First-time homebuyers with keys at new home
Purchasing a first home is an exciting time. The saving, researching, comparing, and final closing, followed by the excitement of the move-in, are experiences first-time homebuyers long remember.

However, it is helpful for first-time buyers to exercise extreme caution with each step of the process since ignoring certain precautions can quickly turn to despair. Selecting a professional Realtor in advance to help advise and guide you through the process is the best option for all homebuyers.

For the first-time buyer, working with an experienced Realtor is particularly important to help avoid problems. Here is a list of seven essential recommendations to help first-time homebuyers.

#1 Start Saving

Buying a home is often the most significant investment an individual makes. A first home purchase requires a down payment and a home loan or mortgage. A higher down payment can mean lower monthly mortgage payments and sometimes even lower borrowing rates.

Reducing the principal with a higher down payment frees up more income for other expenses and improvements. Besides the down payment, homebuyers often save for closing costs and moving expenses.

#2 Calculate How Much You Can Afford

While saving as much as possible, prospective homebuyers can calculate how much they can afford to pay each month once they own the home. Begin by calculating your net monthly income and subtracting your monthly expenses for food, gas, vehicles, insurance, utilities, clothing, and any additional monthly expenses. Then apply the remaining amount to mortgage principal and interest, property taxes, and homeowner’s insurance premiums.

#3 Check and Upgrade Your Credit Rating

Lenders rely heavily on credit scores and history to make loan and rate decisions for prospective homebuyers. Free credit reports and FICO scores are available from the three major reporting agencies. Be sure to challenge incorrect information in your credit report.

Meanwhile, pay all bills on time and try to erase or reduce existing credit card debt. It is a good idea to keep those zero-balance credit accounts open since this helps to keep the percentage of available credit usage down.

#4 Mortgage Selection Options

A vital part of the homebuying process is the mortgage or loan. The total cost of the mortgage depends on the type of loan, the terms, and the interest rate the lender charges. Qualified homebuyers have several options to obtain financing for their new home. These include:

  • Conventional Mortgages, although not guaranteed by a government agency, are offered to first-time homebuyers with good credit, often with less than a 20% down payment.
  • FHA Loans are insured by the Federal Housing Administration and allow down payments as low as 3.5% of the purchase price.
  • USDA Loans guarantee rural or farm property mortgages with no down payment.
  • Veterans Administration Loans are available to veterans and active-duty military and may require no down payment.

Mortgages for greater than 80% of the home’s purchase price often require mortgage insurance, which the borrower pays with the monthly mortgage payment.

#5 Look for First-Time Homebuyer Assistance Programs

Many states and local governments seek to help citizens become first-time homeowners by offering consumer-friendly programs with low-interest-rate mortgages, plus down payment and closing cost assistance.

#6 Compare Mortgage Offers Carefully

Each lender is different. Rates and fees change continually, and their lending decisions are based mainly on the borrowers’ credit history, net worth, and accumulated savings.

First-time homebuyers can speak with multiple lenders and compare interest rates and origination fees built into each offer before making a final decision.

Lenders sometimes offer a range of interest rates based on discount points or fixed fees to reduce the interest rate upfront. Paying the mortgage interest rate down in advance is a good idea if the new homebuyer plans to stay in the home for an extended period.

Variable rate mortgages are also available. In this instance, the prospective buyer may lock into a lower-than-market interest that, after three, five, or ten years, may adjust up or down as calculated by a predetermined formula.

#7 Have a Preapproval Letter from the Lender

When a first-time buyer begins the home buying quest with an experienced Realtor, it’s helpful to have a preapproval letter from their lender. This all-important document lets the Realtor know how much the buyer can spend and helps focus the search only on homes and neighborhoods in your price range. Furthermore, a preapproval letter is as close as a homebuyer can get to confirming creditworthiness without a purchase contract.


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