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First Home Buyer Loan Guide: Everything You Need To Know 

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Buying your first home may seem like a daunting process, but being as prepared as possible will make the whole experience easier. 

That’s why we’ve created a comprehensive guide of everything first-time home buyers need to know. Keep reading for information on budgeting, mortgages, navigating different lenders, and more. 

First-Time Home Buyers: Where to Start? 

Buying your first home is a huge step to take, and it can easily feel overwhelming thanks to the myriad of choices you have to make and the sheer amount of information you need to take in. 

Because of this, it can be hard to figure out where to start. You may need to ask big questions about your financial situation and what exactly your plans are for buying your first home to understand what your first steps should be. 

To help you on your way, here are three things you should consider when starting the home buying process. 

1) Start Saving Early 

There are many costs involved in buying your first home that go beyond the actual price of your new property. It’s a good idea to start saving as soon as possible to make sure you can afford the dream home you’re looking for. 

First, you’ll need to start saving for your down payment or deposit. This is a payment you make upfront when buying your home and it’s calculated as a percentage of the buying price of your new home. Average down payments in America can range from 3% to 20% of the property’s value. 

Second, there are a variety of closing costs that will need to be paid to finalize the property sale and your mortgage. These fees can range from 2% to 5% of your total home loan amount. 

Finally, make sure to save extra money for move-in costs, new furniture, and any renovations that you might need to make to your new home. The more you save, the more easily you can start to make your first home your own. 

2) Check Your Credit Score

Your credit score is one factor that will determine whether your mortgage application is approved. A higher credit score can also mean lenders will offer you better terms on your mortgage, such as lower down-payments or interest rates. 

A poor credit rating is likely the result of unpaid bills and negative credit card balances. Many lenders will require a minimum credit score, so keep track of your credit reports and try to maintain good habits like paying bills on time and avoiding going over credit limits. 

3) Pay Off Student Loans and Debts 

With the total student loan debt across America now reaching $1.6 trillion, it’s safe to say that student debt has become a major issue for millennials looking to buy their first home. 

Considering that your house will be the most expensive purchase in your life, it can be helpful to clear the previous debt before adding to your total debt even more with a home loan. 

Clearing your student debt before applying for a home loan will also show lenders that you’re good at managing your budget to pay back debt. As such, it will make it easier for you to be approved for a loan, and you may even be able to secure better terms. 

What Is a Mortgage? 

Only around 25% of buyers purchase property with a total cash payment – most homebuyers need to borrow the money from a lender rather than paying upfront. This type of loan is known as a mortgage or home loan. 

Mortgages are different from other loans due to their low interest rate, extended repayment period, and security measures. 

What Is a Mortgage Lender? 

A mortgage lender is a bank or financial institution such as a credit union that lends money to a borrower for the purpose of buying property. 

A lender will inform you of all the borrowing guidelines you must comply with and check your creditworthiness in order to decide whether to approve you for a loan and what terms to offer you. 

Exploring Mortgage Options 

There are many different types of mortgages available, all of which vary when it comes to down-payments, interest rates, and other terms and conditions. However, the two main types of mortgages are conventional loans and FHA loans.

Conventional loans are the most common type of mortgage. They’re issued by private lenders and aren’t backed by the government, which means that they generally require higher credit scores and lower debt-to-income (DTI) ratios than other types of home loan. 

FHA loans are a type of government-backed loan that is only provided by lenders approved by the Federal Housing Administration (FHA). The FHA provides mortgage insurance to the lender to protect them from borrowers defaulting on the loan, which means they can afford to lend to buyers who wouldn’t normally meet credit requirements for a mortgage. 

FHA loans often also have the advantage of requiring lower down-payments than usual, with some mortgages only requiring as little as 3.5% of the property’s value. 

Comparing Rates & Fees 

You should always make sure to request mortgage rates and fees from several lenders to make sure you’re getting the best deal when buying your first home. Checking with multiple lenders is always an essential step in the home buying process, as it allows you to find the loan that works best with your budget, income, and house-buying goals. 

This stage can be made more accessible by a mortgage automation service such as RateCloud. We speed up the whole mortgage-comparing process by finding personalized loans in as little as 15 minutes! 

First-Time Down Payment Assistance 

As a first-time homebuyer, you can benefit from many state-funded buying programs. The schemes available will differ based on the state you’re buying in, but they’re worth researching as they often offer more favorable interest rates. 

Some states even offer tax credits to reduce your income tax, allowing you to save more easily and increase your chances of qualifying for a home loan. 

How Much Down Payment Do I Need for a House? 

The exact down payment for a home loan will depend on a variety of factors such as the type of mortgage, the lender, your personal finances, and the property you aim to buy. 

The more you save for your down payment, the more likely that lenders will approve you for a mortgage with favorable interest rates. 

To see how different down payment amounts could affect your overall mortgage terms, you can try out this Mortgage Calculator.

Choosing Good Real Estate Agent 

Real estate agents can be extremely helpful when buying your first home as they have a wealth of expertise in the field. 

Experienced real estate agents can provide you with important information about home loans and the housing market to help you choose a mortgage that will enable you to buy your dream first home. 

They can also help you assess and improve your credit score, examine your loan options, negotiate a home purchase, and complete all the necessary paperwork. 


What Do I Need To Know as a First-Time Homebuyer? 

As a first-time homebuyer, research credit score ratings, interest rates, and loan repayment options. Buying your first house is not just about finding your dream property – it also means being realistic about how much you can afford and which mortgage options suit your needs. 

What Are The Best Ways to Make Buying Your First Home Easier? Consider these four steps to make things go as smoothly as possible: 

  1. Pay off all your debts, including student loan debts. 
  2. Check your credit score and strengthen it if needed. 
  3. Try to save for a down payment between 10-15% of the property value if possible – if you can save more, even better. 
  4. Take a look at your finances and create a budget that allows you to save some of your income each month. 

How Much Should a First-Time Homebuyer Have Saved? 

For a conventional loan, the minimum down payment required is 3%, but borrowers with lower credit scores or higher DTI ratios may need to pay more. Government-backed FHA loans require a minimum down payment of 3.5%, although if your credit score is lower than 580 you may need to put down 10% or more. 

Therefore, a $400,000 property will require a down payment of at least $12,000 for a conventional loan or $14,000 for an FHA loan. You should also consider closing costs, moving costs, furniture costs, and renovations, all of which can further increase the upfront cost of buying your first home.