First Time Home Buyer? What You Need to Know

Buying a house is a major accomplishment. But if it’s your first time, the process can feel a bit unfamiliar, if not overwhelming. So here are some first-time home buyer tips to get you started.

Prequalification vs. Preapproval

Mortgage lenders commonly offer “prequalification,” which gives you a better idea of your purchase budget. This can be one of the most important first-time home buyer tips since it will help you search for homes within your price range.

Preapproval is a more in-depth examination of your financial situation. You can save this step for when you’re ready to make an offer on a home. A preapproval letter can lend credibility to your offer and streamline home buying.

You Don’t Always Need a 20% Down Payment.

Many first-time home buyers assume they’ll need a 20% down payment to purchase a home. While this is customary, it’s not always necessary. Conventional loans are available for as little as 3% down if you have good credit.

However, home buyers should know that if you don’t put down 20%, your loan program may require you to pay for “private mortgage insurance,” or PMI. These payments can be rolled into your mortgage premiums, increasing monthly costs.

Explore Your Mortgage Options

Not all home loan programs are the same. While conventional mortgages typically offer some of the best rates and terms, other programs can make it easier for first-time home buyers. Consider loan options such as:

• FHA Loans: Available for those with low credit scores
• USDA Loans: No down payment for qualifying homes in rural areas
• VA Loans: No down payment for current/former members of the military

For instance, FHA loans require only a 10% down payment, even if your credit score is 500. But if your credit score is 580 or above, you can secure an FHA loan with only 3.5% down.

Learn more about the different types of home loans to determine which option is right for you.

Save Some Money for Repairs

One of the best first-time home buyer tips is to keep your bank account active when you purchase a home. You'll need enough to cover closing costs — usually 2% to 6% of the home's purchase price.

But you may also need funding for home repairs, new appliances, lawn equipment, and more. So cleaning out your savings account to make a larger down payment can make it harder to make future home improvements.

Always Compare Lenders

Aim to compare at least three different mortgage lenders to find the best rates and terms. Don't forget to look at any "hidden" fees such as origination or other administrative costs.

You can even apply for preapproval letters from multiple lenders simultaneously. Doing so will protect your credit if you submit your applications within the same 30-day period.

Bonus Tip: Get Help from an Experienced Realtor

These first-time home buyer tips can set you in the right direction. But it also helps to have a team of experienced real estate professionals on your side. When you’re ready to look for your first home, contact the Selby Team to explore your options.