First-Time Home Buyer Tips And Tricks To Consider

Buying a new home is an exciting milestone. Shopping for a new home, however, can be filled with a few more ups and downs. From touring home after home to making an offer in a competitive market, it’s normal to feel overwhelmed. 

Demystify the home buying process by getting familiar with how it works. Knowing what you can expect and how you can prepare is key to alleviating those first-time home buying jitters and taking away some stress. Here are some first-time home buyer tips to get you started. 

There are a lot of moving parts to consider when purchasing a home. You’ll need to make sure your credit score is in good shape while also saving for a down payment. Not to mention, actually finding a house that fits your lifestyle and needs. 

It’s a lot to think about, but you don’t have to do it alone. We’ve put together 10 essential tips to help you get your foot in the door and on your way to successful homeownership. 

1. Start Saving And Make A Budget 

If you’re thinking about buying a house, it’s important to have some money saved up. While tackling the down payment is usually seen as the biggest financial hurdle, things like closing costs can add up fast. And having some money set aside for your first few mortgage payments, and other ongoing housing fees can help ease the burden new payments may have on your budget. 

Here are some costs to expect when buying a new home:

• Down payment: While it’s true that some loan types, like VA and USDA loans, may not require a minimum down payment at all, most of us will need some money set aside. The minimum down payment for a conventional loan is 3% and the minimum for an FHA loan is 3.5%. Depending on your credit score, your minimum down payment requirement may be higher. 
• Mortgage insurance: There’s a misconception that you need a 20% down payment when buying a house. This is only true if you want to avoid paying mortgage insurance, which is tacked onto your monthly mortgage payment. This cost is based on location, loan terms and your financial background, but typically ranges between 0.5% and 2% of your annual loan balance. 
• Closing costs: Closing costs typically fall between 3% and 6% of the purchase price. That means, for a $200,000 home, you could pay about $6,000 – $12,000 for these fees. 
• Moving costs: As of October 1, 2022, Home Advisor estimates that moving costs range between $904 and $2,480, with the average American paying $1,685 for two professional movers and a truck rental. 

All these costs add up, which is why creating a budget is an essential part of the home buying process. When developing your budget, make sure to include all your expenses for the most accurate idea of what kind of home you can afford. 

2. Be Ready To Commit To A Loan 

Even if you have enough savings to satisfy all the upfront costs of buying a house, it’s important to be financially (and emotionally) prepared for taking on a mortgage. The average mortgage loan term is 15 – 30 years, making it no small commitment. 

Even if you move out before your loan term is up, get yourself 100% ready for homeownership before taking the plunge. Ask yourself how long you plan to stay in your new home – more than 5 years is a good rule of thumb when deciding if buying a house, rather renting or leasing, is worth it. 

It’s also worth it to check out local and statewide first-time home buyer grants and resources. You may qualify for assistance that you otherwise wouldn’t have known about. 

3. Get An Initial Approval

Hit the ground running with your home search by getting a mortgage preapproval. Unlike prequalification, which is an informal estimate of your home loan amount, preapproval is an estimate based on verified financial information. A prequalification letter can help provide a starting off point for your budget. Meanwhile, a preapproval letter states what you’ve been approved to borrow and an estimated interest rate.

Having a preapproval letter can help you narrow down your home search by giving you a better idea of what homes are within budget. Another plus? Preapproval may be able to make you a more competitive buyer. It shows sellers that not only are you serious about your interest in a home, but that you have the funds to back up your offer. 

Here’s some information lenders may request for your preapproval letter: 

• Personal identification 
• Social security card
• Pay stubs
• Bank statements from the previous 2 - 3 months
• Tax documents, like W-2 forms, from the past 2 years
• Proof of assets and investment account statements
• List of monthly debts
• Rental information and landlord references
• Gift letters, if applicable
• Credit report

4. Strengthen And Maintain Your Credit 

Your credit score is what lenders look at when evaluating how risky of a borrower you are. It can affect what loans you qualify for and what kind of rates you can get. Usually, the higher the credit score, the more favorable interest rates will be. Just a few points can make a world of difference in interest and fees. Before going any further in the home buying process, review your FICO^® Score and your lender’s credit requirements.

Typically, borrowers need to have a score of 620 or higher to qualify for a conventional loan. If yours is below this range, there are ways to improve your credit score prior to getting a mortgage.  

The first step to good credit is to make sure that you’re paying all of your bills on time, as the timeliness of your payments accounts for 35% of the calculation of your credit score. Avoiding late payments will not only improve your credit score but also reassure lenders that you’ll be responsible with your mortgage payments. 

Next, you should try to pay off as much of your debt as you can and work to keep your credit card balances low. This step will enable you to lower your credit utilization and increase your available credit, which accounts for another 30% of your score’s calculation. You should also avoid making large purchases and opening new credit cards during this time. 

5. Understand Your Loan Options 

Not only do you have to choose the right lender for you, but you should also know what loan type best fits your needs. That’s why understanding the different loan options available is an important part of the home buying process. 

Here’s what you need to know about the different loan types: 

• Conventional loans: These are the most common types of home loans. You can buy a single-family home with a minimum down payment of just 3%. 
• VA loans: This government-backed loan is one of many benefits for military home buyers. If you’re a veteran, active service or qualified military spouse, you could buy a home with 0% down. 
• FHA loans: Popular among first-time home buyers, FHA loans have more lenient financial and credit score requirements. You can get an FHA loan with a minimum down payment of 3.5% and a credit score as low as 500 if you have a 10% down payment or 580 with a lower down payment. Rocket Mortgage® requires a minimum credit score of 580 for FHA loans.
• USDA loans: This other type of government-backed loan is for buyers looking for a home in a qualified rural or suburban area. Qualified borrowers can get a USDA loan with 0% down. Rocket Mortgage® does not currently offer this type of loan. 

6. Know Your Nonnegotiables 

Before you begin touring houses, take inventory of what you will need in your new home. A list of nonnegotiables can help you shave time off your house hunting and get you in your dream home.

Having a list of nonnegotiables can be extremely helpful when touring a property. See if a house checks all your important boxes, like the number of bedrooms and baths. It can also help you feel more confident turning down potential homes and avoid settling. Remember that a nonnegotiables checklist is a tool to keep you focused on your priorities. A home might have a few issues here and there, but minor repairs or aesthetic issues can be changed once the home is yours. Superficial items like paint color, wallpaper or textures and popcorn ceilings can be changed, but you shouldn’t feel pressured to compromise on larger needs. 

Here are some common nonnegotiables: 

• Number of bedrooms
• Number of baths
• Storage space
• Yard and patio
• Energy efficiency
• Neighborhood safety
• Nearby businesses
• Commute
• School ratings
• Pet policy

7. Work With A Real Estate Agent 

Having a professional help you navigate the choppy seas of a home purchase can be a lifesaver. A licensed real estate agent or REALTOR^® can advocate for you, ask the right questions and find suitable listings on the MLS. With their market knowledge, they can come up with competitive offers and appropriately negotiate transactions.

The experience and skills that real estate agents provide are invaluable, but not all agents are created equal. It’s crucial that you spend some time finding the right agent. Ask friends or family for recommendations or search online for testimonials and reviews. 

8. Submit A Strong Offer 

When making an offer on a home, you should be totally confident in your decision. After all, if your offer is accepted it becomes your home. When you find your dream home, consider utilizing earnest money. Earnest money, also known as a “good faith deposit,” is a standard practice and tells sellers that you’re serious about your offer and ready to buy. 

An earnest money deposit is typically 1% – 3% of your total home price and goes toward your down payment. Just remember, if you back out of the sale for a reason not specified in your offer letter, you’ll lose your earnest money deposit.

9. Get An Appraisal And Inspection 

Home appraisals and home inspections are not one in the same, but they can both help you minimize the risk of overpaying for a home. 

A home appraisal, also called a real estate appraisal, is usually required by mortgage lenders. Conducted by a licensed third-party, appraisals determine the fair market value of a home based on its location, condition and comparable homes that were recently sold in the same area. 

In addition to being an essential part of closing your home loan, appraisals protect you from paying more than a property is worth. If an appraisal comes in low, you may be able to negotiate a lower price with the seller. Appraisals are also typically used to help determine a home’s property taxes. 

A home inspection is not required but is usually a good idea. Home inspections are much more thorough than home appraisals, with a typical inspection including assessments of major home systems, the foundation, appliances and other factors that contribute to the condition of the home. After one is conducted, you’ll receive a home inspection report which details issues and potential repairs that need to be done. This can give you a better idea of how move-in ready a home really is or how costly any potential fixes or maintenance will be. 

Both processes help protect the home buyer by giving a clearer picture of a given property and its potential risks. 

10. Stick To Your Original Budget 

Earlier we emphasized the importance of creating a budget. While creation is important, actually sticking to your budget is key. Spare yourself the heartache and avoid looking at homes that are over budget or fail to satisfy some major nonnegotiables. If you find your so-called dream house, but it’s hours from the office or is thousands of dollars more than you can afford, is it really your perfect home?

Having money left over for maintenance, repairs or renovations will put you in a better position for successful homeownership. Whether the right home is out there for you, or you have to do some renovations and make it yourself, stretching your wallet thin isn’t the way to go. Be patient, keep searching and you’re sure to find a home that fits your needs while also staying on budget. 

The home buying process can seem intimidating, but having these 10 home buying tips at the ready will help prepare you to take it on. Buying a house is a big investment – with lofty upfront and recurring costs – so make sure you’re prepared before getting ahead of yourself. 

If you feel ready and eager to take some next steps, connect with a Verified Partner Agent and kick off your home buying journey today.