Five things first-time homebuyers should know.

February 26, 2022
9:00 am

There are many tips and recommendations first-time homebuyers need to know before wading into the home market. The learning curve will be steep with viewings, dealing with a lender and juggling home options that meet loving requirements. Still, homebuyers are currently facing the most competitive market in decades. This process, especially for novices, is one that no person should enter without preparing extensively for!

To help first-time homebuyers out, we’ve compiled a top 5 of things they need to know.

1. Build up and strengthen your credit.

Your credit score is a huge determining factor in your finances and will decide whether you qualify for a mortgage. Your credit score will also affect the lender’s interest rate offered to you. Taking these preventative measures to increase your credit score will help you buy a home:

Obtain free copies of your credit reports from each credit bureau (Equifax and TransUnion). Lenders refer to different credit bureaus, so it’s essential to have all the information on hand, as your score will be different according to each one. Ensure you dispute any errors that are incorrectly decreasing your score.
Pay your bills before they’re due, and keep credit card balances as low as you can.
While keeping the balances low, you also (ironically) need to be holding your current credit cards open. Closing credit cards increases the amount of available credit you can use, lowering your score.
Keep a constant track of your credit score.

2. Qualifying and Affordability are not the same.

“How much are we able to borrow?” is something all lenders hear from prospective buyers. Generally speaking, buyers will qualify for as much as 43% debt to income. So, your total monthly ‘outgoings’ (bills, car payments and mortgage) can only consume 43% of your gross income monthly. And this is usually the very limit, with most people trying for a much lower number than 43%, with 30% being more ideal. It’s important not to become house-poor for the duration of your mortgage.

Of course, if you have more significant savings but a lower income, buyers may feel more comfortable with a higher debt-to-income ratio.

3. Get a good (or great) real estate agent.

This might be somewhat of an oxymoron, given that first-time homebuyers don’t necessarily know what to look for in determining who an excellent real estate agent might be. It’s their first time!

So, asking around and seeing who worked out well with family and friends is a good starting point. An excellent real estate agent will know how to scour the market for homes that meet the needs of any buyer and guide them through the negotiation and closing process. They should be passionate about what they do, be good communicators and know the local area extensively.

Talk to and interview a few local agents and request references (we have many!). When speaking with your potential agent, ask about their specific experience helping first-time homebuyers in your area and price range (we have 20+ years in this area).

Have Questions?

The home buying process can be stressful, but we’re here to help take some of your stress away!

4. Explore your mortgage options

There are a variety of mortgages available, even to first-time buyers. They each have varying down payment and eligibility criteria. The government does not guarantee conventional mortgages. But specific government departments may offer special mortgages based on criteria like location, background, or military service.

Many homebuyers opt for a traditional 30-year fixed-rate mortgage. A 15-year loan is also an option and will have a lower interest rate than a 30-year mortgage but with larger monthly payments.

5. Seek out first-time buyer assistance programs.

Many states, cities or counties have first-time homebuyer programs to offer. These often combine low-interest-rate mortgages with down payment and closing cost assistance. Tax credits may also be available in some first-time homebuyer programs.

These programs can be highly beneficial for first-time buyers in keeping them out of the ‘house poor zone.’ As mentioned, this is when your money for enjoyment is almost non-existent because of home payments.

You are all set!

These are some simple ways to get started in the home buying process. We are here with any questions you might have!

Looking for More Resources?

For more advanced tips, check out our blog post on how to prepare for a home inspection.