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Tips Every First-Time Home Buyer Needs to Know

Rachel Morey Updated: June 27, 2023 • 5 min read

Buying your first home is exciting, but it brings many challenges. It can be a confusing process, so it’s crucial to research the process before you start house shopping. There is a lot of information to understand, but it’s important not to get overwhelmed with it all at once. No one expects you to become a mortgage expert. Here, we’ll cover some essential tips that every first-time home buyer should keep in mind to help the process go smoothly.

Some First Steps

  • Get pre-qualified: Before you start house shopping, it’s smart to figure out how much money you can borrow. You can explore loan options by applying for pre-qualification. Based on a number of financial factors, this will tell you an estimate of loan amounts you will qualify for. Note that this is not a guaranteed amount and is not the same as pre-approval.
  • Check your credit: One important factor that will determine the type of loan and amount you will be able to borrow is your credit score. Conventional home loans require a minimum FICO credit score of 620. Alternatively, you’ll need a FICO credit score of at least 580 to get an FHA loan. Higher scores earn lower interest rates, which can save you a lot of money over time. If you are credit-challenged, there are ways to improve your credit score before you start house shopping.
  • Pay off debt: Part of qualifying for a mortgage is your debt-to-income ratio. To find your DTI, divide your total monthly payments by your gross monthly income. To be safe, your DTI should be below 43%. Paying off revolving debts and loans that report to the credit bureau may give your FICO scores a boost but be sure to leave your revolving accounts like credit cards open.
  • Finalize your budget: As with most large purchases, it is not recommended to look at houses that are out of your price range. Many financial experts recommend keeping your total house payment, including property taxes and insurance, below 25% of your monthly income. Share your budget with your real estate agent so they understand your goals and show you homes that are in your financial comfort zone.
  • Understand the down payment requirements: This is essential because without an adequate down payment, you’ll have to pay private mortgage insurance (PMI) premiums. This reduces that amount of money you can spend on your new home. For an FHA loan, you’ll need a 3.5% down payment if your FICO score is above 580. If it’s lower than 580, you may still get approved, but you’ll have to provide a 10% down payment. With a conventional mortgage, you’ll need a 20% down payment.

Getting a mortgage

  • Familiarize yourself with loan types: There are many types of mortgages for a first-time home buyer. For example, FHA loans include fixed-rate mortgages, adjustable-rate mortgages, graduated payment mortgages, growing equity mortgages, and special loans for condominiums. Other loan programs include VA loans for veterans and some family members, mortgages for properties in rural areas, and conventional loans. Make sure your lender can facilitate the type of mortgage that works best for your situation. Choosing the right one is a crucial part of getting a loan that will serve you for many years to come.
  • Ask about special deals for first-time buyers: In some instances, lenders will offer discounted fees or a lower down payment amount if you’re are buying your first home. There might also be grant programs for down payment assistance as well.
  • Understand the market in your area: To prevent over-paying, talk with your realtor about other recent home sales in the area. If houses sell quickly, you may have to offer the asking price of the home you want to land the deal. However, if the home you have your eye on has been on the market for a few months, you could get a discount on the price.
  • Avoid significant financial moves during the loan process: Your pre-approval rates will be based on the financial profile you submit at that time. Even if you’ve been pre-approved for a mortgage, you may encounter problems during the final underwriting process if you’ve added debt, opened or closed revolving charge accounts, or taken out a new loan. Be sure to consider this while in the home-buying process.
  • Stay with your current employer: When you are in the process of getting a mortgage, it’s important to stick with your job. Changing employers could put you at risk for losing the loan. At the very least, have a candid conversation with your loan officer before you switch jobs if you the loan hasn’t closed.

Choosing a lender

  • Check rates with multiple lenders: All things aside, one of the best tips for any home buyer is to shop around for the best rate. Luckily with online lender marketplaces, like Credible, you can submit a single application to get multiple mortgage offers. This shortens the research process significantly and allows you to compare a number of viable offers in one place.
  • Keep your down payment needs in mind: Different lenders will require different down payments. As we mentioned before, borrowers who put down less than 20% will need to also get PMI. If you don’t have much money saved to cover your down payment and fees, but your credit is good and your income is high enough to make a mortgage payment each month. They offer home loans with just 10% down and they give SoFi members a $500 discount on processing fees.

The Bottom Line

It is natural that buying your first home may seem like a rigorous process. There are a lot of unfamiliar terms, several requirements, and a number of steps to reach the end. Be sure to do your research, however, don’t be afraid to ask questions. Your real estate agent and loan broker are there to help you and are ultimately experts.

We also recommend you take a look at our expert reviews of reputable online mortgage providers and lender marketplaces. They are a handy resource when looking for the right mortgage for your first-time home purchase.



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Written by Rachel Morey

Rachel Morey is a journalist specializing in finance content. She has written for some of the major lenders in the online personal and business finance industry. She has been writing professionally for nearly a decade and has projects in print and broadcasting. A native Iowan, Rachel has a special fondness for the open roads of rural America.