10 Tips for First-Time Homebuyers

by | Jan 12, 2022 | Financial, Home Buying

Are you a potential first-time homebuyer considering purchasing a home this year? If so, here are a few ways you can kickstart the home purchasing process and prepare to buy your first home!

Prepare Your Finances for Homeownership

The cost of homeownership involves more than a monthly mortgage payment. Homeowner’s Association fees, home repairs, and routine maintenance are all annual expenses that you need to account for when determining if you can afford a home.

Experts recommend setting aside 1% of your home’s value each year to cover the cost of unexpected maintenance and repairs. Having this extra cash on hand will allow you to avoid opening new lines of credit and accruing more debt when these repairs inevitably come up.

Avoid Multiple Job Changes & Relocations

To qualify for a home loan, you must show evidence of 24 months’ worth of work experience. Lenders are looking for a history of stable income in the same or related line of work that is trending upward each year. Multiple job changes and gaps in work history as well as a depreciating income can hurt your ability but do not necessarily automatically disqualify you.

If you own your own business, you need to have two years of reported income. Some business owners will not report any personal income, and while this decision can be financially savvy, it can hurt your ability to qualify for a home loan.

Learn About the Different Mortgage Programs

Before beginning the pre-qualification process, research the different mortgage programs and select the program that best suits your needs. Become familiar with the various restrictions and requirements associated with each mortgage program.

Loan feature Conventional FHA VA USDA
Minimum down payment 3% 3.5% (with 580 credit score) 0% 0%
Minimum credit score 620

580 with 3.5% down payment

500 with 10% down payment

620 with most lenders 640 with most lenders
Maximum DTI ratio 45% with exceptions possible 43% with exceptions possible 41% with exceptions possible 41% with exceptions possible
Loan Limits $647,200 in most areas $420,680 in most areas No limit

No limit

(based solely on applicant repayment ability)

Determine Your Down Payment, Closing Cost Budget, and Moving Expenses

Once you have chosen your mortgage program, you will have more of an idea of how much money you will need to have set aside for a down payment and closing costs. It is recommended that you have a good buffer of savings on top of the minimum amount required to cover down payment and estimated closing costs.

Speaking of budget, do not forget to factor in moving expenses. This could include paying movers, paying travel expenses, and purchasing furniture if your new home is significantly larger compared to your current home.

Avoid Maxing Out Your Mortgage Payment

After you have prepared your finances for home ownership, you probably have a clear picture of the maximum mortgage payment you can afford. While it might be tempting to purchase the most expensive home you can possibly qualify for, this is not recommended. Maxing out your mortgage payment can depreciate your residual income and leave you with little to set aside for those annual home repairs you need to account for each year.

Make Sure Your Down Payment and Closing Cost Funds Are Easily Accessible

If you have multiple checking and savings accounts, it is recommended that you consolidate your funds for your down payment and closing cost funds into one bank account for easy access. If you plan to use an independent retirement account to source money for a down payment, you want to make sure you have access to these funds prior to closing.

Take Steps to Boost Your Credit Scores

Your credit score is one factor that determines if you can qualify for a home loan. If you have any revolving lines of credit, like credit cards, you will want to pay as many of these accounts down to a 10-30% utilization. Make sure you have paid all your bills and account payments on time within the last year. You will also want to address any accounts that have gone to collection and appear on your credit report.

Research Home Prices Ahead of Time

It can be tempting for first-time homebuyers to begin house shopping for their dream home in their dream neighborhood without taking the price of the home or the estimated monthly mortgage into account. Before you decide where you want to live, be sure to get pre-qualified, know what mortgage amount you qualify for, and research home prices ahead of time. You want to have reasonable expectations set for what you can afford before you fall in love with a home.

Find The Right Real Estate Agent

If you are a first-time homebuyer, you will want a real estate agent on your team, and you will want a good one. If you don’t know where to start, begin by asking your mortgage lender. They will have a network of recommended real estate agents in every area they service. You can also research real estate agents online and look for an agent with the best reviews and experience.

Be Prepared to Move Fast on Offers

In 2021, the median number of days a house stayed on the market was 37 days and for each home sold, an average of 4 offers were made on the home. The housing market is a fast-paced competitive environment and inventory does not last long. This means that when you place your offer, you need to make an offer right away and offer at least a listing price.

Are You Prepared to Purchase A Home?

The home purchasing process can be a daunting one for first-time homebuyers. The best way to know if you are prepared to purchase your first home is to speak with a loan specialist. They can determine if you pre-qualify for a home loan and give you advice for your unique situation and finances. Call 1 (888) 232-1428 to speak with a loan specialist today!