How to Buy Your First Home

If you are wondering how to buy your first home, then it’s worth taking the time to review the various options that may be available to you. For example, first time home buyer programs, such a down payment assistance programs, USDA loans and the Good Neighbor Next Door Program can offer several benefits that can make it easier to purchase a home for the first time. The Federal Housing Administration (FHA) offers FHA loans that can also help first-time buyers afford a home even if they have a relatively low credit score.

Purchasing a home for the first time can be an exciting experience but one that can come with its own set of challenges. To qualify for a mortgage, you must meet eligibility requirements related to your employment, income, debt-to-income ratio and credit score requirements. By learning more about the process of purchasing a home, you will be better prepared to begin the search. You will also be more aware of assistance programs and resources that may be available to you.

FHA loans are one of many loan options that offer reduced debt-to-income ratio, credit score and down payment requirements, making it easier for first-time buyers to qualify for a mortgage. Therefore, it is worth reviewing the qualifications, benefits and drawbacks of this type of loan.

In the sections below, you will have the opportunity to learn more about purchasing a home. You will also learn about government programs that can reduce or eliminate down payment requirements as well as reduce overall mortgage eligibility qualifications.

First Time Home Buyer Programs

There are many first time home buyer programs make it easier for new buyers to qualify for a mortgage and purchase a home for the first time. The assistance that is available to you may vary based upon the state and county that you wish to live in, as well as your ability to meet other qualifications, such as income limits.

HUD – the U.S. Department of Housing and Urban Development – administers grants to states to aid home buyers who are purchasing a home for the first time. These grants are often offered through down payment assistance programs that are available at state and local levels.

Through assistance programs, your first time home buyer down payment may be as little as $0. Additionally, a number of states offer grants to reduce the closing costs for new borrowers. You can review first time home buyer grants in your state or contact your county office for more information about the HUD assistant programs that may be available for you.

The U.S. Department of Agriculture (USDA) offers loans to low-to-moderate income homebuyers who wish to purchase a home within a qualifying location. These loans do not require down payments from qualifying first-time home buyers, and mortgage insurance premiums (MIPs) are often cheaper for USDA mortgages.

Another first time home buyer program that can help certain new borrowers purchase a home is the Good Neighbor Next Door Program. Administered by the HUD, this program offers up to 50 percent off the cost of an HUD home for qualifying teachers, police officers and firefighters. Borrowers who do not meet employment-related qualifications for the Good Neighbor Next Door Program can still take advantage of the purchase of an HUD home, which is often available below the value of the home.

What is an FHA loan and do you qualify?

FHA loan rates, minimum credit scores and down payment amounts are often lower than that of traditional mortgages. Therefore, an FHA loan can be highly beneficial to a first-time borrower. While the Federal Housing Administration (FHA) does not provide loans directly, it insures this type of loan to protect private lenders from the loss of any potential foreclosure. By doing so, lenders are enticed to offer better loan terms and reduce loan requirements.

This first time home buyer loan is easier to qualify for than a traditional mortgage. However, you must still meet eligibility requirements in order to qualify. These requirements include:

  • A FICO score of at least 500.
  • A mortgage insurance premium (MIP).
  • A debt-to-income ratio of up to 43 percent.
  • Steady income and proof of employment.

Additionally, to qualify for an FHA loan, the borrower must be planning to make the home her or his primary residence.

While FICO scores of at least 500 may be accepted, down payment requirements are 10 percent unless the borrower has a FICO score of at least 580. A FICO score of at least 580 will only require a down payment of 3.5 percent.

FHA loans are only available through approved lenders. You will need to contact your lender to determine whether or not your lender can offer this type of loan as well as any additional eligibility requirements that you may need to meet.

Step-By-Step Process for Buying a House

Creating a buying a house checklist can help you to be more prepared when it’s time to meet with lenders. This checklist should include the various financial records that you may need to apply for a mortgage, including recent pay stubs and your most recent tax returns. Additionally, you may need to provide proof of your identification, such as with a state-issued driver’s license or identification card.

The steps to buy a home begin with creating your checklist and gathering any documentation that you may need. While you may have an idea of the maximum amount that you would like to spend on the purchase of a home, a lender will be able to tell you the maximum amount you can borrow. This amount will be based on several factors, including your credit score, income and debt-to-income ratio. To get the ball rolling, you will need to meet with a lender in order to get pre-approved for a mortgage.

After you have been pre-approved for a mortgage and you know your maximum mortgage amount, you will need to determine the type of house you are looking for, as well as what you want and need in a home. First time home buyer tips can be crucial here, as it is important to:

  • Make sure that the home is not priced above its value.
  • Carefully consider your wants and needs. A home is a large investment and one that you will want to be content with.
  • Consider hiring an inspector. If the home needs repairs, consider the cost of those repairs when you’re thinking of a fair offer to make.
  • Consider speaking with neighbors before making an offer on the home in order to learn more about the neighborhood.

Once you are ready to buy your first home, you will need to find a real estate agent. Your real estate agent can help you find a home that meets your wants and needs. She or he can also negotiate on your behalf, submit an offer and much more. Real estate agents are crucial parts of the sale  or purchase of any home.

Your agent will arrange showings of any home on the market that you may be interested in viewing. Once you have chosen a home that you are interested in, you may want to explore additional options, such as having an appraisal or inspection done on the home.

When you are ready to close, you will be given the opportunity to make an offer on the house. There is usually some negotiation between the seller and the buyer.

Can you buy a home with bad credit?

If you are a first time home buyer with bad credit, you may still be able to qualify for a mortgage, such as with an FHA-approved loan. Through FHA and other government, state and local programs, first time home buyer credit requirements are lower than that of traditional mortgages.

However, it is worth knowing that minimum credit requirements are also determined by the lender. Therefore, it can be beneficial to ask about credit score requirements through multiple lenders in your area if you have a low credit score. You can also work on improving your credit score for more beneficial loan terms.