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10 Expert First-Time Home Buyer Tips 

Written by Banks Editorial Team

Updated November 15, 2023​

8 min. read​

Buying a home for the first time can be both exciting and scary. With such a big financial commitment, you don’t want to make costly mistakes. There are many important steps in the home-buying process, from deciding where you want to live and what kind of property is right for you to getting financing and finally closing on your new house.

A successful home-buying experience involves several processes you may not know as a first-timer. Here are 10 first-time home buyer tips to help you navigate the process from start to finish.

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The Advantage of Being a First-time Home Buyer

As a first-time homebuyer, you have unique opportunities to take advantage of, from government assistance programs to educational resources. Therefore, it’s important to understand all the benefits of being a first-time buyer before making this major commitment.

Low Down Payment

Buying a house with little or no down payment is one of the benefits for first-time home buyers. Putting down a low amount will help you direct more of your savings to things like closing costs and moving expenses.

Low down payments aren’t just limited to first-time home buyers. For example, you can get a conventional loan with a down payment as low as 3% or 3.5% with an FHA loan. In fact, some loan programs like VA and USDA loans require no down payment.

Down Payment Assistance

When buying a house, you must put down a percentage of the home’s purchase price before closing on a mortgage. This can be challenging for first-time home buyers because saving a 20% down payment could take years. Fortunately, down payment assistance (DPA) programs can offer a portion of that money.

There are several DPA programs across the country. They come in the form of grants, forgivable loans, or repayable loans with low interest. Each DPA program has its own rules and eligibility criteria.

Home Buyer Education

If you use a down payment assistance program to get a mortgage, you must take a HUD-approved Housing Counseling Class. You’ll get one-on-one counseling on every aspect of the home-buying process. However, these classes can be great even if it’s not one of your mortgage lender’s requirements.

Buying your first home can be scary. The more knowledge you acquire on home buying, the more confident you become in your path to homeownership.

Government-backed Mortgage Options

The federal government insures several mortgages to make it easier for first-time home buyers to turn their dream of homeownership into a reality. You don’t have to be a first-time buyer to qualify for government-backed home loans.

Some of these home loan programs include USDA loans, FHA loans, and VA loans.

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Reduced Private Mortgage Insurance

Nearly every homeowner doesn’t like private mortgage insurance (PMI) premiums because it doesn’t protect the borrower but the lender. However, if you can’t put down 20% of the home’s sale price, you have to pay for PMI.

But, if you’re a first-time home buyer with a modest income, you may be able to get reduced PMI. The Fannie Mae Home Ready and Freddie Mac Home Possible offer discounted PMI compared to conventional loans, even if you put down 3%. The good news is that you can stop paying PMI once your mortgage balance is below 80% of your home’s value.

Veterans, active-duty service members, and their spouses can avoid PMI, as VA loans don’t charge it.

Tax Benefits

You don’t have to be a first-time home buyer to take advantage of potential tax breaks. However, you must itemize your deductions to claim them.

For example, a home equity loan interest is deductible if you use the proceeds to buy, build or substantially improve your home. Substantial improvements are those that add value to the home or extend its life.

You can also claim property taxes on your tax return, which allows you to deduct up to $10,000 or $5,000 if you’re married and to file separately.

Start Building Equity

The best part of being a homeowner is that you start building equity as soon as you make your monthly mortgage payments. Once you build enough equity, you can cash it out with a home equity loan or take out a home equity line of credit.

The Top 10 First-Time Home Buyer Tips

Before you start shopping for your dream home, gaining knowledge about homeownership processes is crucial. The following first-time home buyer tips will help you search for your new home with confidence.

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1. Know Your Needs and Priorities

You may have always dreamed of owning a bungalow or a beach house, but does it align with your needs and priorities? Keep in mind that your current housing needs may be different in the future.

Do you need a townhouse, condo, or single-family home? Do you need specific things in the house, like a home office, garage, or attic? Knowing your priorities right off the bat will help you plan for your home purchase as early as possible.

Don’t rush when making decisions that could cost you in the long run. Instead, take time to consider your current and future needs, then create a list of needs you want in a home. Doing this lets you know the things to look out for when shopping for a home.

2. Check Your Budget and Credit

Buying a house may be one of the biggest financial commitments in your life, so you need to have a budget in place.

Remember that your budget will change after you buy a home, and you’ll have expenses beyond mortgage payments. Utility bills, homeowners insurance, and property taxes are just a few of the expenses you want to budget for. You’ll also want to have enough savings to cover emergency repairs.

Using a home affordability calculator, you can determine how much you can afford for your new home. The calculator takes into account your income, debts, and down payment amount, so you’ll get a rough estimate of how much you’ll pay in monthly mortgage payments.

Be realistic when setting a budget. You may be able to qualify for a large mortgage, but that doesn’t mean you should commit the total amount.

Check your credit score, too. Most lenders use credit score as a key factor when evaluating your eligibility for a mortgage. Checking your credit score early enough will give you more time to fix any errors and improve your score.

You can improve your credit score in several ways:

  • Pay down credit card debt
  • Pay bills on time
  • Dispute credit report errors
  • Increase your card limits

The higher your credit score, the better. With a good credit score, you may have lower down payment requirements and secure the lowest interest rates.

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3. Save for Down Payment and Closing Costs

How much you’ll put down on a home depends on the type of mortgage you choose. Down payments typically range from 3% to 20%, while closing costs are between 2% and 6% of the loan amount.

Don’t wait until you’ve found your dream home to start saving for a down payment and closing costs. These amounts can add up to thousands of dollars, so you want to set aside cash before you even begin house hunting.

There are several advantages to making a larger down payment. For one, you’ll appear less risky to lenders, meaning more mortgage options. It also means you’ll get a lower interest rate, and your monthly mortgage payments will be lower. Plus, if you put down at least 20% on a conventional mortgage, you don’t have to pay for private mortgage insurance, which can save you hundreds of dollars a month.

You also want to save beyond the down payment and closing costs. You’ll need some cash after the home purchase. Set aside some money to cover move-in expenses and unplanned repairs.

4. Research About First-Time Home Buyer Assistance Programs

Purchasing your first home can be expensive. Fortunately, there are several first-time home buyer programs that can save you money.

For example, you may be eligible for down payment assistance (DPA), which reduces the amount you have to put down on the house. DPA loans are available in three options: second mortgages, deferred payment loans, and forgiven loans. You may also get a DPA loan through grants.

5. Explore Your Financing Options

There are several mortgage options that can help you finance your home purchase. Choosing the right type of mortgage can increase your approval odds and save you money in the long run.

Here are the most common types of mortgages:

  • Conventional loans: These are loans not insured by the federal government. Qualifying for a conventional loan is often more difficult than for government-backed loans. Conventional mortgages follow down payment and income rules set by Fannie Mae and Freddie Mac and loan limits set by the Federal Housing Finance Administration (FHFA). You need a credit score of at least 620 to qualify for a conventional loan and a down payment as low as 3%.
  • FHA loans: Backed by the Federal Housing Administration (FHA), FHA loans are easier to qualify for than conventional loans. You can get an FHA loan with a credit score as low as 580. But, you can still be eligible for an FHA loan with scores as low as 500, provided that you put down 10%. However, FHA mortgage insurance premiums are expensive.
  • USDA loans: The U.S. Department of Agriculture insures loans for individuals looking to buy homes in rural and suburban areas. USDA loans typically don’t require down payments, but you must meet the income limits.
  • VA loans: Active-duty military, veterans, and eligible spouses may qualify for no-down-payment loans backed by the Department of Veteran Affairs. VA loans don’t have minimum credit score requirements and don’t require mortgage insurance.
  • Jumbo loans: As the name suggests, jumbo loans are mortgages used to finance properties that are more expensive than the standard lending limits set by FHFA. These loans often require larger down payments and higher credit scores.
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6. Compare Mortgage Rates

Before you settle on a specific mortgage lender, shop around for the best deal. Your goal should be to get a mortgage with monthly payments you can afford. Then, compare mortgage rates from multiple lenders to help you determine whether it’s the right time to lock in your rate.

It’s also a good idea to focus not only on the mortgage rates but also on the mortgage terms. Are there origination fees? What are the closing costs? How about late fees? Is there a prepayment penalty? You’ll likely get most of this information on the lender’s website.

Some lenders offer discount points, fees you pay to lower your interest rate. Buying discount points is optional. However, it makes sense to buy discount points if you’re purchasing a home that you plan to hold for the long term.

7. Prepare an Offer

Once you’ve found your dream home, you can make an offer in writing. The offer letter includes information about yourself (name and current address) and how much you’re willing to pay. Then, your real estate agent can write the offer letter on your behalf.

Most offers also include earnest deposit money, the amount you put down before closing on a home to show your seriousness about purchasing. Earnest deposit money is typically 1% to 3% of the home’s sale price. If you buy the house, your earnest money goes toward your down payment and closing costs. If you agree and later cancel, you lose your deposit.

The seller will respond to the offer in one of these ways: accept, reject, or give you a counteroffer.

Negotiations are allowed in this stage of the home-buying process. Your real estate agent can handle the negotiations. Once you agree with the seller on the offer, you can move to the next phase 一, appraisal and inspection.

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8. Get Preapproved

Once you settle on a lender, it’s time to get pre-approved for a mortgage. A mortgage preapproval is an official letter stating how much the lender will loan you. It puts you in a much stronger position when making an offer since home sellers view you as a serious buyer. Most sellers won’t take on a buyer if they haven’t been preapproved. The preapproval typically lasts 60 to 90 days, after which it expires.

It’s important to note that preapprovals result in a hard inquiry in your credit report. Getting pre-approved by multiple lenders shouldn’t hurt your credit as long as you do it within a specific time frame, typically 30 days.

You can also get a loan estimate form along with the preapproval letter. While the form isn’t final, you can use it to compare lenders’ rates, fees, and other costs.

Just because you got preapproved doesn’t mean you’ll close on the loan.

9. Lock in Your Rate

When you’ve found your dream house or a lender and got preapproved, you’ll want to lock in your best rate. When you lock in your rate, your interest rate won’t change between the offer and closing. However, you’ll need to close within a specific time frame.

10. Don’t Skip the Home Inspection

Even if the home you want to buy looks like it has no fault, hiring a home inspector is vital. Having a trained professional do a home inspection of the property will save you money in the long run.

A home inspector will look at the property for quality, safety, and overall condition. They’ll ensure the roof is not leaking and the appliances are working, test electrical systems, and much more.

After the inspection, you’ll get the results, containing a list of the problems found in the house. You can ask the home seller to fix the issues before you close on the home. If you can’t reach an agreement, you may want to start another home search.

You also have the option to include a home inspection contingency in your home purchase. A contingency protects you as you won’t lose your earnest deposit money if the home inspection shows major issues.

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Get Preapproved for a CrossCountry Mortgage

Looking to purchase a home? CrossCountry Mortgage makes it easy. It’s simple to get preapproved for a mortgage. You can choose from a variety of loans, including FHA loans, FHA 203(k) home loans, VA home loans, USDA home loans, fixed-rate mortgages, adjustable-rate mortgages, jumbo mortgages and manufactured homes.

By getting preapproved with CrossCountry Mortgage, you’ll better understand what you can afford and the peace of mind that comes with knowing your loan is in good hands. Plus, you’ll be matched with a dedicated mortgage loan officer to guide you through the entire process and answer any questions you may have. And if you are a first-time home buyer, ask them for their grants and credits to help you make your homeownership dream come true. Reach out to the CrossCountry Mortgage team with no obligation by filling out this simple online form.

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