First Time Home Buyer FAQ

First Time Home Buyer FAQ

Buying your first home a big decision, so it makes sense to become as knowledgeable as possible about the process. These are some of the most frequently asked questions about buying a home for the first time.

Section 1: Down Payments and Home Loans

Section 2: Down Payment Assistance Programs

Section 3: First Time Home Buyer FAQ

Who qualifies as a first-time home buyer?

If you’ve never bought a home before, you qualify as a first-time home buyer. However, according to the FHA and many lenders – as well as many first-time buyer down payment assistance programs – you can still qualify as a first-time buyer if you have not owned a primary residence for at least three years.

You could also qualify as a first-time buyer if:

  • You’re a parent who divorces or separates from your spouse and the last primary residence you owned was jointly owned with your ex-spouse.
  • You have owned a primary residence within three years of this purchase but the primary residence you owned has not been permanently attached to something like a foundation (such as a mobile home or RV).
  • You have owned only one piece of property that has sustained enough damage that it doesn’t meet local and state building codes and the cost to repair the property is higher than it would be to buy a new property.

Some programs have different requirements, so ask your lender or the organization offering you down payment assistance to find out whether you qualify as a first-time buyer.

What are some good tips for first-time house buyers?

First-time house buyers should follow several steps to make sure they’re getting the best experience possible. These five tips can get you started on the right path:

  • Check your credit before you apply for a mortgage loan. A mistake on your credit report could cost you thousands of dollars in interest payments over time, so make sure your credit report is completely accurate before you allow lenders to check it. Borrowers with higher credit scores are eligible for lower interest rates and better terms on a loan.
  • Organize all your documents and provide them to your lender promptly. A snag in the underwriting process can drag out your loan application process for weeks, which means you could miss out on the perfect home. Make sure your W2s, pay stubs, tax returns and other important documents are all in order so you can provide them to your lender quickly.
  • Figure out how much house you can reasonably afford. Don’t forget to budget for your down payment, homeowners insurance, taxes and other expenses associated with owning a home, such as repairs and improvements.
  • Use our Home Affordability Calculator find out how much house you can afford
  • Work with a real estate agent. It doesn’t cost buyers anything to work with a real estate agent, but there are tremendous benefits. Your agent will help you find homes, schedule tours and look out for your best interests every step of the way.
  • Compare, compare, compare! Shop around for the best mortgage rates and terms, which vary between lenders. One lender may have a loan product that’s perfectly tailored to your needs, so keep looking until you find something that works.
  • Try comparing mortgage rates
  • Have a basic understanding of real estate concepts and terms. Here are 10 real estate terms you should know.

What do I need to know to buy a house in the U.S?

If you’re buying a house in the U.S., you’ll need to be prepared for the importance of property taxes, which are different in each state. Home prices are largely driven by demand within certain regions, so a large home in one city may be much more expensive than a large home in another.

Other things to keep in mind:

  • Down Payment: Buying a home typically requires a down payment that equals between 5 and 20 percent of the home’s sales price, but there are some programs that allow you to buy with a lower down payment.
  • Find a real estate agent: You should work with a real estate agent to buy a home. Your agent is legally responsible for putting your interests first, and he or she can help you shop for the right home for your needs. It does not cost buyers any money to work with a real estate agent; sellers pay the buyer’s agent.
  • Account for other costs: You may incur additional fees above your mortgage payment, such as homeowners association dues and condominium association fees. These fees go toward preserving property values in the neighborhood and maintaining common areas, like sidewalks, playgrounds and swimming pools.

Continue learning with the Redfin Home Buying Guide and free Redfin real estate classes and events.

What should first-time homebuyers know about mortgages?

As a first-time homebuyer, you need to know that not all mortgages are created equal. Different lenders offer different loan products, and each has its own requirements for qualifying a borrower; some lenders may allow you to borrow with a credit score of 540, for example, while another requires a minimum score of 620.

When you borrow a mortgage, your lender will want you to pitch in some of your own money toward the home to show that you’re invested in it (and therefore less likely to default on your payments). Down payments generally range between 3.5 and 20 percent of the home’s purchase price, but there are some programs that allow you to pay less – and you can always put down more. If you put down less than 20 percent, you’ll most likely be required to buy private mortgage insurance and continue paying for it until you’ve built 20 percent equity in your home.

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It’s a good idea to improve your credit score as much as you can before you apply for a loan. People who have higher credit scores are typically eligible for lower interest rates.

What is the best mortgage for a first-time buyer?

There are thousands of mortgage loan products available, so as a first-time buyer, it’s a good idea to shop around for one that fits your needs best. Your lender should be able to offer you several options based on your credit score and the amount you want to borrow; if you don’t have a preferred lender, you can ask your real estate agent to refer you to someone or you can find one on your own. If you’re finding your own lender, look for one that:

  • Offers a streamlined loan process and will give you a dedicated mortgage specialist to work with.
  • Offers a full line of mortgage loan products and can work with FHA, VA and USDA loans.
  • Offers low-down-payment programs for Fannie Mae and Freddie Mac loans.
  • Is willing to work hard to make your experience a pleasant one (or at least as stress-free as possible).

Are FHA loans only for first-time buyers?

Loans backed by the Federal Housing Administration are available to everyone, not just first-time home buyers. The 3.5 percent down payment program is available to all buyers, as well. However, there are some FHA programs designed specifically for first-time buyers.

Under FHA guidelines, you qualify as a first-time home buyer if you have never owned a primary residence or if it has been three years since the last time you owned a primary residence; there are even exceptions to the first-time buyer rule, such as when you divorce or when you owned a home that wasn’t attached to a foundation.

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Learn how to buy a home with an FHA Loan

How much of my income should go towards my mortgage?

When you own a home, the ideal percentage of your gross monthly income that should go toward your mortgage is 28 percent. That means if you make $1,000 per month, no more than $280 should go toward your monthly mortgage payment and related expenses, such as taxes and homeowners insurance. (Taxes and homeowners insurance are often, but not always, rolled right into your monthly mortgage payment.)

When lenders evaluate your application for a loan, they’ll check your debt-to-income ratio, or DTI. Your DTI is the amount of debt you pay each month in relation to your gross monthly income. Lenders typically want your DTI to be less than 36 percent, with 28 percent or less going toward your mortgage payment. This gives lenders a sense of security that you won’t be too financially strapped to make your payments. Your DTI includes all your monthly obligations, such as:

  • Credit card payments
  • Student loans
  • Car payments
  • Personal loans
  • Housing expenses (rent or mortgage)

What are the financial advantages of being a first time home buyer?

Many first-time home buyers are eligible for tax credits, such as:

  • Mortgage interest: Your mortgage must be on a home that’s eligible for these types of deductions, your mortgage has to be secured by your home, and you must have a mortgage that’s lower than $1 million to deduct mortgage interest.
  • Points: If you paid points, which are a form of prepaid interest, you could deduct them in the year that you paid them – but only that year.
  • Private mortgage insurance: If you had to buy PMI to make up for a less-than-20-percent down payment, you may be allowed to deduct it for your primary residence.
  • Real estate taxes: Municipal and state governments charge real estate taxes based on the value of your home, which you may be able to deduct. You might also be able to deduct taxes you paid at settlement or to the seller for the year.

You should talk to a tax professional before you buy a home because every situation is unique.

For further information, visit the resource page for buying and selling a home.

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