How to Buy a House for the First Time

Buying your first house is exciting. It’s also confusing and nerve-wracking. Your mortgage broker or lender will need piles of paperwork from you to verify your income and cash reserves and underwrite your loan. In some markets, you might need to make an offer on a house you like right away, and you could still end up in a bidding war.

But if homeownership is your dream, it’s worth it to go through the hassle of getting approved for a mortgage and finding a house to buy. As a first-time homebuyer,  you could qualify for government-backed loans that come with low down payment criteria and low interest rates. You could even get down payment assistance or help with closing costs, especially if you’re a lower-income buyer. Prepare yourself financially so you’re ready to handle the responsibility of a mortgage, and know what programs and loan products are available to you.

Clean Up Your Credit

If you’re thinking about buying your first house, you should be planning to improve your credit score as much as possible. While you can get a home loan with a credit score as low as 500, you’ll get better interest rates with a higher FICO score. You’ll also get more interest from lenders, which will allow you to comparison shop for the best mortgage terms.

Make sure your credit report is clean by addressing any collections items or reporting errors. If you have sparse credit, build some up by using a credit card wisely. You’ll need financial discipline to keep up with a home loan, so start now by making all of your payments on time and keeping your debt-to-income (DTI) ratio as low as possible.

Save for a Down Payment

Whether you’re looking to get a mortgage in Virginia Beach or in the Blue Ridge Mountains, you’re going to need to save for a down payment. Sure, you can get loans with down payments as low as three percent, but it’s best to put down as much as you can comfortably manage. A bigger down payment means you’ll have more equity in your home from the start. If home prices in your area go down, you’ll be less likely to find yourself underwater on your mortgage. If you need to make expensive repairs or renovations, you’ll have that much more home equity to borrow against.

Besides, your down payment isn’t the only upfront cost you’ll have when buying a house. You can expect to pay three to six percent of your home’s value in closing costs, which are fees related to originating your loan. You’ll also have to pay for home inspections, which can be a few hundred, minimum, but may be more than a thousand, depending on your loan type. Plus, if you’re like most home buyers, you’ll need money to make renovations (if you don’t get a renovation mortgage), buy furniture, make those emergency repairs that always seem to crop up the week after closing on a home, and pick up all the little things you might need for a home that you didn’t need in your rental apartment, like a lawn mower, power tools, toilet plungers for your additional bathrooms, and so on.

Know Your Loan Options

If you have great credit, a low DTI, and a sizable down payment, a conventional loan might be the right product for you. But there are other options, especially for first-time homebuyers.

For example, first-time homebuyers can get a Federal Housing Administration (FHA) loan with just 3.5 percent down and a credit score of at least 580, or 10 percent down and a credit score of at least 500. If you want to buy in a rural area, you can get a loan backed by the U.S. Department of Agriculture (USDA) with zero down. If you’re a qualifying veteran or the surviving spouse of a veteran that was killed in combat or died due to complications of a disability sustained in combat, you can get a loan through the Veterans Administration (VA) with no money down.

Apply for Assistance

Every single state offers some form of down payment assistance, especially for first-time homebuyers and those on the lower end of the income scale. Before you speak to a mortgage broker, reach out to the relevant government offices in your state to see what kind of assistance you might qualify for. You can probably get a grant, which doesn’t have to be paid back, or a piggyback loan that can be forgiven under the right conditions.

It can feel like the hoops you have to jump through to get a mortgage loan are never ending. But there’s light at the end of the tunnel. It’s shining through the windows of your new home.