relationship with the agent. The best agents make being a first time homebuyer a simpler, positive experience.

8. Decide the Type of House & Neighborhood You Want to Live In

Knowing the type and style of home in which you want to live is important to understand up front, prior to filling out applications. It is also important to understand the type of neighborhood and location in which you are willing to live. Do you want your home to be near a playground or school? Do you want it to be in a country setting or closer to the middle of town? There are many factors involved in these types of decisions and understanding the answers up front helps you get the house you need and deserve.

9. Decide On A Budget and Stick to It

Changing your budget based on new houses popping up on the market has the potential of complicating your first time homebuyer process. It is advisable to decide on a budget and stick to it. You already put the time and effort into knowing what you can and cannot afford. Changing those numbers due to impulse-based feelings and decisions has the potential to create financial hardship in the future. Sticking to your initial budget still gets you into your first home, and it does so without adding more stress to one of the most important and memorable decisions of your lifetime.

10. Make use of Open Houses (In person & Virtual)

It is no longer necessary to go to open houses in person. Virtual open houses and online tours of prospective homes on the market exist on almost every real estate website in 2021. Make use of both virtual and in person open houses as much as possible to learn what types of homes you like, what flaws you are willing to accept and what features you truly need as a first time homebuyer.

Top Nationwide First Time Homebuyer Programs

There are countless quality lenders in the U.S. offering mortgages to first time homebuyers. Most of those mortgages originate from a specific group of nationwide first time homebuyer programs. Some programs are federally sponsored while others are facilitated through individual state programs. Some are designed for certain minorities, while others involve energy efficiency and U.S. Veterans initiatives. There are Fannie Mae and Freddie Mac conventional loans. There is the Native American Direct Loan (NADL) loan for qualified Native American veterans and applicable spouses. There are local and state down payment assistance resources through HUD. Additional top nationwide first time homebuyers programs include:

U.S. Department of Agriculture (USDA) loans: Up to one hundred percent financing; good for low/mid-level incomes; 640+ FICO generally required.
The Good Neighbor Next Door program: Sponsored by the Department of Housing and Urban Development (HUD); good for teachers, firefighters, EMTs, police officers & other law enforcement agents.
VA Loans: Sponsored by the U.S. Department of Veterans Affairs (U.S. VA); no down payment for active or Veteran military personnel & applicable family members; lower APRs.
Energy-Efficient Mortgage (EEM): FHA/VA-supported; combines energy-efficient improvement expenses w/primary mortgage.
FHA Section 203(k): Used for fixer-upper homes; combines home improvement expenses w/primary mortgage payments into one FHA loan; 3.5 percent minimum down payment required; $5,000+ in home improvements required.