Buying your first home can seem like a daunting process, but being as prepared as possible will make the experience easier.

That’s why we’ve created a comprehensive guide to everything first-time homebuyers need to know. Keep reading for information on budgeting, mortgages, navigating between different lenders, and more.

First-time home buyers: where to start?

Buying your first home is a huge step to take, and it can easily seem overwhelming due to the myriad of choices you have to make and the amount of information you need to gather.

For this reason, it can be difficult to know where to start. You may have to ask big questions about your financial situation and what exactly are your plans for buying your first home to understand what your first steps should be.

To help you get started, here are three things you should consider as you begin the home buying process.

1) start saving early

There are many costs associated with buying your first home that exceed the actual price of your new home. It’s a good idea to start saving as early as possible to make sure you can afford your dream home.

First, you will need to start saving for your down payment or deposit. This is a payment you make upfront when you buy your home and is calculated as a percentage of the purchase price of your new home. Average down payments in America can range from 3% to 20% of the value of the property.

Second, there are a variety of closing costs that will need to be paid to finalize the sale of the property and your mortgage. These fees can range from 2% to 5% of the total amount of your mortgage.

Finally, be sure to save some extra money for moving in costs, new furniture, and any renovations you might need to make to your new home. The more you save, the easier it is to start taking ownership of your first home.

2) Check your credit score

Your credit rating is a factor that will determine whether your mortgage application is approved.. A higher credit score can also mean that lenders will offer you better terms on your mortgage, such as down payments or lower interest rates.

A bad credit score is most likely the result of unpaid bills and negative credit card balances. Many lenders will require a minimum credit score, so keep track of your credit reports and try to maintain good habits like paying bills on time and avoiding going over credit limits.

3) Pay off student loans and debts

With total student loan debt across America now reaching $ 1.6 trillion, It’s safe to say that student debt has become a major problem for millennials looking to buy their first home.

Since your home will be the most expensive purchase in your life, it may help to erase previous debt before adding even more to your total debt with a home loan.

Clearing your student debt before applying for a home loan will also show lenders that you are good at managing your budget to pay off your debt. As such, it will be easier for you to get a loan and you may even be able to get better terms.

What is a mortgage?

Only about 25% of buyers buy property with full cash payment – most homebuyers need to borrow money from a lender rather than paying up front. This type of loan is called a mortgage or home loan.

Mortgages are different from other loans because of their low interest rate, extended repayment period, and security measures.

What is a mortgage lender?

A mortgage lender is a bank or financial institution such as a credit union that lends money to a borrower for the purpose of purchasing property.

A lender will tell you all of the borrowing guidelines you need to follow and check your creditworthiness to decide whether or not to approve you for a loan and any terms to offer.

Explore mortgage options

There are many types of mortgages available, all of which vary in terms of down payments, interest rates, and other terms and conditions. However, the two main types of mortgage loans are conventional loans and FHA loans.

Conventional loans are the most common type of mortgage loan. They are issued by private lenders and are not backed by the government, which means they typically require higher credit scores and lower debt-to-income ratios (DTIs) than other types of home loans.

FHA loans are a type of government guaranteed loan that is only granted by lenders approved by the Federal Housing Administration (FHA). The FHA provides mortgage insurance to the lender to protect them from borrowers who default on the loan, which means they can afford to lend to buyers who would not normally meet the credit requirements for a mortgage.

FHA loans often also have the advantage of requiring lower down payments than usual, with some mortgages requiring only 3.5% of the value of the property.

Compare rates and fees

You should always make sure to ask for mortgage rates and fees from multiple lenders to ensure you get the best deal when buying your first home. Checking with multiple lenders is always an essential step in the home buying process as it helps you find the loan that best suits your budget, income, and home buying goals.

This step can be made more accessible by a mortgage automation service such as CloudRate. We speed up the entire mortgage comparison process by finding personalized loans in as little as 15 minutes!

Help with the first initial payment

As a first-time home buyer, you can benefit from many publicly funded home buying programs. The programs available differ depending on the state in which you purchase, but they are worth researching as they often offer lower interest rates.

Some states even offer tax credits to lower your income tax, making it easier for you to save and increasing your chances of being eligible for a home loan.

How much down payment do I need for a house?

The exact down payment for a home loan will depend on various factors such as the type of mortgage, the lender, your personal finances, and the property you are considering buying.

The more you save for your down payment, the more likely lenders are to approve you for a mortgage loan at favorable interest rates.

To see how different down payment amounts might affect your mortgage terms and conditions, you can try this Mortgage calculator.

Choosing a good real estate agent

Real estate agents can be extremely helpful when buying your first home, as they have extensive expertise in the area.

Experienced real estate agents can provide you with important mortgage and housing market information to help you choose a mortgage that will get you the first home of your dreams.

They can also help you assess and improve your credit score, review your loan options, negotiate a home purchase, and complete all necessary paperwork.

Faq

What do I need to know as a first-time home buyer?

As a first-time home buyer, research credit scores, interest rates, and loan repayment options. Buying your first home isn’t just about finding the property of your dreams, it also means being realistic about how much you can afford and what mortgage options are right for you.

What are the best ways to make buying your first home easier? Consider these four steps to make things go as smoothly as possible:

1. Pay off all your debt, including student loan debt.
2. Check your credit score and strengthen it if necessary.
3. Try to save for a down payment of between 10-15% of the property’s value if possible – if you can save more, even better.
4. Take a look at your finances and set a budget that saves you a portion of your income each month.

How much should a first time homebuyer have saved?

For a conventional loan, the minimum down payment required is 3%, but borrowers with lower credit scores or higher DTI ratios may have to pay more. Government backed FHA loans require a minimum down payment of 3.5%, although if your credit score is below 580, you may need to pay 10% or more.

Therefore, a $ 400,000 property will require a down payment of at least $ 12,000 for a conventional loan or $ 14,000 for an FHA loan. You should also consider closing costs, moving costs, furniture costs, and renovations, all of which can increase the initial cost of buying your first home.