Our First Home: The New Buyer’s Guide to Financing a House

Have you been thinking lately, “It would be nice to buy our first home”? If so, you’re not alone: 33 percent of homebuyers purchased their first homes in 2018.

Whether you’re tired of renting or just want to have the extra space and freedom a home allows, making the decision to buy your first home requires a careful assessment of your finances. After all, you’ll want to make sure you can afford the place before you attached to a dream home.

You might be thinking, “Well, I don’t know how to buy a first home or even where to start!” Don’t worry, though. You can easily prepare for working with a lender and eventually shop for homes.

If you’re wondering how to buy a first home, we’ll walk you through the steps for financing a house.

Assess Your Financial Situation

Before you even start looking at houses for sale, you’ll want to make sure your credit score, current income, and existing debt won’t hinder you in the mortgage application process.

You’ll usually need a credit score of 620 or higher to qualify for most mortgage programs. You might find your credit core through your credit card company, credit score services, credit counselors, or the myFICO website.

If your score is low, consider paying off existing debts to help improve it.

To find your current income, look at your previous income from tax returns, pay stubs, and any other proof of income available. You’ll also want to gather your bills and look at your budget to determine how much money you have left over each month for financing a home.

Find Out How Much You Can Afford on a Home

After gathering info about your income, expenses, and credit score, you can use mortgage calculators to estimate how much you can afford on a home.

These calculators let you enter a home price and see how much you’d pay in principal, interest, taxes, and insurance each month. They also often ask for your credit score since interest rates tend to be lower for higher scores.

You can use these calculators along with your financial information to determine the maximum home price you can afford. When you start applying to finance your first home, you’ll have an estimated loan amount to give your lender.

Consider Lenders and Loan Options

Now you’re ready to look into lenders and loan options for financing a home.

While you can simply go to your current bank to ask about financing a house, it can pay to shop around at different banks.

You might even consider online mortgage lenders like Quicken Loans. When comparing lenders, pay attention to interest rates, customer service, and loan closing times to make the right choice.

Your chosen bank will have multiple loan options to choose from including FHA, conventional, jumbo, and VA loans. Each of these loans has different requirements for things like credit scores, minimum down payment, home price, and debt-to-income ratios.

Your lender can help you choose the right one based on your desired down payment, loan term, home price, and your special status as a first-time homebuyer.

Get Pre-Approved Before You Start House Shopping

Now that you’ve chosen a lender and know how much of a home you can afford, it’s time to get pre-approved for a mortgage. Although you’re free to look at homes before getting pre-approved, you’ll be more competitive if you already have a pre-approval letter to show your real estate agent.

The pre-approval process requires filling out an application with your lender, submitting proof of your income and assets, and having a thorough credit check done. Your lender will also probably ask how much of a loan you’re interested in, so your estimate from before comes in handy here.

After processing your pre-approval application, your lender will tell you the results. If approved, you will have a pre-approval letter you can show your real estate agent.

What’s Next for Getting Our First Home?

So you’ve assessed your finances, know what you can afford, and got your pre-approval – congrats! You’re probably now wondering “how do we find our first home?”

The first step is to work with a real estate agent who can show you how to buy a first home, take you through open houses and tours, and answer questions you have about the housing market.

Once you find your dream home, you can submit an offer and negotiate with the seller. Once it’s accepted, you’ll work with your lender to sign more documents and take additional steps to close the loan. Then, you’ve done it – you’ve bought your first home!

If you’re wanting more info on the real estate market, be sure to check out our real estate blog!