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First-time Buyers and the Home Buying Process

The home buying process can be complex and intimidating, especially for first-time buyers. To help make the process easier, we provide detailed guides and resources to help you navigate the home buying process. Understanding the Basics of Home Buying

What Does It Mean to Be a First-Time Homebuyer?

A first-time homebuyer is typically someone who has never owned a home before. However, you might still qualify even if you’ve owned property in the past. According to the U.S. Department of Housing and Urban Development (HUD), you’re considered a first-time buyer if you haven’t owned a primary residence in the last three years. This status can qualify you for special loans and assistance programs.

Why Homeownership Matters

Homeownership has long been one of the best paths to building wealth for Americans. Instead of paying rent, your monthly mortgage payments go toward owning a valuable asset. It also offers more stability and freedom to customize your space, invest in your neighborhood and plan for the future. Preparing Financially for Your First Home Saving for a Down Payment

The standard down payment for a home is 20%. This means if you’re looking at buying a house that costs $400,000, you should try to save up at least $80,000 as a down payment. Here’s what to keep in mind when saving for a down payment:

Start saving as early as possible, since it can take time to build a sizable down payment.
“Pay yourself first” by directing money to your housing fund before spending on discretionary items.
Use a high-yield savings account to grow your down payment — it’s FDIC-insured, fully liquid, and earns more interest than a traditional savings or checking account.

Checking and Improving Your Credit Score One of the best ways to save money when you buy a house is to have a good credit score. The higher your credit score, the lower your home mortgage interest rate will be — and the savings can be significant. Table: Examples of How a Good Credit Score Can Save You Money

Monthly Payment with Good Credit	Monthly Payment with Bad Credit	Savings
$2,022.62	$2,574.79	$552.17

Understanding Your Budget One common mistake first-time homebuyers make is finding their dream house before they make a realistic budget. But without honestly assessing what you can afford, you might be setting yourself up for financial ruin. Typically, financial planners recommend spending no more than 30% on all of your housing costs. This includes some items that are commonly overlooked by first-time homebuyers, including maintenance, insurance, HOA fees (if applicable), and property taxes. Exploring Mortgage Options for First-Time Buyers Conventional Loans An FHA mortgage is a mortgage loan insured by the Federal Housing Administration. This government-backed loan program is a popular choice for first-time borrowers because you don’t need a big down payment or high credit score to qualify. Down payment required: 3.5% with a credit score of 580 or higher; 10% with a credit score of 500 to 579 Minimum credit score: 500 Income restrictions: None Homeownership counseling: Encouraged but not required Other Mortgage Options The U.S. Department of Agriculture guarantees loans for low- and moderate-income buyers who purchase a home in a location designated “rural.” Down payment required: None Minimum credit score: Varies by lender Income restrictions: Vary by location; program map is located on the USDA website Homeownership counseling: Recommended but not required Section 184 Indian Home Loan Guarantee Program The Section 184 Indian Home Loan Guarantee Program helps American Indian and Alaska Native families, villages, tribes and tribally designated housing entities purchase a home on or off native land. Good Neighbor Next Door Good Neighbor Next Door is a HUD program that gives law enforcement officers, teachers (pre-K through 12th grade), firefighters and emergency medical technicians discounts of up to 50% on the purchase of an eligible home in a select revitalization area. State Loan Programs The preceding loan programs are all backed by organizations, agencies and departments that operate at the federal level. But many states also have loan programs for first-time or low-income borrowers. Lender Programs Some lenders, including many of the largest banks, have their own proprietary loans for first-time homebuyers. Bank of America Affordable Loan Solution mortgage This is another 3%-down loan, and you can borrow up to $726,200 — $1,089,300 if you put down 5% or more. Chase DreaMaker mortgage This Chase loan requires just 3% down and has flexible credit requirements and income limits. Wells Fargo Dream Plan Home mortgage This loan requires 3% down, and if you’re eligible, you could qualify for up to $5,000 toward one-time closing costs. PNC Community Mortgage This PNC-exclusive loan lets you buy with 3% down, only $500 of which must be your own funds. Choosing the Best Mortgage Lender The best mortgage lender for you is the one that offers the best combination of price and service. A low mortgage interest rate is certainly a critical part of the homebuying process, but you’ll also want to work with a lender that puts you in the right loan and is easy to communicate with. The Home Buying Process Step-by-Step Getting Pre-Approved for a Mortgage It’s nearly essential in the current market to get pre-approved for a mortgage. It also makes the homebuying process much quicker and signals to the seller that you’re a serious buyer. Finding the Right Real Estate Agent The right real estate agent can not only make the homebuying process much easier for you, but you’re also more likely to find the right house for you at the right price. House Hunting Tips Just as it’s essential to draft a realistic budget before you go home shopping, it’s also a good idea to figure out exactly what you do and do not want in your new home. Table: How to Create a Realistic Budget

Income	Fixed Expenses	Negotiable Expenses
$5,000	$1,000	$1,000

Making an Offer and Negotiating If you’ve found a home you really want, it pays to come in with a strong offer. This is especially true in a competitive housing market. Table: Components of a Strong Offer

Price	Earnest Money	Contingencies
$400,000	$10,000	Repairs, financing, and inspections

Navigating the Closing Process Home Inspections and Appraisals A home inspection protects you in case there are any issues with your home. Inspections are particularly important for finding problems that are not readily visible to the naked eye. Finalizing Your Mortgage When it’s time to finalize your mortgage, your lender and escrow company will provide you with an extensive pile of documents to review. Table: Closing Costs

Closing Costs	Estimated Amount
Legal fees	$2,000
Courier fees	$500
Credit reporting fee	$100
Closing fee	$3,000
Title insurance	$1,000
Loan origination fee	$2,000
Recording fee	$500
Transfer tax	$1,000

Signing the Paperwork

Signing mortgage paperwork can be daunting, as it’s usually quite extensive.

Table: Mortgage Documents

Mortgage Document	Description
Property transfer forms	Used to transfer ownership of the property.
Mortgage application	Used to apply for the mortgage.
Mortgage itself	The actual loan agreement.
Closing disclosure	A document that outlines the terms of the loan.
Promissory note	A document that outlines your obligation to repay the loan.
Escrow documents or waivers	Used to manage the funds set aside for taxes and insurance.