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As of June 25, 2018, we’ve made some changes to the way our mortgage approvals work. You can read more about our Power Buyer ProcessTM.

Buying your first home is not something you (or anyone!) should take lightly. You should learn as much information about the process as you can before you begin, and understand your real estate market and the current mortgage market. The more you know, the better.

The U.S. Department of Housing and Urban Development defines a first-time home buyer as a person who has not owned a personal residence in three or more years. So, this could be someone who has never owned a home, or someone who has owned one in the past but has been renting for a while.

Whether you’re buying your first home or you just haven’t owned a home in a while, it’s important to get as much information as you can so you can make the best decision for you.

How Much Home Can You Afford?

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. Depending on your financial situation, that number might not be the same, so always use what you can afford as your main metric for deciding how much house you should mortgage.

One of the realities of home buying is the frustration of finding a perfect home only to discover it’s not in your price range. Finding out how much home you can afford can be easier than it might seem. Your Home Loan Expert will help you, of course, but you can also try using a purchase calculator.

Should You Get Prequalified or Preapproved?

Often a mortgage lender will tell a potential buyer they’re prequalified for a loan. This can confuse first-time home buyers, who think they will qualify for that exact amount. With a prequalification, little information about your finances has been verified. You might find out later that the amount you were prequalified for is different than what you actually do qualify for.

What you need is a preapproval, where more information (your credit and other financial factors) has been checked and verified, meaning you’ll have a better idea how much you can afford. With a preapproval, you’re in a better position to negotiate because the seller knows you’re verified and more likely to be able to complete the transaction. Having a preapproval will also help you know which price range you can look in.

What Is Your Credit Score?

You should obtain a copy of your credit report and review it. Mortgage companies will pull your credit, but it helps if you know approximately where you stand before you start the process.

Credit scores are determined by factors like debt, debt payment history, debt-to-credit utilization and length of your credit history. There are places like QLCredit.com where you can get a free credit report. If you find an error on your credit report, it’s likely going to be easier to fix the issue before finding a house, rather than when you’re trying to close on your new house. Your mortgage lender can also give you tips to help with any minor blemishes found on your credit report.

What Kind of Mortgages Should You Consider?

For first-time home buyers, mortgages might be confusing or a bit overwhelming. Ask your Home Loan Expert any questions you may have. A good Home Loan Expert will ask you numerous questions about your specific financial needs so they can match you with the best mortgage option.
The mortgage option 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 Documents Do You Need?

You’ll need these items to complete your mortgage application, plus other documents that may be needed to get a correct view of your financial situation:

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

What Is a Reasonable Offer?

With a purchase as big as a home, it’s always a good idea to get advice from an expert. A real estate agent can be very helpful in deciding how much your offer should be.

In today’s seller’s market, it’s very important to know what fair market value is for homes. 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 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! Earnest money is not required; it’s usually a small percent of the asking price and is later applied as part of your down payment or closing costs. It’s 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 real estate agent, seek the advice of an attorney to help you prepare your documents.

Should You Have the Home Inspected?

Always! You should never buy a home without inspecting it and the purchase agreement should say that the sale is contingent upon inspection. It’s a good idea to spend a few hundred dollars and hire a qualified, licensed professional to inspect your new home before you buy it. An inspection is the best way to ensure the home is in the condition the seller has disclosed.

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.

The home inspector should provide a very detailed summary report listing the condition of each item and recommend repairs. You can 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 also how everything works. Feel free to ask questions as you go along.

If there are problems, you can ask that the seller adjust the purchase price of the home or repair the problems. If the repairs are more extensive than you want to take on, you may not want it anymore. If that’s the case, you should be able to get your deposit back and resume your house hunting. It’s a good idea to make sure that you have a condition in your purchase agreement that would get you out of the purchase if the house is not in good enough condition.

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 one of 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 the amount ahead of time. Closing costs can be made up of taxes and insurance, a lender fee or inspection costs.

Keep in mind, various additional costs might apply depending on your state, mortgage type and down payment amount. For instance, title companies handle many closings, but some states require an attorney to conduct the closing.

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

Be sure to ask for and take a final walk through of the property right 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 agents 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!

Have questions about getting a mortgage or tips for other first-time home buyers? Comment below!

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This Post Has 14 Comments

  1. Hi Kevin,
    We are currently doing a “rent-to-own” which is to be in place for a year and then we are to finance the house. We would qualify for a first time home buyers loan and I have heard a lot about first time home buyers and I have been trying to figure out fact from fiction. I have heard that we will not need a down payment and that our closing costs will be minimal. I have also been told our rates will probably be much higher. Could you possibly clear up some of this. We are very new to this process and we dont have anyone to go to that can help. Also, would you guys do a first time homebuyers or would it be more of a conventional loan. Thanks

    1. Hi Adrianna:

      I would be happy to help you try to sort things out. I’m going to try to take these in order.

      You may not need a down payment, but it depends on the type of loan you get. Loans through the USDA are 0% down. In order to qualify for these, the house has to be in a rural area or on the outskirts of suburbia. There are also household income restrictions. You can find more information here. If you’re an eligible active-duty servicemember, veteran or surviving spouse of someone who passed in service to our country or as a result of a service-related disability, you may qualify for a VA loan. Here’s more information on those. If you were to go with a conventional loan, you would need a minimum qualifying median FICO Score of 620 or higher and a minimum down payment of 3%. For an FHA loan, you need a median score of 580 or better and a down payment of 3.5%. None of these down payment terms change because you have status as a first-time buyer.

      Closing costs don’t vary because of first-time buyers status either, but there are ways to keep them down. Also, your rate isn’t affected because you’re a first-time buyer either. Here’s a blog post on what affects rates, but briefly, it’s determined by things like whether you’ll be living in the home full-time, your credit score and the size of your down payment among other items.

      I’m also going to give you a link to our Zing University course which will walk you through what first-time home buyers really need to know.

      When you’re ready, feel free to get a mortgage approval online through Rocket Mortgage or give us a call at (888) 980-6716 to speak with one of our Home Loan Experts. Hope this helps and have a wonderful day!

  2. Hi Kevin, great information here for first time home buyers. I’m a Realtor in Richmond, VA. I would love for you to write a guest blog regarding the FHA loans and the government grant programs.

    I just wanted to add, in regard to the Earnest Money Deposit or “EMD”, it may not technically be required, but depending on where you are in the country, it’s almost always requested.

    There are a few other potential out of pocket costs that may arise. Additional inspections such as mold, radon, structural inspections, and well inspections, are additional inspections a buyer may want to have tested depending on the findings of the inspection report.

    If a home has been “flipped”, the buyer may have to pay for another appraisal, depending on the type of loan. If the home is being sold for over twice the value within a year, you may have to pay for two appraisals. If you are purchasing a newly renovated home, you should ask your Realtor when it was sold last, and for how much. Appraisals aren’t cheap, they’re normally $450-$500 in our area.

    These additional inspections and double appraisals are the exception not the rule, but it is something that you may want to budget for, just in case.

    I’ve writen a blog for “The Cost of Buying A New Home”, and a “First Time Home Buying Guide”. I’ve provided the links if anyone would like additional information on the real estate side of things.

    http://richmondhomesales.com/p/12490/the-cost-of-buying-a-new-home

    http://richmondhomesales.com/p/10029/first-time-home-buyer-guide

    1. Hi Francisco:

      You’re right about the earnest money deposit. It’s not required, but it’s typically requested by the seller is part of the new purchase agreement. The other information on inspections and appraisals is good as well. I’ll connect with you off-line. Thanks for the comment!

      Kevin Graham

    1. Hi Randy:

      The minimum credit score for FHA is 580, assuming you’re otherwise well-qualified. For USDA, VA and conventional loans the minimum credit score at Quicken Loans is 620. I’m going to recommend you talk to one of our Home Loan Experts by calling (888) 980-6716. They’ll be able to go over your situation in depth and recommend options.

      Thanks,
      Kevin

  3. Hello,
    I have a question, I owned a house it was FHA loan for almost 10 years, last six month was tough and I was behind payment before bank take over I sold the house and got some money out of it. Now I am renting I was wondering how much long I have to wait before I can apply for new mortgage.
    Thank you,

    1. I’m going to suggest you speak with one of our Home Loan Experts by calling (888) 980-6716. The fact that you sold the home before the bank took over and that you got some money out of it means it wasn’t a short sale, so that’s good for your prospects. Depending on how long you were late, that could have an impact on what you qualify for. If you give us a call, we can go over all options.

      Thanks,
      Kevin Graham

  4. I had a house 14 years ago , but I am in a situation that I cant not afford all electric heat , so I was wondering if you people could help me get a mortgage that’s affordable, because I am waiting for a interview at Christ Hospital in the Dietary part time , and I am on SSI. But I need a Loan for a house that I want , could you help me. thanks Mrs Linda Lee Brown

    1. Hi Linda Lee:

      Your income is always judged based on your current income, we would be happy to help you look into your options. I’m going to suggest you go out and speak with one of our home loan experts by calling (888) 980-6716.

      Thanks,
      Kevin

  5. I just would like someone to please just explain ‘escrow ‘ , and how it works better. If I’m paying for insurance, why are they deducting it? How long do the collect it? Just all the basic question
    Thanks in Advance
    M. Denise Mulkey

    1. Hi Denise:

      When you’re buying a house, there are two types of insurance. There’s mortgage insurance and homeowners insurance. Mortgage insurance is what you pay in exchange for the ability to make a down payment that’s less than 20%. If you have an FHA loan and make a down payment of less than 10%, the mortgage insurance premiums stay on for the life of the loan. If you go with a conventional loan, you can request that mortgage insurance be removed once you reach 20% equity in your home. If you have an FHA loan, you can always refi into a conventional loan down the line provided you meet the qualifications. I mention that because that’s the type of insurance you stop paying for eventually in many cases.

      Homeowners insurance is designed to protect the physical structure and belongings in your house. A lender will also require that you have homeowners insurance because lenders and investors like Fannie Mae, Freddie Mac and FHA need to protect their investment in your house until the loan is paid off. Your escrow account that you mention is designed to pay for your taxes and homeowners insurance. Instead of getting quarterly or yearly tax bills and yearly homeowners insurance statements to pay, that big payment is instead divided into monthly increments that are paid into your escrow account so you don’t have to worry about having it paid all at once. Mortgage companies often require that you have an escrow account because that way they know taxes and homeowners insurance are being paid. In some cases, you can have it removed and paid taxes and homeowners on your own once you gain a certain amount of equity, but it doesn’t go away like mortgage insurance. Hope this helps!

      Thanks,
      Kevin Graham

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