First-Time Home Buyer FAQ

A home purchase is a big commitment, and the mortgage process can feel intimidating, especially for first-time homebuyers. Even the most seasoned house flippers can feel overwhelmed by the long list of industry terminology, closing costs, and piles of paperwork.

It is normal to have questions, and though homebuying is not a stress-free experience, you do not have to let that dampen your excitement. In this article, we will help you get started on your homebuying journey by answering some of the most common questions first-time buyers ask themselves on their road to homeownership.

Are you ready to own a home?

The first step to the homebuying process is determining whether or not you are ready to commit to owning a home. It is important to consider your lifestyle, plans for the future, and financial goals. Renting offers more freedom to move when you want, and less responsibility for general home maintenance and upkeep. However, purchasing a house is a great financial investment that will help you build equity as you pay down your mortgage.

If you have a stable job, financial security, and know you are ready to settle down in a particular area for the next couple of years, that is a good indication you are ready for the commitment of homeownership.

How much money do you need to buy a house?

The amount of money you will need for a home purchase is determined by several factors, such as your salary, the type of mortgage you choose, closing costs, and more. The good news is, unless you plan on paying all cash for your home, you will not need to cover the entire asking price upfront. Here is a quick breakdown of the most significant costs and fees associated with the purchase of a home:

What credit score do you need to purchase a home?

The credit score you need to buy a home depends on the type of mortgage you are approved for and the lender you choose to finance the home loan. For example, some government-backed loans will have lower credit score requirements (such as FHA mortgages or VA loans). However, most lenders will typically require borrowers to have a credit score of 620 or higher to qualify for most home loan options.

It is always best to take time to improve your credit score prior to applying for a mortgage. A higher score can help you save more money in the long run, because you will qualify for a lower interest rate. 

How much should you save for a down payment?

Although a 20% down payment will help you avoid paying for private mortgage insurance (PMI), it is not a strict requirement to put down that amount if you cannot afford it. The minimum down payment you will need to pay for a conventional home loan is 3% of the sale price. However, a reduced down payment typically results in a higher loan amount, interest rate, and an incurred cost of private mortgage insurance, which protects lenders if the loan defaults.

Be sure to research federal and local down payment assistance programs and loan options that may help you secure a home with as little as 0% down.

How do you find a mortgage lender?

Just like house hunting, finding the right lender for your mortgage needs will take time and research. You will need to consider what type of lender is right for you: a traditional bank, credit union, or mortgage broker are a few examples.

You can start your search on the internet or based on advice from experienced family and friends or even your realtor. Create a list of potential lenders and be sure to reach out to inquire what mortgage options they offer. Not every lender will be approved to provide government-backed loans, for example, so it is important to consider all of your options before deciding to apply.

Do you need to get pre-approved for a home loan?

Though often not required, getting a pre-approval for a mortgage is a vital step in the homebuying process. Not only will it indicate how much home you can afford and help you establish a concrete budget, but your pre-approval letter is also your ticket to proving to sellers that you are a serious buyer.

What documents do you need to apply for a mortgage?

There is a good amount of paperwork involved in the mortgage application process, so it is important to stay organized and have everything ready to submit. Here is a list of the most common documents your lender will ask you for:

• Proof of income: Recent pay stubs, W-2s, and tax returns. For self-employed borrowers, profit and loss statements and business tax returns may be required.

• Asset statements: Checking and savings, investment, and retirement account statements from the past few months.

• Employment verification: Verification of your employment, including your job title, length of employment, and income. Lenders will look for consistent and documented income in the same line of work for at least two years.

• Identification: A copy of your driver's license or passport.

• Credit report: A credit report will be obtained as part of the mortgage application process.

• Other documents: Additional documents may be required depending on your circumstances, such as divorce decrees, child support orders, bankruptcy paperwork, explanation of gift funds, and proof of deposit for social security or pensions.

How do you make an offer?

The offer you submit on a home will vary depending on the type of market you are buying in. In a buyer’s market, you can include more contingencies that benefit you since sellers are eager to sell their properties. However, in a seller’s market, it is common for multiple buyers to bid on the same home and sellers will be able to pick the best offer. In a hot market, it is important to make your offer as attractive as possible. Make sure your offer is short, sweet, and generous.

It is important to hire an experienced real estate agent who can help walk you through submitting your offer. They will be able to negotiate with the seller’s agent and set your offer up for success depending on the market you are buying in.

What happens on closing day?

On closing day, your property purchase will be finalized, and you will officially get the keys to your new home. This typically happens 30 to 45 days after you have signed the purchase contract with your lender and will likely take place at a settlement agent's office. There will be a lot of paperwork to sign, so you can expect the day to last a few hours. Make sure you understand the details of everything you sign. At the closing, you will review and sign the mortgage note, deed of trust, and other legal paperwork.

You also pay any remaining closing costs and fees. It is a good idea to bring a government-issued ID, a certified check for the closing costs, and any other documents your lender requires.

Once the paperwork is signed, your mortgage is secured, and the closing is officially complete.

Having questions and concerns regarding the homebuying process is completely normal, especially if you are a first-time buyer. That is why it is important to choose a lender who can guide you through every step of the journey.