9 Tips For First-Time-Homebuyers in Today’s Market


9 Tips For First-Time-Homebuyers in Today’s Market

March 14, 2024
Certified Credit

Buying a home for the first time is an exciting endeavor. As a homeowner, you can customize your interior design, earn equity, and establish generational wealth. American homeowners boast a 400% higher average net wealth than renters with similar incomes and demographics. 

While buying a home has many advantages, it can be an intimidating process. After all, it’s one of the biggest purchases you’ll ever make. With so much of your hard-earned money on the line, you want to make sure you navigate the process with care. 

If you’re considering becoming a homeowner soon, you’re in the right place. Below, we’ll provide nine tips for first-time homebuyers to help you traverse today’s housing market with clarity and confidence. 

Are you a mortgage lender? Share this article with your first-time homebuyer!

Tip #1: Save Up Before You Search 

Before you start attending open houses and envisioning yourself in various homes, you need to make sure that you’re really ready to buy. After all, the home-buying process comes with many expenses. 

Here are some expenses you’ll want to factor into your home-buying budget:

  • Down payment – Most first-time home buyers know they need to put a percentage of money down to obtain a mortgage and buy a home. However, many people have misconceptions about what this percentage needs to be.

    Contrary to popular belief, you don’t need to put 20% down. A 20% down payment can relieve you of your loan program’s private mortgage insurance (PMI) requirement, but it’s not necessary otherwise.

    The down payment requirements for popular first-time loan programs range from 0% to 3.5%. On average, first-time home buyers put around 6% down. For reference, a 6% down payment on a $450,000 home would be $27,000.

  • Closing costs – While many first-time home buyers are familiar with down payments, they often overlook closing costs when calculating their housing budget. Closing costs are the fees you’ll pay to finalize your mortgage. They can range from 3% to 6% of your total loan amount.

  • Moving expenses – Once your offer is accepted, you’ll need to have some money left over to pay for your moving expenses. Thus, it’s a good idea to research the cost of movers in your area ahead of time.

With these costs in mind, you can determine if your current savings are sufficient to start the home search and set your housing budget accordingly.

Tip #2: Check Your Credit Score

After making sure your money is in order, the next step is to check your credit score. This three-digit number has far-reaching impacts—mortgage lenders use it to determine your eligibility, along with your mortgage’s loan size and interest rate. The higher your credit score, the better your loan options will be. 

You can check your credit score for free with your credit card company. Just keep in mind that this score will be a consumer credit score, as opposed to a mortgage credit score. Mortgage lenders use slightly different algorithms to calculate your credit score upon your formal application. 

Read more: Consumer Credit Score vs. Mortgage Credit Score: What’s the Difference?

To qualify for most mortgage programs, you typically need a credit score of 620 or above. If you apply with a 740 or above, you increase your chances of receiving a lower interest rate and attractive loan terms. 

Can you Qualify For a Mortgage With Bad Credit?

Is your credit score below 620? If so, you may still qualify for certain loan programs. For example, Federal Housing Administration (FHA) loans only require credit scores of 580 (or 500 if you put 10% or more down).

The downside of applying for a mortgage with a poor credit score is that you’ll most likely receive a much higher interest rate, which can inflate the total cost of your housing purchase significantly. 

Rather than applying with a low credit score, consider taking steps to raise it first. You can find out how to do just that in this article: How to Improve Your Credit Score.

Tip #3: Evaluate Your Employment History

After your credit score, your income and employment are the next factors that mortgage lenders will scrutinize during your application process, so you should make sure they’re approval-worthy before starting your home search. 

You typically need to possess two years of stable employment history to qualify for a mortgage. You may get approved with just 12 months of verified employment history, though this is subject to your lenders’ discretion. Lenders are primarily concerned with the stability of your income. They want to feel confident in your ability to make your loan payments going forward. 

Note: If you’re self-employed, have a second job, or subsidize your income with a side hustle, it can add an extra layer of complexity to your income assessment. Learn more about this topic here.

Tip #4: Don’t Settle For The First Lender You Stumble Upon

Once you’ve reviewed your savings, credit score, and employment history, it’s time to shop around for mortgage lenders. You can compare lenders’ rates and terms by applying for prequalification with them. Don’t worry—prequalification applications won’t ding your credit score. Better yet, these applications are quick and easy to fill out.  

After submitting your application, you can often find out if you’re prequalified in minutes. Your prequalification letter will outline your loan options with a specific lender, enabling you to compare various lenders’ offerings and narrow down your top choices. Just keep in mind that being prequalified is not the same thing as being formally approved for the loan. 

Tip #5: Ask About Down Payment Assistance Programs

Down payments and closing costs are financial hurdles for many aspiring first-time homebuyers. To make homeownership more attainable, some states and cities have established down payment assistance (DPA) programs. 

If you qualify for one of these programs, you may receive a grant or forgivable loan to cover your down payment and closing costs. Thus, don’t forget to ask your realtor or mortgage lender about the DPA programs in your area.

Tip #6: Gather Your Pre-Approval Documents in Advance

Getting pre-approved shows sellers that you’re formally approved for your quoted loan amount (at least for a set period—usually 60 to 90 days). In turn, you can position yourself as a more serious buyer in a competitive housing market.  

Pre-approval applications are more involved than prequalification applications. They require you to submit detailed documentation to verify your income, employment, debt, and assets. Collecting these documents can take a lot of time, so it’s smart to do so in advance. 

Here are the documents you’ll need to submit during your formal application:

  • Driver’s license or other government-issued ID
  • Tax returns and W2s from the past two years
  • Pay stubs from the past 30 days
  • Bank and retirement account statements from the past three months
  • Your current and past employers’ contact information
  • Proof of child/spousal support, disability, pensions, Social Security, etc. (if applicable)
  • Loan and credit card statements from the past 60 days
  • Business records (if you’re self-employed)
  • Down payment gift letter (if applicable)
  • Recent residences, rental payment history, and landlords’ contact information

Tip #7: Submit All Formal Loan Applications Within 45 Days

When you submit formal mortgage applications, your lenders will conduct hard inquiries when they check your credit. Hard inquiries can decrease your credit score by a few points. To mitigate their impact on your credit score, strive to submit all formal applications (including pre-approval applications) within a 45-day window

Tip #8: Differentiate Between Non-Negotiables and Nice-to-Haves

While you may daydream about granite countertops, updated appliances, and open floor plans, you may not have the budget to get a home with those features. Thus, it’s important to define your must-haves before you start your home search, whether that’s a certain number of bedrooms or a specific school district. 

Remember, you can always renovate your home over time as your budget permits. By getting in the market with a starter home now, you’ll be in a better position to afford your dream home in the future. 

#9 Don’t Mess With Your Credit Before Closing

Getting approved for a mortgage and putting an offer in on a home is very exciting! But don’t go charging up new furniture on your credit card just yet. While you may be tempted to celebrate, you need to keep your credit in top-notch shape until you’ve closed on your mortgage loan. 

The time between your initial mortgage approval and loan closing is known as the quiet period. Any notable changes that take place during this period could put your eligibility at risk. Thus, you should avoid:

  • Opening new store credit cards
  • Applying for new loans
  • Charging up large balances on your existing credit cards
  • Falling behind on payments on your loans or credit cards

Find More First-Time Home Buyer Resources From Certified Credit

While buying your first home can seem daunting at first, you can avoid common pitfalls by following these tips. If you want more helpful content for first-time home buyers, check out our comprehensive First-Time Homebuyer Guide and other educational resources

Are You a Mortgage Lender? Pass Along Our Educational Resources to Your Borrowers! 

As a leading mortgage solutions provider, our goal at Certified Credit is to help you improve your borrower experience. Along with our educational content, we also offer the following products and services:

  • Affordable credit reports
  • Automated workflow optimization solutions
  • Property and valuation tools
  • Fraud and risk support
  • Underwriting compliance
  • Settlement services

Whether you want to automate your verification of income and employment or fortify your fraud prevention, our team can match you with the right solutions. Schedule a credit consultation with our team today to learn more.