Ask any first-time home buyer, and they’ll tell you – nobody knows when they’re ready to buy their first home. Buying your first home is an emotional experience and a financial one. It will frighten you. You’ll feel doubt, concern, and nervousness.
You’ll also feel the excitement and lure of a new beginning.
You’re a first-time home buyer, you have first-time home buyer questions, and we love to answer your questions for you.
From our website, email newsletter, and YouTube channel: here are the questions our readers ask most often.
How Do I Know When I’m Ready To Buy A Home?
Being ready to buy a home is a gut feeling for many first-time home buyers.
In its 2022 Buyers and Sellers Generational Trends report, the National Association of REALTORS® reports that more than half of buyers under age 40 said their primary reason for buying a home was “it was just the right time.”
Renters experienced life events like getting married or starting a family; they wanted more space for their pets or themselves. They wanted the freedom to paint and decorate their homes.
Finances mattered, but less than one might expect.
Only 1 percent of first-time buyers said they “wished they had waited” to buy, which tells us that renters are okay with reaching for their American Dream regardless of financial circumstances.
Click to see today’s mortgage rates.
How Much Money Do I Need To Buy A Home?
First-time home buyers can buy a home with none of their own money, including for their down payment and closing costs.
Government-backed mortgage loans such as the VA and USDA loans do 100% financing, which covers the price of the home and its closing costs. Buyers can also combine FHA-endorsed mortgages with forgivable down payment loans and reach 100% financing on a home.
The most common mortgage types also allow buyers to accept a cash gift for a down payment and get closing cost help so buyers can bring less money to closing.
What Are The Minimum Financial Requirements To Buy A Home?
Cash flow, credit rating, and savings are the three financial components of being ready to buy and mortgage a home.
Cash flow is how much money is left over after you pay your monthly bills, including bills for credit cards, car loans, and court-ordered payments. The typical homeowner spends between 25 and 45 percent of their monthly income on bills.
Your credit rating measures how well you manage your credit and pay recurring bills. Credit scores range up to 850. Buyers with a credit score of 500 or higher can get their mortgage approved, as can buyers with no credit record.
Savings is how much money you have in the bank after you buy your home. Buyers should always have at least three months of housing payments in their savings because life is unpredictable. Having a healthy savings account protects against risk.
Who Qualifies As A First-Time Home Buyer?
A first-time home buyer is any person who hasn’t owned their main residence during the last 3 years, with exceptions for single parents, divorced and displaced homemakers, and people who live rent-free.
First-time home buyers can access mortgage rate discounts and grant programs unavailable to the general population. They also get access to low-down payment loans, including the Conventional 97, which allows for a three percent down payment with an average or better credit score.
Can I Buy A Home With No Money Down?
Yes, first-time home buyers can buy a home with no money down.
Some government-backed mortgages allow for no down payment mortgages, and other mortgage programs combine grants and forgivable loans into 100% mortgages for first-time buyers.
First-time home buyers can do 100 percent financing via:
Buyers may also be eligible to use cash gifts for a down payment.
Click to get pre-approved for 100% financing.
When Is A Good Time To Buy A Home?
It’s a good time to buy a home when you’re emotionally ready to search for homes and financially capable of making payments and when housing market conditions favor home buyers.
Emotional cues that you’re ready to buy your first home include:
- Wanting more space or freedom to decorate
- Preparing for marriage or a new baby
- Feeling tired of renting
Financial preparedness is having predictable income from a job or investments, positive monthly cash flow for your household, and an emergency fund in case of illness or job loss.
Favorable market conditions are any time except when home prices fall, and mortgage rates rise concurrently. There have been only eight such periods in the last 50 years.
Find out if now is a good time to buy a home.
Is It Cheaper To Build A Home Or Buy A Home?
Whether buying or building a home is cheaper can only be answered over a decade of living in a property. A new construction home may be more expensive than a comparable existing home. Still, its maintenance and upkeep costs may be lower over time.
For example, a roof’s expected lifespan is approximately 20 years, so when you buy a new home, it won’t likely need a new roof while you live there. However, building materials and location can increase the cost of building a home by up to fifty percent.
First-time home buyers can consider new and existing homes in their home search and compare which home type suits their life and needs better.
What’s The Difference Between A Mortgage Broker, A Mortgage Lender, And A Bank?
The difference between a mortgage broker, lender, and bank is where their money comes from and which government group licenses them to lend. Customer service levels, interest rates, and closing costs are mostly the same – although brokers and lenders tend to move more quickly than retail banks.
There are reasons to choose one mortgage company type over another, though:
- Mortgage brokers: Best for buyers with unique income and credit scenarios
- Mortgage lenders: Best for buyers with common home-buying scenarios
- Retail banks: Best for buyers who prefer the convenience of a branch bank
Click to get today’s mortgage rates.
What’s The Best Mortgage For A First-Time Buyer?
There are a lot of mortgages that work great for first-time home buyers.
Some mortgages let buyers make small down payments or no down payment on a home. Other mortgages allow buyers to get approved with low credit scores. There are job-specific, military-specific, and city-specific mortgages.
Here’s a guide to choosing the best home loans for first-time buyers:
- For buyers in suburban and rural zones: USDA Mortgage
- For buyers with military experience: VA Mortgage
- For buyers with excellent credit: Conventional Mortgage
- For buyers with average credit: Conventional Mortgage
- For buyers with below-average credit: FHA mortgage
- For buyers of 2-4 unit homes: FHA Mortgage
- For buyers in underserved areas: Conventional Mortgage
- For first responders and emergency technicians: FHA Mortgage
- For buyers with more than 4 mortgage properties: Conventional Mortgage
- For buyers of condominiums: Conventional Mortgage
Get pre-approved to buy a home now.
What’s The Difference Between A Mortgage Pre-Approval And A Mortgage Pre-Qualification?
Mortgage pre-approvals and mortgage pre-qualifications are different.
Pre-approvals are authorized mortgage decisions that tell a home buyer how much home they’re permitted to purchase and for which mortgage rates and programs the buyers qualify.
Pre-approvals use verified credit scores, income and asset information, and employment history. They’re a reliable, accurate tool to help you buy your home.
By contrast, pre-qualifications estimate how much home you can buy based on self-assessment and self-reporting. Home sellers will only accept pre-qualifications as proof of purchase ability, and qualifying home offers with pre-qualification letters get rejected.
Automate a mortgage pre-approval here.
What Credit Score Do I Need To Buy A Home?
500 is the minimum FICO credit score required to get a mortgage approved. However, higher credit scores give buyers access to additional mortgage options.
Here is a list of minimum credit scores required for seven common mortgage types published by their respective government agencies.
- FHA mortgage: 500 credit score
- VA mortgage: 580 credit score
- Conventional mortgage: 620 credit score
- HomeReady mortgage: 620 credit score
- Conventional 97 mortgage: 620 credit score
- USDA mortgage: 640 credit score
- Home Possible mortgage: 660 credit score
Note that mortgage guidelines make exceptions for home buyers with no credit history. Mortgage lenders may require credit scores above the minimum required score.
Do you qualify for a mortgage? Get pre-approved today.
How Do I Apply For A Loan With Fannie Mae or Freddie Mac?
Home buyers indirectly apply for Fannie Mae and Freddie Mac loans via their mortgage lender. Fannie Mae and Freddie Mac do not take mortgage applications from home buyers directly.
Mortgages made through Fannie Mae and Freddie Mac are called conventional mortgages. The most common conventional mortgage is the 30-year fixed-rate mortgage.
Fannie Mae and Freddie Mac offer home buyers three low-down payments mortgages, including HomeReady, Home Possible, and the Conventional 97.
Do You Have First-Time Home Buyer Questions? Ask Us.
If you have a first-time home buyer question we should have addressed in this article, use the website chat to ask us your question. Plus, we update this post monthly with questions from other first-time buyers.
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