Top 10 Things First-Time Home Buyers Need to Know - Quicken Loans Zing BlogBuying your first home is not something you (or anyone) should take lightly. You should be prepared with as much information about the process as you can learn before you begin. You should understand your real estate market and the current mortgage market. The more you know – the better.

The Best Buyers Market in History

For example, did you know this was one of the best times in the history of the United States to be a first-time home buyer? Not only are home prices at their lowest levels in years (some areas have seen prices drops up to 50% in the past few years), but there are other great reasons to buy a home today.

10 Tips Every First-Time Home Buyer Should Consider

The following are the 10 key questions you, as a first-time home buyer, should ask yourself:

How Much Home Can You Afford? As a first-time home buyer, it’s important to have an accurate idea of how much money you can borrow for your new home and most importantly, how much you can afford. Sometimes those two aren’t exactly the same (depending on your financial situation), so always use what you can afford as your main metric for deciding how much house you should mortgage. One of the realities of first-time home buying is the frustration of finding that perfect home only to discover that it is not in your price range. Finding out how much home you can afford is actually not that difficult. Your mortgage banker will help you, of course, but first you can try using our purchase calculator.

Should You Get Pre-Qualified or Pre-Approved? Often a mortgage lender will tell a potential buyer they are “pre-qualified” for a loan. This can confuse first-time home buyers, who think they will qualify for that amount. Not likely. With a pre-qualification, little information about your finances is verified (often none). You might find out later that the amount you were “pre-qualified” for is far different than what you actually will qualify for (or even afford). What you need is a “pre-approval” in which more information (your credit and other factors) is checked and you can have a better idea how much you can afford for your first home. With a pre-approval, you’re in a better position to negotiate because the seller knows that your offer is more solid. You’ll avoid wasting time looking at homes outside your price range.

What Is Your Credit Score? First-time home buyers should obtain a copy of their credit report and review it. Your mortgage company will pull your credit, but it helps if you know before you start the process. There are places, like Quizzle.com, where you can actually get a free credit report. If you find an error, it’s much easier to fix it before a house has been found, rather than dealing with it when trying to close on the loan. Your mortgage banker can even give you tips to help with any minor blemishes. Check out our Zing guide on Credit 101 for information on your credit score and on credit reporting.

What Kind of Mortgages Should You Consider? For first-time home buyers, mortgages can be confusing and a bit overwhelming. Ask your mortgage banker every question you can think of. There are no dumb mortgage questions, especially for first-time home buyers. A good mortgage banker will ask you numerous questions about your specific financial needs so that they can match you with the best mortgage.
The mortgage best for you will depend on:

  • Your current financial situation
  • Whether or not your financial situation will change in the next few years
  • How long you want to stay in your home
  • If your income is steady or fluctuating

What Documentation Do You Need? Almost always, you’ll need these items to complete your mortgage application:

  • W-2s
  • Pay stubs
  • Bank and/or other asset statements

What Is a Reasonable Offer? Unless you are very familiar with your area and completely understand how to price an offer on your first home, you might want to consider getting help from an expert. A real estate agent can be very helpful in deciding how much your offer should be. In today’s buyers market, your best reasonable offer might actually be lower than you would think. Have your real estate agent run comparable sales in your area and pay attention to prices per square foot for recent sales. This can give you a very good idea of how much to offer.

What Is a Purchase Agreement? The purchase agreement sets the amount of your offer and usually includes extra details, such as which appliances stay, who pays closing costs (seller can pay closing costs on some home loans) and when you’d like to take possession of the house. The seller (or selling agent) will have you sign the purchase agreement and offer “earnest money.” Earnest money is a deposit showing that you’re serious about your offer to buy the home; it’s usually three percent of the asking price and later applied as part of your down payment or other closing costs. It is a check that your agent holds on to until the offer has been accepted. Title companies can also prepare a purchase agreement. If you choose not to work with a realtor, seek the advice of an attorney to help you prepare your documents.

Should You Have the Home Inspected? Yes, you should. You should never buy a home without inspecting it, and most purchase agreements are contingent upon inspection. Spend a few hundred dollars and hire a qualified/licensed professional to inspect your new home (before you buy it) —it’s the only real way to ensure the home is in good condition. The home inspector should provide a very detailed summary report listing the condition of each item, and recommending repairs. You should always be there when the home inspection takes place. It usually takes a few hours and you’ll learn not only about the condition of the house but how everything works. Ask questions as you go along. If there are problems, the seller may adjust the purchase price of the home or simply repair the problems. There’s always the possibility that the home is in such bad shape or has some monumentally costly problem that it’s no longer the home you want. If that’s the case, get your deposit back and resume your house hunting. These are the cases when you’ll be most happy you got an inspection.
A thorough inspection includes:

  • Heating and cooling systems
  • Plumbing and electrical systems
  • Structural integrity of walls, floors, ceilings, foundation, roof
  • Condition of gutters, spouts, insulation and ventilation, major appliances, garage, etc.

Do You Need Homeowner’s Insurance? Yes, you’ll need a valid homeowner’s insurance policy before you close on your home. You can’t get a mortgage without it.

What Are Closing Costs? This is probably the top asked question by first-time home buyers. All mortgage lenders are required by law to disclose in writing your estimated closing costs and fees, so you’ll know ahead of time. If you don’t get this from your mortgage lender, you know something is wrong. Back out before you waste any money. This estimate is commonly called a “good faith estimate.” Keep in mind, various additional costs might apply depending on your state, mortgage type, and down payment amount. For instance, title companies handle most closings, but there are some states that require an attorney to conduct the closing. In those states, borrowers are not required to pay a title company closing fee.

Before your closing, you’ll receive a document that outlines the actual costs you’ll pay at closing. You’ll be asked to bring a valid picture ID, a certified check (if applicable) for any down payment due (or you may have to wire the money to the title company) and any other additional documents that your circumstances may require.

Be sure to ask for and to take a final walk through of the property shortly before the closing to make sure the home is in the condition you expect it to be.

Any number of people may attend the closing—you, your lender, the seller, the seller’s mortgage holder, respective attorneys, the real estate agent, the transfer agent (if it’s a co-op), the managing agent (if it’s a condo) and the title company representative. Once everyone signs the appropriate documents and the checks are exchanged, you’ll be given the keys to your home and that’s it!

So there you are! As a first-time home buyer, you’re on your way to being better prepared for getting a mortgage and buying your first home. Don’t take chances. Do your research and ask lots of questions – a great resource is the Zing Home Buying 101 Guide!

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This Post Has 13 Comments

  1. What can I do to get the Ernest money back I put down on a house, if the loan officer at the end didnt approve me?I went thru escrow and inspection of home and all the paper work.the loan officer didt qualified me,now the seller of property doesn’t want to return my money?

    1. Hi Francisco:

      Unfortunately, when you sign a contract for a house the earnest money deposit stays with the seller. It’s their assurance that you’re serious about the transaction. Unless there was something fundamentally different about the structure of your particular contract than what’s typical, the seller is entitled to keep that money if the transaction falls through. I wish I had better news for you, but you’re probably not going to be able to get that money back.

      Thanks,
      Kevin Graham

  2. The information
    Was helpful.I have a problem I was supposed to close on a house 02/22/16, the day before find out the seller has Lien it has been 3 weeks

    1. Hi Joyce:

      I’m glad you found the post helpful. Unfortunately, if the seller has a lien, you may only have two options: wait it out or walk away from the deal. I wish I could give you better news.

      Thanks,
      Kevin Graham

    1. Hi Sierra:

      We would be happy to give you more information. One of our Home Loan Experts will be reaching out to you. Have a great day!

      Thanks,
      Kevin Graham

  3. Hello my name is christopher moats n im going to be a soon to be dad n i was looking into buying my first home n wanted more information about this big action

    1. Good morning, Christopher! Congrats on being a dad! I’m going to have one of our amazing home loan experts reach out to you. They’ll send you and email and give you some more information. Congratulations again and best of luck as you pursue your new home.

    1. Good morning, Laquantisha! We’re so excited you’re getting ready to purchase your first home, and we’d love to help you along the way. I’m going to have someone from Quicken Loans send you an email to give you some helpful information. Have a good day, and congratulations once again!

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