2024 First Time Home Buyer Guide

Let’s go through the most common questions we get from a first time home buyer.

1. Where the heck do you start?

With all the bad information out there and people trying to get your money, it can be tough to get started.

Everything boils down to you talking to a trustworthy professional.

There are so many small things that can affect the mortgage that aren’t easy to piece together and a high-level professional can help catch those problems upfront.

But! that can be scary and most people, us included, are stubborn and like to do their research.

2. What about my credit?

There are 4 main buckets to credit and credit related problems.

• Great credit 720+

  Very nice! You are likely to get the best rates ( for conventional loans - some loans don’t care very much about higher credit. ) and mortgage insurance.

  Side note: Having perfect 760-800 credit unfortunately doesn’t help like it does in the auto loan industry. You’ll get some mortgage insurance and small rate savings.

• Good credit 640 - 720

  Once you go below 680, you’re likely to be much better in an FHA Loan. You’re still very likely to get a home and FHA really is an excellent option.

• Bad credit 580 - 640

  Having credit in this range typically means you have some outstanding collections, late payments, or some derogatory events such as a bankruptcy. You can still get a home but realize that the guidelines become more strict, the pricing ( rate and closing costs ) become higher and you’ll likely need some sort of large compensating factor such as very high income or down payment. More money in the bank is preferable.

• Disqualifying credit < 580

  At this point it’s strongly recommended to put effort into your credit vs attempting to get a home. When the credit is below 580 you can still get a home, but the pricing is awful, the downpayment is forced to a minimum of 10%, and the guidelines are very strict.

3. How much do I have to save for down payment?

Great question. For FHA loans it’s 3.5%, conventional is 3% and there are 0 down options. There are several other costs to buying a home such as the appraisal, title, preparing for property tax and homeowners insurance, and lender costs.

Saving up 5-6% of the purchase price would put you in a great spot.

Can you get a house with only the down payment or with very little out of pocket? Potentially, but this usually means we have to ask the sellers to help pay for our closing costs or you’re rate, and payment will be much higher than normal.

The best way to reduce closing costs.

Getting the seller to pay for a couple percent of the closing costs and working with a lender with great rates (like us!) is your best shot at reducing the closing costs. You won’t always be able to ask for seller credits ( also called concessions ) when the house is very competitive but a solid realtor will be able to advise if it makes sense for that property.

4. What programs are available to first time home buyers?

There are several national programs such as Fannie Mae’s Home Ready, Freddie Mac’s Home Possible, and our First Time Home Buyer Program. Be advised that the word “Program” doesn’t really mean very much. It’s more of a sales trap to get you on the phone.

Our program offers benefits that are very strong such as lower closing costs but it’s because we just make less to get more business.

Home Ready, Home Possible, FHA and how they fit first time home buyer goals.

These are true options that will help first time home buyers although you don’t even have to be a first time home buyer to use them! They just fit very well with that category of home buyer.

Home Ready and Home Possible Loans are income limited while FHA is not. If you don’t exceed the income requirements, they are great options with no drawbacks.

FHA already has lower rates, but it has forced mortgage insurance. Depending on your situation this could be fine or might be something we should steer away from based on your personal goals.

Which one should you choose?

That depends on the combination of home type, DTI, income type, area, down payment, time you plan on being in the home, and your personal goals. This is why we recommend speaking to a loan officer since it gets tough to make that decision on your own.

In general, low down not perfect credit, we prefer FHA for many reasons. Anything over 5% down likely goes to conventional but there are many exceptions.

5. Should I buy land and build as a first time home buyer?

We don’t recommend this. Not because it’s bad but because typically your out of pocket expense will be significantly higher and the hoops you must jump through is also much more complex. It can work but is normally for clients with large savings.

6. Income for first time home buyers: I just left college or started work, how does that affect me?

For W-2 employees you can use that income to qualify even before you start work! You need no time on the job. You would still need at least 1 year of previous employment ( education counts ) but that rarely is an issue for conventional loans.

For FHA loans if you have had a gap of 6 months of no work or education than you must be in the new job for at least 6 months.

7. How much do I qualify for?

These are questions you need to be very careful getting answered online. There are too many variables involved with accurately qualifying a borrower and without talking to a loan officer you risk both under or over evaluating your situation which could lead to limiting yourself or even worse, thinking you’re approved when you’re not.

It’s strongly advised not to try to qualify yourself from information you read online.

8. When should a first time home buyer get started?

As soon as possible. It’s free and worst case you get great information to prepare. You certainly shouldn’t worry about inquires on your credit. The single digit points it may reduce it by recovers quickly and is no concern to your rate.

9. Should I choose a big lender or a local broker?

First, the difference really doesn’t matter from a technical perspective. A broker is capable of shopping rates and lenders for you. In general, local brokers will have better rates and closing costs while also not being limited to the products they can find for you. You can have a good experience at a larger lender but most of the time it will be more expensive and less personalized.

We prefer mortgage brokers over large lenders.

Summary

The best plan forward is to reach out to a trustworthy professional that can help guide you through the process.

We are excited to help you!