First-Time Homebuyer Tips and Advice from Top Mortgage & Real Estate Experts


BY Ally Abernathy

first time home buyer

11 minute read

If you’re in the market to purchase your first home, then you know there’s much for you to learn.

First-time homebuyers often make many mistakes they wish they didn’t.

You’re making the biggest financial decision in your life, you want to make sure you don’t make any mistakes.

So we asked mortgage and real estate experts what advice they would give first-time homebuyers.

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1. See if You Qualify for Down Payment Assistance

Dan Green, Founder, Growella

“There are more than 600 down-payment assistance programs nationwide. They’re catalogued. Most are in the form of forgivable grants, which means that the buyer can get money — up to $25,000, in some cities! — and never have to pay it back.

The catch: Buyers are required to live in the home for at least 5 years.

To get access to the grants, buyers have to buy within the program “zone”, which is usually a city or neighborhood; and, have income that’s not excessive for the area.”Nearly 96% of today’s new mortgages are government-backed.

The government doesn’t specifically mark programs for “first-time home buyers only” because that would be discriminatory. Certain programs attract first-time buyers, though, including the FHA loan program and the 100% USDA loan, which is available in 97% of the United States.”

2. You Need More Than a Down Payment to Purchase a House

Jamie Wharton, Financial Marketing Coordinator, Earnest.com

“Apart from the down payment which could be upwards of 20% of the purchase price, a new homeowner will also be expected to pay earnest money and closing costs.

Earnest money is 1%-3% of the purchase price and is your initial good faith offer on the house; if you do not get the house in the final bid, this money is returned to you. Closing costs include but are not limited to lender fees, an appraisal, inspections, taxes, and title insurance.”

In order to start looking at homes first-time buyers need to speak to a loan officer and get a mortgage pre-approval letter.

3. Don’t Let Emotions Keep You From Getting A Good Deal

Glenn S. Phillips, CEO, LakeHomes.com

It is a mistake to let the emotions of a new home overwhelm the negotiations. While the purchase is to be a home where life is lived, during negotiations this is a business deal. First time home buyers that become too emotionally attached to the home lose their bargaining power.

First time home buyers should be careful to not get distracted when touring a home. Most of the items that make a well-staged home look beautiful will leave when the seller moves. Buyers should look for warning signs of home problems, such as water stains, foundation cracks, rotted wood, and other often subtle issues.”

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4. Be Realistic About your Budget and the Length of the Home Buying Process

Jeffrey A. Hensel, Sales and Marketing Director, North Coast Financial, Inc

“First time buyers need to be realistic about what they are able to afford for their first home purchase. First-time homebuyers are rarely able to buy their dream beach house or penthouse suite as their first purchase.

Homebuyers should compile a list of their top wants and needs and search for a home that satisfies the most items on the list within their budget. It’s important to remember that a starter home is often a great first step towards building equity and getting closer to that dream home.

First time homebuyers also need to understand that purchasing a home can become a long process. While most buyers would prefer to spend only a couple months searching for a home, it can often take a year or more to find a suitable property within a buyer’s budget. Having offers rejected and being outbid by other buyers is common. Be positive and don’t get frustrated.”

Find out how much house you can afford with our calculator

Unless you have 20% to put down on a new home, you will be required to carry mortgage insurance. PMI (private mortgage insurance) will be added to your monthly mortgage payment and can increase the monthly cost by a few hundred dollars a month. Use our home affordability calculator to find out how much home you can afford.

5. Focus on the down payment and not the interest rate in order to reduce monthly mortgage payments

Evan Turner, Business Reporter and Author, www.evantarver.com/blog

“The reason for this is that many first-time homebuyers think that the interest rate has the largest impact on their monthly payment. While this is definitely a factor, the best way to lower your monthly payment isn’t to try and shave off ~0.25% of interest but rather to put more money down. This, of course, allows you to borrow less and therefore reduce your monthly payment.

The reason why this is so important for first-time homebuyers is that banks and mortgage lenders are now offering mortgages with as little as 1% – 3% down. This sounds attractive to a new homeowner but in reality, putting that little down will cause you to have a high monthly payment that can result in a person either being “house poor” or becoming completely insolvent.

Further, I’ve personally found that lenders will all typically offer the same or similar interest rates, and it’s not very time effective to shop around for rates.

A good rule of thumb is that your monthly payment should only be ~25% of your pre-tax earnings, or lower. If your monthly payment is higher, it’s probably better to wait until you can put more down. Of course, a good rule of thumb for a down payment is 20% of a property’s purchase price.”

6. Search for Local First-Time Homebuyer Programs

Aaron Norris, Owner, The Norris Group

“Every county and municipality has different ways they run their programs. Some come with selling restrictions so local lenders really need to follow the programs because of the details as well as when money is available. They often run out.

As an example, I live in Riverside which one of the largest cities in Riverside County

For Riverside County, the first-time homebuyer program is run by the Riverside Economic Development Agency. They offer up to 20% down payment assistance (not to exceed $75,000) and they don’t have resale restrictions or an equity share component to the program.

They do have requirements, on property types, it must be owner occupied, and there are income restrictions to qualify. You cannot stack the programs so this program is not available in the actual city of Riverside because they have their own. I don’t know if that’s always the case.”

Search for state programs on the HUD website. You can also check your local city or county website for local first-time homebuyer down payment assistance and grants. Many of these programs require a homebuyer education course, you can find more details on your local Government’s website.

7. See if You Qualify for First-Time Homebuyers Tax Credit and Grants

John Powell, Chief Development Officer & Broker, helpusell.com

“Grant programs vary based on the area of the country. Most programs are county or local municipality programs. A common feature for down payment assistance is:

1. On most programs the buyer cannot have owned a home in the last 3 years. There are some programs where this is not a requirement.

2. There are income restrictions. A typical restriction in Arizona is the buyer cannot make more than 80% of the median income. This also varies program to program.

3. The buyer must have minimum credit scores, usually 640.

4. The home must be owner occupied.

5. The down payment assistance is a quiet second lien on the property. No payments are made on it and usually it disappears after 5 years.

6. Buyers must attend a home buyer’s orientation class.

7. The typical assistance available is 3.5% of sales price usually not to exceed a certain amount. In Pima county it can’t exceed $3700.00

8. Buyer typically needs to come up with $1,000. There are other requirements but these are the main ones. Most of the non-profits that administer these programs have in house home buyer counseling to help buyers improve their credit score if necessary.

The first-time homebuyer tax credit program is also a great program and typically it can be used in conjunction with down-payment assistance. In this program a buyer will get a 15% tax credit, not a deduction, but a tax credit. This is a dollar for dollar reduction of their tax bill at the end of the year.

8. Improve Your Credit Score Before Applying

Randall Yates, Founder and CEO, The Lenders Network

“On average first-time homebuyers have a lower credit score than other homebuyers. This is why the Federal Housing Administration was created. To increase homeownership in the U.S. by lowering the minimum credit requirements and offering low down payments. While there are FHA lenders that only require a 580 credit score to qualify. I recommend doing whatever is necessary to improve your credit rating, not only help you qualify, but get you the best mortgage rate possible.

You can receive a free copy of your credit report and scores at sites like Credit Karma, or Credit Sesame. Check your credit report for any errors. If you find any, you should file a dispute with the credit bureaus to have it corrected.”

Pay down your credit card balances

“If you’re carrying around high balances, your FICO score will be negatively impacted. You’re balance compared to your credit limit is called your credit utilization ratio, and accounts for 30% of your credit score. Try to keep your card balances below 15% to maximize your credit score. This is one of the easiest and fastest ways to quickly improve your credit rating prior to completing a mortgage application.

If you have any collection accounts, you should contact the creditor and ask them if you can do a “pay for delete”. This is an agreement between you and the collection agency that they agree to remove the collection account from your credit report once you pay off the amount owed.

If you have any late payments you should contact the creditor and simply ask them to remove it. You would be surprised how many lenders will remove a late payment as a courtesy for a loyal customer. Make sure not to apply for any other types of credit or loans to avoid hard inquiries.”

Read more tips for increasing your credit score quickly

9. Look into a HomeReady HomePath Loan

David Reiss, Professor of Law and Blogger, Refinblog.com

“Many first-time home buyers look to Federal Housing Administration –insured mortgages which have low down payment requirements.

Fannie Mae and Freddie Mac both offer loan programs to lenders who lend to first-time homebuyers of a single family-home that will be their primary residence.  These programs have down payment requirements that are as low as 3 percent.

Fannie’s program is called HomeReady.  It defines a first-time homebuyer as “An individual is to be considered a first-time home buyer who

1. Is purchasing the security property;

2. Will reside in the security property as a principal residence; and

3.  Had no ownership interest (sole or joint) in a residential property during the three-year period preceding the date of the purchase of the security property.

In addition, an individual who is a displaced homemaker or single parent also will be considered a first-time home buyer if he or she had no ownership interest in a principal residence (other than a joint ownership interest with a spouse) during the preceding three-year time period.”

10. Know the Lender You’re Working with, what Fees are Involved

Michael Moskowitz, President, Equity Now

“A first-time home buyer should ask when will the lender send you a loan estimate showing all costs and expenses?  And, does the lender really make the lending decision or are you working with a broker who must go to a lender to underwrite your loan?

Moskowitz also believes it’s vital to ask your lender about any upfront fees, such as a lender fee, an appraisal fee, or prepaid interest, to apply for the loan and are they refundable?  Also, ask if there are overlay costs to the agency (GSE/GNMA) guidelines which make it more difficult to get the loan approved.

The first question Moskowitz suggested is how long you will remain in the property.  If it is a dozen years or so, it makes sense to get a 30-year fixed-rate loan. But if it is only five years, consider getting an adjustable-rate mortgage (ARM) for the big savings on your mortgage payments.”

11. Budget for Home Expenses and Utility Bills

Kelly Bedrich, Co-Founder and President, Electricityplans.com

“The biggest tip is to consider future expenses, especially your energy costs for your new house. For first-time homeowners it is easy to get caught up in the rush of buying their first house and all of the benefits that come with it. Also remember to manage budgets and cut expenses where it makes sense. One area to watch is energy costs.

If the homebuyer lives in a state that has electric choice , you can often save 20-30% on home energy charges compared to standard utility electric rates. This could add up to thousands of dollars in saving annually.”

12. Determining a Price Range Based on Market Conditions

Tony Mariotti, Founder, Ruby Home

“Many first-time home buyers are catching onto the idea of getting pre-approved for a mortgage as the first step of the home buying process. After that, their real estate agent can help them strategize a way they narrow down the list of homes they want to see in person (showings).

Specifically, their agent should know the current market dynamics and how the buyer’s pre-approved loan amount fits into it. For example, say a borrower is pre-qualified for a $300k loan.

If homes on the market are selling over list prices, the homebuyer will need to focus on listings that are right at, or slightly below asking prices. Conversely, if the market is cooling down, shoppers may consider homes slightly above their pre-approved loan amount.

In sum, the pre-approved loan amount, in conjunction with current market conditions, sets a price “range;” borrowers don’t need to think of the loan amount as a “hard” number. Lastly, homebuyers should be periodically asking their agent (better yet, the agent is a proactive communicator) if market conditions are changing.”

13. Don’t Love the House so Much you Don’t Factor in Consequences of the Location

Tino Diaz, Senior Vice President at Columbus Capital Lending

“First-time homebuyers need to consider more than just living “inside” the house and do research and understand the factors of life “outside” the house from schools and parks to work commutes to snow removal routes and overall traffic congestion. Realtors are famous for saying “location, location, location” and the reasons are clear.

If the home is in an under-performing public school district, this may be okay for families who home-school or attend private, but too often homeowners will relocate quickly then have to sell the property at a deep discount to move to a better school district.

While a new job or changing offices can’t always be predicted and a longer commute can happen unexpectedly, research on the location should always be done to make sure “outgrowing” the neighborhood won’t be a factor for a long time to come.”

14. Make Sure You’re Getting the Right Type of Home Loan and Loan Term

Ally Abernathy, Editor, The Lenders Network

There are several different types of mortgage programs for first-time buyers to choose from. FHA, VA, USDA, 203k, and Conventional loans. If you have poor credit then an FHA mortgage may be a great option for you. FHA home loans are available to borrowers with a credit rating as low as 500 with 10% down. However, if you have at least a 580 credit score you may qualify with just a 3.5% down payment.

VA and USDA loans are the two types of mortgages that allow for 100% financing. VA loans have many benefits for Veterans including no down-payment and no mortgage insurance. If you’re in a USDA eligible location you may be able to qualify for this Rural development home loan that requires no downpayment.

If you have 20% to put as a down-payment then a conventional loan will be better than an FHA loan because you will not be required to carry mortgage insurance, which could save you thousands of dollars per year.

You will also have an option of getting a 10-year, 15-year, or 30-year fixed-rate mortgage, or an adjustable-rate mortgage (ARM). An ARM will have the lowest rate for the initial period before the rate increases, usually after 5 years. 15 year mortgages have lower rates than a 30-year loan but your monthly mortgage payment will be considerably higher. These are all options you should consult with your loan officer about.

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