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First-Time Homebuyer’s Guide

Buying a first home can be an exciting and daunting experience. It's typically one of the most expensive purchases you'll ever make, and there are a lot of factors to consider. However, it can also be an amazing experience that helps you build equity and start building your financial future. If you're thinking about buying a home, be sure to do your research and get pre-approved for a mortgage before you start shopping.

It’s normal and healthy to be a bit anxious about major life changes, such as buying a home. However, buying a home, for some people, can be a lot easier if they understand the mechanics of entering the real estate market. First-time homebuyers also have some additional support when making that leap.

Like any project, buying your first home can be broken down into a simpler set of tasks. The reading list for the project is right here, as we’re going to cover:

  • Financing options
  • Personal finances
  • Comparing mortgages
  • Comparing homes & neighborhoods
  • The mortgage process
  • First-time homebuyers’ benefits

Best Mortgage Rates

First-time homebuyers have financing options, even if they don't have a lot saved

Step 1 – Know Your Financing Options

First-time homebuyers have access to a few unique options for financing their purchase. It can be helpful to consider applicable options before securing financing. The options for first-time homebuyers include the same ones everyone else has, plus a few options available only to them.

Federal and state financing is available to many first-time homebuyers. Here are some of those options.

Federal Housing Authority

FHA-backed mortgages are not available to just first-time homebuyers. However, they offer a few features that make them more attractive to first-time homebuyers.

An FHA loan is not given by the FHA. The FHA insures FHA loans, which are then given out by lenders who’ve gained approval to provide FHA loans. 

FHA loans were designed with the needs of low-to-middle income homebuyers in mind. The benefits start with FHA loans covering 96.5% of a home’s purchase. That means an FHA mortgage borrower can make a down payment of just 3.5%. This low down payment requires borrowers to have a credit score of at least 580. But borrowers who still have a credit score of over 500 can still qualify for an FHA loan with a 10% down payment.

U.S Department of Housing

You can apply for grants through the Department of Housing. While they don’t provide grants directly, they do grant funds for first-time homebuyers. They provide those grants to organizations that have tax-exempt status with the IRS. First-time homebuyers can explore U.S Department of Housing Funding Options on their secured government website.

State Programs 

There are many state-level programs related to financing home purchases. Some states offer specific relief for certain expenses. Financial assistance programs include relief or assistance for down payments or closing costs. Some states also have programs for rehabilitating a recently purchased property, if the homeowner is a first-time homebuyer.

You can check whether the state you live in offers additional support or incentives for first-time homebuyers. Normally, local state housing bodies provide the details and financing. For example, in Washington, the homebuyer would check with the Washington State Housing Finance Commission.

Native American First-time Homebuyers

Native American homebuyers have an additional option. A Section 184 loan is a loan specifically for Native American homebuyers. The terms for a Section 184 loan are a 1.5% up-front guarantee fee. Borrowers also only need to pay a 2.25% down payment on balances over $50,000, or 1.25% for balances below that.

Section 184 loans are applicable for single-family homes or primary residences. They aren’t just for first-time homebuyers, but they can be used for first-time home purchases.

IRA Withdrawals (No 10% Fee)

Normally, early IRA withdrawals result in a 10% penalty. However, first-time homebuyers are enabled to withdraw up to $10,000 from their IRA without being charged a penalty, so long as they make full repayment. Applicable accounts include traditional IRAs and Roth IRAs. This single-purpose exception won’t result in a penalty, but the withdrawals are still taxable.

Because each first-time homebuyer can make a maximum $10,000 IRA withdrawal, a couple can withdraw a maximum of $20,000. That means $10,000 from two individual accounts.

When an IRA withdrawal is made for financing a first-time home purchase, the account holder must repay the money within 120 days. If the borrower does not, they will be subjected to the normal 10% penalty.

Step 2 - Assess Your Personal Finances

Understanding one’s personal finances enable them to make more informed decision-making. There are several factors that can contribute to better decision-making.

Debt-to-Income Ratio

This is the amount of debt a borrower has as a percentage of their income. It’s represented as a ratio. For example, if someone makes $100,000 per year but owes $20,000 in debt, their debt-to-income ratio is 1:5.

The debt-to-income ratio is a good metric for understanding one’s financial situation. It’s also a key metric that lenders use when making decisions about mortgage offers.

Existing Monthly Payments

If a borrower already has monthly payment obligations, they can be considered as well. The more existing monthly payments one has, the more difficult it can be to take on monthly mortgage payments. So, it can be helpful to consider current monthly payments alongside projected monthly mortgage payments.

Credit Score

A borrower’s credit score is one of the key metrics lenders use when deciding on making a mortgage offer. The credit score is used for both minimum qualifications and the interest rates and terms the borrower can qualify for. In addition, the potential borrower can work on improving their credit score before applying for a mortgage. This gives them time to qualify for better loans and better rates.


Alongside the state of other personal financial aspects, savings can be an important factor when considering purchasing a first home. Healthy savings can be used as a financial cushion should mortgage payments become financially strenuous. Alternatively, some people use a part of their savings to pay off other debt to improve their debt-to-income ratios and credit scores.

Understanding your personal finances will help you make informed decisions about buying a home.

Step 3 - Shop For A Mortgage

There are many mortgage products available to first-time homebuyers. To find the best possible deal, it makes sense to shop around with different Mortgage Lenders. Most modern lenders can provide estimates without any need for an application. People can now use these lenders’ calculators to see what a mortgage would cost. The calculators just require your income, credit score, and mortgage size to give a rough estimate. Mortgage pre-approval can be gained before submitting a formal mortgage application. Pre-approval simply means the lender pre-approves a borrower for a specified mortgage amount. Borrowers don’t need to have any loyalty or commitments with a specific lender to get pre-approval from them. However, pre-approval doesn’t mean approval. Borrowers must still complete a formal mortgage application to lock in a mortgage. Mortgage pre-approval terms can also change if radical changes occur before the formal application, such as changes to their credit score or debt-to-income ratio. After getting pre-approved for several mortgages, borrowers clearly know the terms they are being offered by several lenders. Then, they can take the time to scrutinize and compare the costs of each mortgage. Lenders tend to charge different interest rates and closing costs, so taking the time to compare offers can lead to greater savings.

Step 4 - Shop For A Home

After a borrower understands the mortgages available to them, they can shop for a home. The home buying process can be more ideal when homebuyers take the time to make everything line up. To help with preparation,  there are a few ways first-time homebuyers can take the time to find a home that they like.

Real-estate agents

You may choose to work with a real estate agent that knows the ins and outs of the housing market. They know what a good home is, and how much it should sell for.

Real estate agents help homebuyers find a home and guide them through the home buying process. They know how mortgages, sales, and closing deals work.

One way many people find an agent is to have one referred to you by happy homebuyers. Homebuyers can ask other homebuyers who recently purchased a home whether their agent was helpful. Then, homebuyers can interview them.

Like shopping for a mortgage and a home, homebuyers can shop around for real estate agents. They can even interview a few agents and ask them for references. However, asking about an agent’s experience helping other first-time homebuyers can be a more fruitful question. Homebuyers can then ask potential agents how they plan on helping them get the right home.

Plan a budget 

Everyone has a budget when it comes to major purchases like a home. Stretching a budget too far can end up reducing the chances a first-time homebuyer has of landing their ideal home. That’s why it’s important to stay realistic about budgets.

While using a budget is wise, homebuyers don’t need to write off homes above that budget immediately. Many homebuyers, particularly those with skilled agents, manage to get a home for below the listed price. This is why real estate agents can be so helpful. There are several ways to negotiate the price of a home.

Homebuyers’ agents can try to negotiate certain aspects of a home’s cost. For example, if there are repairs that might be needed soon, they can ask the homeowner to either:

  1. Provide a lower price to cover the cost of future repairs
  2. Pay for the repairs immediately to keep the price as it stands

Negotiations tend to work better the fewer prospective buyers there are. When a property is in high demand and there are more potential buyers, negotiation is less likely to provide good results for the buyer.

Remote open-home tours

Remote tours allow first-time homebuyers to tour many houses from the comfort of their computer. Shopping for homes no longer needs to take as long. Many sellers now use remote open-home tours to allow many people to have a look at the property.

Homebuyers can tour dozens of homes remotely to help them make a decision. However, it’s normally also worth it to follow up with a real tour of the most seemingly desirable homes.

Step 5 - Pick The House And The Neighborhood

Homebuyers are investing in both a home and the neighborhood it’s in. Once a first-time homebuyer has shopped around, it’s time to choose the home they want.

The neighborhood a home is in helps determine the future value of the property. Connections to major routes, services, and good school districts are examples of factors that affect property values.

Homebuyers can consider major plans that are underway in their new home’s neighborhood. Major infrastructure projects or the opening of major new businesses or other projects can present prospects for future growth.

The neighborhood a homebuyer chooses also more directly affects periodic expenses. Homeowner’s associations, for example, can come with pros and cons. They normally charge fees, but they may take measures to ensure local properties remain attractive to future buyers.

Getting a Home Assessment

When it comes to the actual home, home assessments can save homebuyers additional money. Home assessments are meant to search for any deficiencies with a property. Factors like mechanical shortcomings, mold, and pests can cost a lot to deal with. So, a home assessment can be used to discover problems early and negotiate for either:

  • A lower price
  • Thorough fixes for any discovered problems.

Step 6 - Make an Offer

At this point, a homebuyer has thoroughly studied prospective homes and lenders and made a decision. They’ve also gone troubleshooting for any issue that could be costly in the future. Now is the part where an offer is made based on the information gathered.

Negotiate the Seller For Closing Costs 

This is the part of the process where homebuyers can negotiate with sellers on closing costs. Closing costs can sometimes add significant extra expenditure and it’s often worth it to negotiate those costs down.

Purchase for Home Insurance That Answers Your Needs

Around when the offer is being made, it’s also time to shop for home insurance. If the buyer paid for a home inspection (which is highly recommended), then they will have the information needed to get the right coverage.

To be effective, home insurance should cover any potential issues causing damage to the property. Factors that should be covered depend on both the integrity of the home and its amenities as well as the home’s location. For example, if the home is in an area prone to hurricanes, that should be reflected in the home insurance policy.

Step 7 - Seal the Deal On Your New Home

This is the part where the deal is finalized. Homebuyers need to bring all the necessary documents to close the deal. Then, they will officially become a homeowner.

Ahead of the closing, homebuyers are expected to bring up-to-date pay stubs. They can bring whatever other documents are necessary to prove their employment situation hasn’t changed. The homebuyer will also need to bring a cashier or certified check if they’re paying the closing costs at that time.

After closing (in less than 24 hours), the homebuyer will have one last chance to walk around the property. They can search for issues in need of fixing. After that, there’s a laundry list of paperwork to transfer ownership of the property to the homebuyer legally. After that, the property is theirs.

Step 8 - After Purchasing Your House

Getting a mortgage means getting a loan where the collateral is your home. Everything can be lost if the borrower fails to meet their obligations. 

Savings for Mortgage Payments

If a borrower wants to keep using their house, they need to keep making payments. Saving in advance of payments ensures that mortgage payments are always made on time.

Borrowers are expected to pay their mortgages back according to the terms of the contract. With additional savings, they can also choose to pay more back sooner.

Ongoing House Maintenance

Homeowners are responsible for their homes’ maintenance. Home maintenance is also important to maintain or increase the value of the home. In addition, many homeowners’ associations have additional rules for home maintenance.

Now you can ignore The Housing Market If You’re Not Selling

It’s important to maintain a home’s value. However, if the borrower isn’t planning on selling anytime soon, there’s no need to keep up with changes in the housing market. Instead, the goal should be to handle all current obligations for maintaining ownership of the new home. Congratulations!