First Time Home Buyer Basic Tips

First Time Home Buyer Basic Tips

Buying your first home can feel complicated, but working with an experienced Realtor and loan officer can make the process much easier. Understanding a few basic numbers and loan requirements before you start shopping can also help you avoid surprises.

What to know

1. Get pre-approved before you start shopping

A mortgage pre-approval gives you a better idea of the price range you may qualify for before you start looking at homes.

Your lender will typically review your credit, income, assets, employment and funds available for the down payment and closing costs.

Pre-approvals generally remain useful for several months, although updated documents or information may be required if your financial circumstances change or enough time passes.

2. Use a quick estimate to get an idea of your monthly payment

As a rough starting point for a low- or no-down-payment purchase, you can estimate the monthly housing payment by multiplying approximately $8 for every $1,000 of the home's sales price.

For example:

$300,000 home × $8 per $1,000 = approximately $2,400 per month.

This is only a quick estimate. Your actual payment depends on the interest rate, loan program, down payment, property taxes, homeowners insurance, mortgage insurance when applicable, HOA dues and property type.

Interest rates can change frequently, and insurance costs and property taxes can vary substantially by property and location.

3. Your income and monthly debts determine how much you may qualify for

As a general starting point, a conventional loan borrower may need gross monthly income of roughly 2½ to 3 times the total monthly housing payment.

For example, if the estimated housing payment is $2,400 per month, approximately $7,200 in combined gross monthly income may be a reasonable starting estimate.

But income is only part of the qualification equation. Car payments, credit cards, student loans, family support and other monthly obligations can affect how much home you qualify to purchase.

Different loan programs also have different debt-to-income guidelines, so your actual qualifying amount should be determined by a loan officer.

4. Low- and zero-down loan programs may reduce the cash needed upfront

Several mortgage programs can help buyers who don't have a large down payment.

• USDA loans may offer zero-down financing for eligible borrowers and properties, although household income limits apply.
• VA loans may provide zero-down financing for eligible veterans, active-duty service members and certain other qualified borrowers.
• FHA loans generally require a minimum 3.5% down payment.
• Conventional loans may be available with as little as 3% down for qualified borrowers.

The right program depends on your credit, income, property, available funds and other qualifying factors.

5. Plan for closing costs in addition to your down payment

Your down payment isn't necessarily the only money you'll need to purchase a home.

Buyers may also have closing costs covering items such as title and settlement charges, prepaid homeowners insurance, property taxes and initial deposits into an impound or escrow account.

A rough estimate for the buyer's closing costs can be around 2% to 4% of the sales price, although actual costs vary considerably by transaction.

Depending on the loan program and housing market, some or all of these costs may potentially be covered through seller concessions or lender credits.

6. Down payment and closing cost assistance may be available

Some buyers may qualify for programs that help with the down payment, closing costs or both.

Availability and eligibility can depend on factors such as your income, property location, purchase price and loan program.

Before assuming you need a large amount of cash to purchase a home, have an experienced loan officer review the programs available for your particular situation.

Mortgage guidelines, rates and program requirements can change, and individual lenders may have additional requirements. Always verify current guidelines and your specific qualification with the lender handling your loan.