First-Time Homebuyer Advice : A Comprehensive Guide

This guide covers first-time homebuyer advice. Buying a first home can be exciting, especially for first-time homebuyers. Following this guide on first-time homebuyer advice for homebuyers should lower your stress level and create a good experience. It’s important to determine how much home you can afford before you go home shopping. And it will help you negotiate for your house if you have a pre-approved mortgage before you make an offer. Purchasing a home for the first time can be an exciting yet daunting experience. It’s one of the most significant financial investments you’ll make, and it’s essential to approach the process carefully and prepare. In the following paragraphs, we will cover a comprehensive guide to help first-time homebuyer advice and how to navigate the process smoothly.

First-Time Homebuyer Advice: Get Your Finances in Order

Review your credit report and work on improving your credit score if necessary. Calculate your debt-to-income ratio and ensure it’s within acceptable limits. Save for a down payment, closing costs, and other expenses associated with buying a home. Get pre-approved for a mortgage to understand your budget and purchasing power. Assess your financial situation and set a realistic budget for your home purchase. Consider location, commute, school districts, and neighborhood amenities. Make a list of must-have features and nice-to-have features for your dream home. 

First-Time Homebuyer Advice and Tips

The most important first-time homebuyer advice is to understand the basic mortgage loan program available to you. Learn the basics of the mortgage loan options that best benefits your needs. FHA and Conventional loans are the two most popular loan program for first-time homebuyers. Understanding the basic overview of the mortgage loan process from pre-approval to closing is extremely important and will alleviate stress during your home buying process.

Advice for Homebuyers With Bad Credit

Gustan Cho Associates specializes in advice for homebuyers with bad credit, self-employment or other issues. HUD, the parent of FHA, has the most lenient guidelines when it comes to qualifying for a mortgage with bad credit. Here are basic HUD Guidelines on FHA loans:

• 580 credit scores for a 3.5% down payment home purchase FHA loan
• Homebuyers with credit scores under 580 and down to 500 FICO are eligible for FHA loans with a 10% down payment.
• Down payment can be gifted 100% by a family member
• HUD allows up to a 6% seller concessions by sellers for home buyers so no closing costs
• Lenders can offer lender credit if buyers are short of closing costs
• Outstanding collections and charged-off accounts do not have to paid off
• 2 year waiting period after Chapter 7 bankruptcy discharged date
• 3 year waiting period after housing event (foreclosure, deed in lieu of foreclosure, short sale)
• No waiting period after Chapter 13 Bankruptcy discharged date
• Can purchase a home while in a Chapter 13 Bankruptcy payment plan

Need 12 months of timely payments to Chapter 13 Bankruptcy Trustee to qualify.

First-Time Homebuyer Advice in Choosing a Home

The home buying process can be a long journey. Your first step should be mortgage prequalification. That will tell you what you can afford to spend for your home. Next, decide what home you want and where you want to buy. Consult with a realtor and consider what you need in a home.  Is a condominium or townhouse a better choice for the needs of the family or a single family home? How far is your workplace? How large of a home does your family need? Do you have children and pets and if so, is a larger yard needed?

Keep in mind these cost-related factors. Larger homes have more expenses and costs more for utilities — can you afford it? Bigger yards require more landscaping and maintenance.

Location is one of the most important factors. City living may be more convenient due to the many amenities such as dining, shopping centers, public transportation, and proximity to everything. City living may be a positive factor to home buyers with no children or pets. You can probably get more house for the money if you purchase a home that is located in a rural area but may spend more time and money in travel costs. Prequalify for your home purchase in about five minutes. 

First-Time Homebuyer Advice on Pre-Approval Process

The mortgage pre-approval process is the most important stage of the mortgage loan application and mortgage approval process. Not all lenders have the same mortgage requirements. Pick a lender that works with borrowers similar to you. Anyone with an 800 credit score, solid documented income, low debt to income ratios, perfect credit payment history, no derogatory credit items can get qualified with any lender. Are you a perfect applicant who can focus exclusively on mortgage rates? Or do you need help with mortgage approval? Do you need a self-employed mortgage? If you are not a 100% perfect applicant, avoid companies that have mortgage lender overlays.

First-Time Homebuyer Advice Understanding Lender Overlays?

Lender overlays are additional guidelines on top of the federal minimum mortgage lending guidelines. For example, the minimum credit score requirement to qualify for a 3.5% down payment home purchase FHA Loan is 580. However, most lenders will not accept borrowers with a credit score under 620. This is called a credit score overlay. Most lenders have debt-to-income ratio overlays. HUD allows up to a 56.9% debt-to-income ratio for FHA financing. However, most lenders will cap debt-to-income ratios at 45%. This is called a debt-to-income ratio mortgage overlay. Homebuyers should familiarize themselves with mortgage lending guidelines.

First-Time Homebuyer Advice: Don’t Give Up

If you go to a lender and are told that you do not qualify for a mortgage, ask for the reason that you don’t qualify. Is it because of not meeting the federal guidelines or because of the particular lender overlays?  Unfortunately, most lenders who have overlays will not refer borrowers to other lenders. They will not tell borrowers they can go to a different lender with no overlays and just tell borrowers they do not qualify for a mortgage. Over 80% of our borrowers are folks who were told they do not qualify for a home loan by other lenders.

First-Time Homebuyer Advice on Pre-Approval vs Affordability

Before looking for a home, you should prequalify with a mortgage lender. Your loan officer will ask you about your income, debts, and savings. Then you’ll get a preapproval letter stating what you should be able to afford for a home. That information should keep you away from homes you can’t afford. Before you actually start shopping seriously, however, you should apply for mortgage preapproval. This is also called credit approval. It means you apply for a home loan, supply all the documents the lender wants, and (hopefully) get a preapproval letter. Mortgage preapproval means the lender has approved you and as long as the property meets its guidelines, you should be able to close your loan. Mortgage preapproval is almost as effective as a cash offer,

Maximum Loan Amount 

Mortgage preapproval letters state a maximum loan amount for which you qualify. However, mortgage lenders don’t consider all of the expenses you might have. Some folks may have ongoing medical expenses, education expenses, child care, and other personal expenses. You might be planning to start a business or have a commitment to a savings goal or charitable giving.

You also need to consider the fact that as a homeowner, you will need to maintain your own home and budget for home repairs and/or home improvements.

Expenses like water bills, scavenger service, landscaping services, and snow plowing services that were included as a renter are now your responsibility. A better way to arrive at your maximum loan amount is to decide what you are comfortable paying each month. Maybe start with your current rent. Decide where the extra money will come from if you decide to increase your monthly housing cost.

First-Time Homebuyer Advice: Get Pre-Approved for a Mortgage

Shop around with different lenders to find the best mortgage rates and terms. Provide the necessary documentation, such as income verification, employment history, and asset statements. Understand the different types of mortgages (e.g., conventional, FHA, VA) and their requirements.

Start House Hunting

Attend open houses and schedule viewings with your agent. Take notes and photos of the properties you visit. Narrow down your choices based on your priorities and budget.

Make an Offer

Work with your agent to prepare a competitive offer, including contingencies and terms. Be prepared to negotiate prices, closing dates, and other terms with the sellers.

Hire a Home Inspector

Hire a professional home inspector to assess the condition of the property. Review the inspection report carefully and address any major issues with the seller.

Secure Homeowners Insurance

Shop around for homeowners insurance policies that provide adequate coverage. Consider factors such as the cost of premiums, deductibles, and coverage limits.

Prepare for Closing

Review all the closing documents, including the mortgage agreement and title documents. Arrange for the down payment and closing costs to be paid. Conduct a final walk-through of the property before closing.

Plan for Move-in and Maintenance

Arrange for utilities to be transferred or set up in your name. Create a budget for ongoing maintenance and repairs. Consider home improvement projects and their associated costs. Buying a home is a significant investment, and educating yourself and seeking professional advice can help ensure a smooth and successful home-buying experience. Congratulations on taking the first step towards homeownership!

Finding a Real Estate Agent

Once you have a solid pre-approval letter, interview real estate agents or shop for homes online. Choosing the right real estate agent is extremely important. Real estate agents should be full-time, local, and familiar with the neighborhoods you have chosen. They should be available 7 days a week and return phone calls promptly and be ready to provide advice for homebuyers. If you need to leave multiple messages and the real estate agent does not return your phone calls for days, it is best to find a different real estate agent.

Work With an Experienced Real Estate Agent

Work with a reputable and experienced real estate agent who can guide you. Interview several agents and choose one who understands your needs and preferences. Discuss your budget, desired location, and other requirements with your agent. A real estate agent should be knowledgeable, know the location and the amenities in the area you are purchasing your home. A good agent gets along with mortgage lenders, attorneys, and title offices. Once you have an accepted offer, it’s time to finalize your loan approval. Your loan officer will order an appraisal and submit it with updated income and bank statements if necessary.

First-Time Homebuyer Advice: Ask an Expert

Ask a lot of questions. Join GCA FORUMS and ask questions. There are many loan officers, attorneys, realtors, and other experts. The team at Gustan Cho Associates are mortgage brokers and correspondent lenders specializing in helping first-time homebuyers and homebuyers with less than perfect credit.  Gustan Cho Associates has no mortgage lender overlays so having a 580 credit score is no issue.  Having higher debt-to-income ratios is also no problem with FHA loans. VA does not require a minimum credit score requirement. VA Loans does not have a maximum debt to income ratio requirement. However, most lenders will require a 620 credit score on VA home loans and may have a debt-to-income ratio cap. Gustan Cho Associates does not require a minimum credit score requirement on VA Loans. We do not have a debt-to-income ratio requirement on VA home loans.