10 tips for buying your first home

Buying a home for the first time can seem like a stressful experience. It will most likely be the biggest financial decision you make, and with so much information out there, learning what you should be doing could feel overwhelming. But it doesn’t have to. 

From finding out steps to take before you start looking for your dream home to applying for your first mortgage, we have gathered 10 tips, based on advice our lenders give, to help you on your homebuying journey. 

If you’ve already followed these steps and are ready for your first mortgage, don’t wait. Apply Now

When buying a home for the first time, you will want to start by assessing your finances. This doesn’t just mean figuring out the amount you can use for a down payment. You won’t know this exact number yet, but you can start to get an idea of what is doable for you in terms of monthly mortgage payments. 

If you are looking for an idea of what you can afford, our recommendation is to take your annual household income before taxes and multiply it by three. This will give you a rough estimate of your home budget. 

You will also want to see what your debt-to-income (DTI) ratio is. You can do this by taking your monthly debt payments and dividing it by your monthly income before taxes. If you take this number and multiply it by 100, you will get your DTI ratio, which shows you and lenders how much of your monthly income is already accounted for. 

This step is your chance to learn how much money you can spend without stretching yourself too thin.  

Your credit score is crucial when you look to get a mortgage as a first-time homebuyer. * 

Depending on your needs, most home mortgages will require a minimum credit score to qualify. While not all loan programs will have this requirement, lenders may require minimum credit scores. 

Credit scores are ranked on a scale of 300 to 850. A credit score over 600 will help you qualify for loan programs with most lenders. 

A higher credit score can mean lower interest rates, and over time, more money saved. You may be able to qualify for a loan with a lower credit score but will have higher interest rates and may need to provide a bigger down payment. 

If you are just exploring your homebuying options or are early in the process, you may still have time to build up your score for lower interest rates. 

Getting pre-approved is the most helpful step that first-time homebuyers can take for themselves.  

Pre-approval will not only tell you the exact amount you can afford for a home but will also let you make a stronger offer when buying. A pre-approval lets sellers know how much lenders are willing to loan you. 

You will want to get pre-approved two weeks before you start shopping for homes. Pre-approvals can last for up to six months of home shopping. If you don’t find a house before your pre-approval expires, you might have to apply again so lenders can see that you didn’t have any major financial changes in that time. 

There are four major loan options to consider, each with their own requirements and benefits. Knowing which mortgage types you qualify for and which options are best for your situation can end up saving you money. 

Conventional loans are mortgages backed by private lenders, such as banks and mortgage companies, and follow guidelines set by the entities Fannie Mae and Freddie Mac. If you have a stable income and good credit score, conventional loans are a great way to get flexible options and affordable interest rates. 

Conventional loans generally require solid credit, and your DTI typically needs to be no higher than 43%.

Insured by the Federal Housing Administration, FHA loans are designed for borrowers who might not meet the guidelines of conventional loans. Most FHA loans require a 580 minimum credit score to apply. Some lenders may accept a credit score of 500 with a larger down payment option. FHA DTI limits are similar to conventional loans at no more than 43%. 

Set up by the U.S. Department of Veteran Affairs, VA loans have their own requirements that active-duty service members, Veterans and surviving spouses need to meet for eligibility. The VA does not require down payments, credit score minimums or private mortgage insurance for their loans. However, lenders may have their own minimums for a VA loan. 

If you are looking for single-family homes in rural areas, you may want to consider a USDA home loan. The USDA’s goal with its loan program is to boost rural development for low- and moderate-income households. For eligibility, the USDA generally looks for a credit score of 640 and maximum DTI of 41%. Some benefits of a USDA loan are: as little as 0% down payment option and overall lower monthly payments.  

You should start saving for a down payment as soon as you can. A larger down payment could mean qualifying for mortgages with shorter terms or smaller monthly payments and lower interest rates. 

How much you will need for a down payment is determined by the loan program plan you choose. Some loan programs, like VA and USDA loans, can come with 0% down payment options. 

There are many programs that first-time homebuyers can take advantage of when shopping for their home. Here are a few popular options. 

The Department of Housing and Urban Development offers the Good Neighbor Next Door program to first-responders, police officers, firefighters and pre-K through high school educators looking to buy homes in revitalization areas. If requirements are met, this program can provide up to 50% off the price of a house in these areas. 

A nonprofit established to help stimulate and expand ownership while building stronger communities, the NHF offers to cover the down payment and/or closing costs up to 5% of the total mortgage. The NHF has its own requirements, so talk with a lender to see if you are eligible.** 

If you aren’t prepared, closing costs can seem overwhelming, but they are necessary for finalizing the purchase of your dream home. 

Closing costs cover additional expenses like title insurance, loan originator fees, inspections and appraisals. The exact amount of these costs is determined by your loan type, property location and real estate transactions terms. As a buyer, you can expect to pay somewhere between 2% and 5% of the home’s purchase price in closing costs. 

Depending on negotiations, the buyer and seller could split closing costs. 

For an estimate, use Rate’s online closing cost calculator and get an idea of what your closing cost might be. 

Real estate agents are useful for first-time homebuyers. Agents can help you find a home that meets your needs in your price range and negotiate with the seller to make sure you get the most affordable deal. 

Real estate agents have access to more available houses than the average homebuyer does, including homes that haven’t been listed elsewhere yet, giving you a first look at them. They can advise you on areas and tell you how much other properties in the area are selling for, so you know you are getting a fair price. 

Your real estate agent is also there to answer questions that come up and negotiate the price of a home to better suit your situation. 

If you choose to look for a home without a real estate agent, there are many online platforms where you can see homes and schedule tours. But, without an agent, it becomes your job to do the research on homes you find and the areas they are in.  

Remember that if you aren’t looking for your dream home with an agent, you will want to make sure you compare prices of similar homes in the area. While you will want an inspector after an offer is made, you can hire an inspector earlier to help you examine the property. But, before that, you can check water pressure and light switches, look for structural defects and listen for noise from neighbors or traffic. 

After you have followed the previous steps, applying for your mortgage is easy in comparison. All you have to do is connect with a lender. 

You can choose to connect with a lender and apply for your home loan in-person, over the phone or online. No matter how you choose to apply, make sure you find the terms that most fit your financial situation. 

Depending on where you go, hearing back on your application can take anywhere from a week to a month. Are you looking for a faster, easier way to apply for financing? 

At Rate, we offer a Same Day Mortgage, where your loan can be approved 24 hours after you finish your application. 

Are you ready to see how easy applying for mortgage financing is? Apply now! 

_{* Rate, Inc. does not provide credit counseling or credit repair services.} 

_{** Income limits and eligibility requirements apply. This program is made available by Good Neighbor Next Door and NHF and not Rate, Inc.}