First-time home buyer tips to know

Buying a house is an exciting but intimidating milestone for some people. After all, purchasing a home involves quite a few moving parts and pieces. Knowing what you can expect and how you can prepare is key to alleviating any first-time home buying jitters and removing some stress.

Our first-time home buyer guide below offers up an array of home buying tips designed to help you get started on the journey to homeownership and successfully find your way to the closing table.

First-time home buyer tips: Preparing to buy

A lot of factors go into buying your first home, but you don’t have to take this step alone. Starting right at the top, let’s walk through some important guidelines intended to help make the home buying process much easier to navigate and ultimately result in you finding the house that’s perfect for you and your needs.

1. Know your budget and stick to it

It’s important to understand your finances and how much house you can afford. But there’s more to consider than just a home’s listing price.

You’ll also want to have enough money set aside for your first few mortgage payments, certain fees you’ll incur when buying a home, any future repairs or renovations and the cost of moving.

According to HomeAdvisor as of July 2022, moving costs typically fall in the $884 – $2,551 range, with Americans paying $1,704 on average for two professional movers and a truck rental.

All these costs add up quickly, which is why creating a budget is an essential part of the early stages of the home buying process.

2. Save for the down payment and closing costs

One of the biggest financial hurdles for home buyers can be tackling a down payment and closing costs.

While VA loans don’t require a down payment, most buyers will need some money set aside to cover these expenses. The minimum down payment for a conventional loan is 3% of the total purchase price, and the minimum for an FHA loan is 3.5%. Depending on your credit score, you may face a higher minimum down payment requirement.

Closing costs are typically 3% – 6% of the purchase price. For a $200,000 home, that means you’d likely pay $6,000 – $12,000 in closing fees.

3. Check your credit

Lenders look at your credit score when evaluating your risk as a borrower. Your credit score can affect what loans you qualify for and the interest rate you land on. The higher the credit score, the more favorable your interest rate will typically be.

Before going any further in the home buying process, review your FICO^® Score and your lender’s credit requirements. Borrowers typically need a score of 620 or higher to qualify for a conventional loan. If your score is below this range, you might consider working to get your credit score mortgage-ready.

4. Pay down your debt

Not all debt is bad debt. You don’t have to pay off all your debt to be approved for a mortgage, but you’ll want to make sure you can afford another monthly payment.

When you’re ready to buy a house and apply for a home loan, lenders will look at your debt-to-income ratio (DTI) to determine whether you’re financially able to take on another debt payment. Lenders want to know how much of your income is already going to your current debt to see if you’re capable of making mortgage payments in full and on time.

While you don’t necessarily need to be debt-free to buy a house, you don’t want to miss mortgage payments and risk foreclosure. Before taking on a mortgage, you’ll want to look at your current DTI and give yourself the best possible chance of mortgage approval.

5. Get ready for the homeownership lifestyle

Even if you have enough savings to satisfy all the upfront costs of buying a house, it’s paramount to be financially and emotionally prepared to take on a mortgage. The typical mortgage loan term is 15 – 30 years, which means a mortgage is no small commitment.

Even if you ultimately end up moving out before your loan term ends, you’ll want to be 100% ready for homeownership. Ask yourself how long you plan to stay in your new home. If you intend to live there longer than 5 years, that’s a good sign that you might be better off buying a house versus renting one.

First-time home buyer tips: Choosing a mortgage

Once you have your personal finances in order, it’s time to start thinking about how you’ll purchase a home. Next, uncover our top tips for first-time home buyers choosing a mortgage.

1. Know your loan options

Not only is choosing the right mortgage lender for you of utmost importance, but you should know what loan type best fits your needs. That’s why understanding the different loan options available is a key part of the home buying process.

Here’s a breakdown of the main loan types:

Conventional loans: A conventional loan is the most common type of home loan. You can buy a single-family home with a minimum down payment of 3%.

VA loans: This government-backed loan is popular among military home buyers. If you’re a veteran, an active-duty service member or a qualified military spouse, you can buy a home with 0% down as long as you meet certain eligibility criteria established by the Department of Veterans Affairs (VA).

FHA loans: Popular among first-time home buyers, FHA loans usually have more lenient requirements than conventional loans. You can usually get an FHA loan with a down payment as low as 3.5% if your credit score is 580 or above. With a credit score in the 500 – 579 range, you’ll still qualify for an FHA loan in some cases, but you’ll have to make a down payment of 10%. Rocket Mortgage^® requires a minimum credit score of 580 to qualify for an FHA loan.

USDA loans: Another government-backed mortgage, a USDA 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 doesn’t currently offer this type of loan.

2. Look into home buyer assistance programs

Many forms of first-time home buyer grants and resources are available to help you reach homeownership faster.

As a first-time home buyer, you may qualify for down payment assistance at the national, state or local level. These programs can help cover the cost of your down payment and closing costs, but they often come with stipulations on income level and the area where you can buy. Additionally, you may have to live in the home for a certain amount of time.

These programs and grants could save you thousands of dollars, so it’s worth taking the time to research the resources in your area. However, not all lenders will accept all programs, so it’s important to talk to a loan expert to see what programs they accept.

3. Get a preapproval

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 be a starting-off point for your budget, but a preapproval letter states what you’ve been approved to borrow and provides an estimated interest rate. Having a preapproval letter can help you narrow down your home search because it gives you a better idea of what homes are within your budget.

Getting a preapproval prior to house hunting will also make you a more competitive buyer because it shows sellers that you not only are 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
• A Social Security card
• Paystubs
• 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
• A list of monthly debts
• Rental information and landlord references
• Gift letters, if applicable
• Credit report

First-time home buyer tips: House hunting

First-time home buyers can stand to benefit from at least a couple of tips on house hunting and how to find their dream home in a stress-free way.

1. Find the right real estate agent

Having a real estate professional by your side can help you navigate the potentially choppy seas of a home purchase. A licensed real estate agent, who might also be a REALTOR^®, can advocate for you, ask the right questions and find suitable listings on the multiple listing service (MLS). With their market knowledge, they can help you 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 members for recommendations or search online for testimonials and reviews.

2. Make a list of wishes vs. needs

Before you begin touring houses, take inventory of what you’ll need in your new home and where you want to live. A list of nonnegotiables can help you shave time off house hunting and get you in your dream home more quickly.

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. This list can also help you feel more confident in turning down potential homes and not settling for less than you want.

Remember that a nonnegotiable checklist is a tool for staying focused on your priorities. A home might have a few issues, but you can make minor repairs or deal with aesthetic issues once the home is yours.

Here are some common nonnegotiables:

• Number of bedrooms
• Number of bathrooms
• Storage space
• Yard and patio
• Energy efficiency
• Neighborhood safety
• Commute time
• School district
• Average property tax

First-time home buyer tips: Buying a house

Once you find a home, here are a few ways to make the real estate transaction process run more smoothly and have the keys in your hand before you know it.

1. Negotiate with the home seller

When you’ve found your dream home, it’s time to make an offer. Your real estate agent can help you make a fair and competitive offer, but don’t be afraid to negotiate when the time comes.

Negotiating is a common practice in the real estate world, but that doesn’t mean it comes naturally to everyone. Work with your real estate agent to secure the best deal possible while also doing independent research on the current market and comparable homes. Your agent can help lead the conversation and handle any potential problems that may arise.

At the end of it all, you could walk away with a better deal than you expected, but you’ll never know if you don’t try.

2. Don’t skip the home inspection

A home inspection isn’t typically required but is recommended. Home inspections are much more thorough than home appraisals, with a typical inspection featuring an assessment of major home systems, the foundation, appliances and other factors that contribute to the overall condition of the home.

Once an inspection is completed, you’ll receive a home inspection report detailing issues and potential repairs that need to be done. This report can give you a better idea of a home’s move-in readiness, as well as an estimated price tag on any potential fixes or maintenance.

Home inspections help protect the home buyer by providing a clearer picture of a property and its potential risks, and inspections can help you minimize the risk of overpaying for a home.

3. Read all the fine print

Once you enter the closing process, you can finally see the proverbial light at the end of the home buying tunnel. But before arriving for closing day, you’ll want to make sure you read all the fine print on your Closing Disclosure.

Your Closing Disclosure will outline all your loan obligations, terms and conditions, and it will outline exactly how much you’ll be borrowing. Carefully review everything to make sure it’s all correct and that the numbers are what you and the seller agreed to pay.

You’ll also want to make sure you save copies of all your home buyer paperwork. This will come in handy if you ever decide to sell your home.

The bottom line

The home buying process can seem intimidating, but keeping these home buying tips close by will help you be prepared to move forward. Buying a house is a big investment but one that’s so worth it if you have the knowledge and financial standing that are necessary to take the leap.

If you’re ready to put the wheels of the home buying journey in motion, start the mortgage application process today.