The Ultimate Guide for First-Time Homebuyers

Loans | Mortgage

-Congratulations! If you're reading this, you're probably standing on the brink of one of life's most exciting milestones: buying your first home. Whether you’re dreaming of a ranch-style country home or a sleek modern two-story house, the journey to homeownership can be thrilling but also a bit overwhelming. Don’t worry—we’re here to help you navigate the process with ease. Here’s your comprehensive guide to making the home-buying experience as smooth and successful as possible.

1. Understand Your Budget

Before you start browsing listings, it’s crucial to get a clear picture of your budget. Consider the following:

Down Payment: Typically, you'll need 5-20% of the home’s price as a down payment. The more you can put down, the better your mortgage terms may be.
Closing Costs: These can include appraisal fees, title insurance, and legal fees, often totaling 2-5% of the home price.
Monthly Payments: Don’t forget to factor in mortgage payments, property taxes, home owners’ insurance, and maintenance costs.

Tip: Use online mortgage calculators to get an estimate of what you can afford. This will give you a rough idea of your price range and help you avoid falling in love with a home that’s out of your reach.

2. Don’t Skip the Preapproval

We understand it’s exciting to start scouring the internet for the perfect house. However, it’s important to get pre-approved for a mortgage to help set a realistic budget and understand what you can afford.

It’s also important to understand the difference between prequalification and preapproval.

Prequalification: A prequalification is an estimate of how much home you can afford. It is informal and based on information you provide.
Preapproval: A mortgage preapproval is an official letter from a lender of your choice that tells you how much money you can borrow based on your financial status, such as W-2s, bank statements, and credit score.

What are the benefits of preapproval?

Clarifies your budget: You’ll understand how much you can borrow, allowing you to shop within your budget.
Stronger offers: Sellers will view you as a serious contender, increasing your chances of securing the home you want and making your offers more competitive.
Streamline the closing process: You’re less likely of running into last minute delays with your mortgage lender.

What are the benefits of prequalification?

Know where you stand without risking your credit: You’ll receive a ballpark estimate of how much money you may be able to borrow, often times with a soft inquiry that will not affect your credit rating. (Note: Some prequalification’s may require a hard inquiry).
Quick turnaround: Getting prequalified is fast and easy. It will provide you with helpful information that can guide you to making better buying decisions.

3. Understand Your Loan Options

Did you know the type of loan you choose for financing your mortgage will influence your down payment amount, the type of home you can buy and more? It’s important to understand your options before selecting a loan.

Conventional Loan: A conventional loan is the most common type of home loan. These loans are typically issued by private lenders and are subject to stricter credit and income requirements but offer several different term options with most people choosing between 15 and 30-year terms.
- Fixed-Rate Loan: Interest rates stay the same over the life of the loan.
- Adjustable-Rate Loan (ARM): Interest rates can change over the life of the loan.
Federal Housing Administration (FHA) Loans: An FHA loan allows you to buy a home with less strict financial and credit score requirements making them appealing to first-time homebuyers.
Department of Veterans Affairs (VA) Loan: VA loans are exclusive to veterans, active-duty members of the armed forces and National Guard, and qualified spouses. If you qualify, you can purchase a home with 0% down.
Shared Equity Loan: Also known as family-backed mortgages, a shared equity loan allows parents or other relatives to help homebuyers obtain financing with a small down payment.

4. Maintain Your Credit

During the preapproval process, lenders will pull your credit history and continue to monitor your report during your buying journey. This is not the time to open any new lines of credit. If it is discovered you have taken out another loan or line of credit, your credit balance has increased, or you’ve started making late payments on your credit cards or loans, it may risk your final mortgage approval or decrease the value of how much home you can afford.

It is important to keep paying your bills on time and avoid opening any new lines of credit. Additionally, you don’t want to attempt to influence your credit ratings, for better or worse, because lenders are looking for consistent and reliable behavior patterns for future payments.

5. Save for a Down Payment

If you qualify as a first-time homebuyer, you can benefit from assistance programs that range from 0% to 3.5% down. However, if you have a down payment for at least 20% of the purchase price, you’ll be able to avoid private mortgage insurance (PMI) on a conventional loan.

What qualifies you as a first-time homebuyer?

According to the U.S. Department of Housing and Urban Development, a first-time homebuyer is an individual who meets any of the following criteria:

An individual who has had no ownership in a principal residence during the 3-year period ending on the date of purchase of the property. This includes a spouse (if either meets the above test, they are considered first-time homebuyers).
A single parent who has only owned with a former spouse while married.
An individual who is a displaced homemaker and has only owned with a spouse.
An individual who has only owned a principal residence not permanently affixed to a permanent foundation in accordance with applicable regulations.
An individual who has only owned a property that was not in compliance with state, local or model building codes and which cannot be brought into compliance for less than the cost of constructing a permanent structure.

If you meet any of these requirements, you may qualify for an FHA loan or other programs that provide down payment assistance loans and grants.

6. Save for Closing Costs

We’ve spent a lot of time discussing saving for your first home. Everyone always thinks about the down payment, but may overlook the closing costs. Closing costs are upfront expenses, ranging from 2 to 5 percent of the total loan amount, that go to your lender on closing day. These might include:

Application fee
Origination fee
Appraisal fee
Attorney fee
Discount points
Homeowners insurance
Title insurance expenses
Property Taxes

In your Closing Disclosure, you will see your exact closing costs. But don’t fret, as a first-time homebuyer, you may qualify for government-backed grants or loans that assist with closing costs.

7. Writing Down What Makes Your Dream Home a Dream Home

Once you are ready to start house hunting, it’s important to know what kind of home you are looking for. This will not only help you when searching online, but help your real estate agent suggest homes. Start a list of your needs, non-negotiable and nice-to-haves.

Do you need 3 bedrooms but would like to have a swimming pool? Write it down.

This will help you shop for homes and be less stressed when comparing properties.

8. Find a Qualified Real Estate Agent

You found a home online you like, now what? Working with a qualified real estate agent makes the buying process less stressful. They can help by:

Finding and showing you homes that fit your needs and price range
Helping you decide how much to offer
Submitting an offer letter on your behalf
Helping you negotiate with the seller’s agent
Attending the closing with you

9. Submit Your Offer with Confidence

Don’t risk losing your earnest money deposit, also referred to as good faith deposit. When you are ready to make an offer on a home, make sure you are 100% committed to the purchase of that home. Giving a good faith offer tells a seller you are serious about buying their home. Often, it is equal to 1-3% of your total home price, and goes towards your down payment. If you back out of your offer for a reason not listed in the offer letter, you’ll lose your deposit.

10. Hire an Inspector

Purchasing your home is likely one of the largest purchases you make in your life – one in which you want as much information as possible. For example, learning that your home will need a new roof in the next year may change your mind about wanting to buy it, or the amount you’re willing to offer. This is why you should not waive a home inspection. Home inspections can uncover potentially hazardous items in a home, such as bad wiring or structural issues, that you may not have noticed when you went to tour the home and save you money in the long run.

The content provided in this blog is for informational purposes only. Nothing stated is to be construed as financial or legal advice. Some products not offered by JVB. JVB does not endorse any third parties, including, but not limited to, referenced individuals, companies, organizations, products, blogs, or websites. JVB does not warrant any advice provided by third parties. JVB does not guarantee the accuracy or completeness of the information provided by third parties. JVB recommends that you seek the advice of a qualified financial, tax, legal, or other professional if you have questions.