10 Tips for First Time Home Buyers in 2023

First Time Home Buyers

Buying a first home is one of the most exciting milestones in a person’s life. But amidst the thrill of being a first time home buyer, it’s important to keep a level head when starting the path to homeownership. From scoping out mortgage options to hiring a home inspector, there are many preliminary actions to take as you start your home buying journey. Read on to discover our top tips for navigating the successful purchase of your new home.
Infographic on how certain classes of homes will see disproportionately higher inventory during the market slowdown
By HomeLight Homes

Top Tips To Follow If You Are a First Time Home Buyer:

1. Build Your Savings

When it comes to making your first home purchase possibly at the apartments for rent in honolulu hi, the more money you have saved, the better. A larger amount of savings gives you more breathing room for your down payment, allows for greater flexibility in home and neighborhood options, and helps you avoid completely depleting your finances once the purchase is made.

2. Optimize Your Credit

In addition to building up your savings, you’ll also need to consider boosting your credit score before buying your first home. Although many lenders will work with first-time home buyers who have good credit, if your credit score is fair or poor, you may have a more difficult time securing a home loan. And while some government subsidized loan programs, like FHA, do work with those who have less than stellar credit scores, you may face higher down payment requirements.

To expand your options as a first time home buyer, it is essential to build your credit as much as possible. Optimize your credit by paying down outstanding credit card and loan balances, paying bills on time, and correcting any errors you see on your credit report. For the lowest interest rates and best chance at loan approval, aim for a score of 740 or higher.

3. Weigh Your Mortgage Options

Deciding on a mortgage loan program can seem daunting. A good place to start is by examining the following common requirements:

  • Credit score
  • Debt-to-income ratio
  • Down payment amount
  • Loan limits

When taking your credit score into consideration, most conventional mortgage programs and Veterans Affairs (VA) home loans prefer a minimum score of 620 for loan approval, but some lenders will work with scores as low as 550. Similarly, most lenders associated with US Department of Agriculture (USDA) home loans require a minimum score of 640. The Federal Housing Authority (FHA) is the chief outlier here, as their lenders will approve home loans for those with lower credit scores — a 580 score can be approved with a 3.5% down payment, and a 500 score can be approved with a 10% down payment.

Your debt-to-income ratio (DTI) is calculated by dividing all of your monthly debts by your monthly income. When purchasing your first home, most lenders want to see a DTI of 43% or less. This shows that you will not have any issues with securing your monthly house payment. Some lenders, like the VA and USDA, may require a slightly lower DTI of 41%, but most lenders are also open to exceptions, depending on the specific debt situation.

Your minimum down payment requirements can also differ between loan programs. For example, conventional lenders typically require a 3% minimum down payment, FHA requires a 3.5% down payment with a 580 credit score (or 10% with a 500 credit score), while VA and USDA loans do not usually require any kind of down payment.

Finally, loan limits may vary from program to program, so it’s important to know how much you want to spend on your first home before settling on a mortgage provider. Conventional and USDA lenders limit loans to $647,200 in most places, while FHA loans are maxed out at $420,680 in most places. Only VA home loans have no limit on the amount of loans available.

4. Compare Mortgage Rates and Fees

It’s not all about the down payments, loan limits and lowest monthly payments. As a first time home buyer, it’s important to shop around to look at different mortgage rates and fees before settling on one. Start by gathering loan estimates from three to five lenders. Then compare lender fees, interest rates and annual percentage rates to see which route may save you the most in interest over time. Keep in mind that just a few differences in interest rates could end up saving you thousands of dollars over the lifetime of your loan.

5. Get  Prequalified

mortgage prequalification is a step you can take to show how serious you are about your first home purchase. This prequalification is granted after a mortgage lender reviews your credit history, debt, income and down payment amount. Once you’re prequalified, you should receive a preapproval letter offering you a set loan amount that is valid for 90 days.

Note that this prequalification letter is not a binding legal commitment. However, it can be advantageous in showing sellers that you are a determined home buyer who can secure a mortgage.

6. Select the Neighborhood and Type of Home That’s Right for You

As you begin your journey as a first time home buyer, you shouldn’t get too caught up in the notion of the perfect dream home. You should, however, have a general sense of the type of house and neighborhood you would prefer to live in. Start by ranking the features you like, as well as any deal breakers.

Once you narrow down things like whether you’d like to live in the city vs. a more rural area, or in a townhome vs. a farmhouse with a large yard, you’ll be better equipped to start looking seriously at potential first homes. This will help you avoid wasting time on properties that don’t fit your preferences.

7. Choose the Right Real Estate Agent

Finding an experienced and savvy real estate agent can make or break your first time home buying experience. Choosing an agent with great communication skills who knows the area and housing market well can be a huge help when it comes to negotiating with sellers and getting the scoop on the latest homes for sale.

8. Hire a Home Inspector

Imagine buying your dream home only to find out soon after that it needs expensive repairs and renovations. You can avoid such a disaster by hiring a home inspector to check out the home in question before you make your final purchase decision.

A home inspector visits the home to examine it and ensure that everything is in working order. The inspection includes everything from checking the home’s foundation to looking for issues on the roof. If you have already made an offer when the home inspector finds issues, you can typically negotiate with the seller to make the necessary improvements.

9. Take Closing Costs Into Consideration

Closing costs are the range of fees you’re required to pay in addition to your new home’s purchase price. These costs can include things like lender fees, government processing fees, tax payments, homeowners insurance and title insurance. While some of these expenses may be negotiable — such as lender fees — others are legally required. Make sure you consider these costs, which typically range between 2% and 5%, before making a purchase to ensure you have enough money set aside.

10. Stay on Budget

While all of the tips on this list are extremely helpful in having a positive first time home buying experience, this one may be the most essential. Before going to open house events and certainly before making an offer, calculate the home budget you can afford and stick to it. Try to avoid tempting yourself by looking at houses outside of your range because staying within budget will mean avoiding being unable to afford your monthly payment over the long term.

The Bottom Line for First Time Home Buyers

Buying a house is a milestone most people look forward to, but as a first time home buyer, the process can be overwhelming. However, with the right plan and the right team, you can navigate the experience and come out with a home that meets all of your needs and expectations. Incorporate these ten suggestions as you begin your first time home buyer journey.

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