Buying your first home is a big step. It can be exciting and also a little stressful. There’s a lot to consider before you start house hunting. What kind of house do you want? How much can you afford? How’s your credit score? Don’t worry. Whether you’re just starting to think about buying or you’re ready to buy, these tips can help you navigate the process. These first-time homebuying tips will help you prepare for the process. 

Improve Your Credit Score

Your credit score is a very important number, especially when it comes to making a major purchase like a house. To qualify for a mortgage, you’ll need a minimum credit score between 580 and 620. The higher your credit score, the more likely it is that you’ll receive a lower interest rate, which will save you money.

First off, you’ll want to pull your credit report. You can receive a free copy of your credit report for each of the three nationwide credit bureaus by visiting annualcreditreport.com. Next, you’ll want to review your report for accuracy. If you spot an error, be sure to contact the credit agency and report it.

Your credit score is largely based on two factors:

• Amount of available credit: This includes credit card limits and current lines of credit.
• Credit utilization ratio: This is the amount you owe divided by your credit limit. A good rule of thumb is to keep your credit utilization ratio at 30% or less.

Here are a few ways to get your credit score in better shape:

• Work to pay down debt and keep credit card balances low.
• Be sure to pay your bills on time, too, as late payments can ding your credit score.
• Don’t move debt from card to card.
• Don’t open several new credit card accounts at the same time.
• Shop for one loan at a time.

Get Pre-qualified by a Lender

Next, you’ll want to determine how much you can afford to pay for a home by getting pre-qualified. Your lender will give you a ballpark figure based on the information you provide about your income. The lender may also look at your basic banking information or do a soft pull of your credit.

The benefits of getting pre-qualified include:

• Confirmation that you’re a good candidate for the loan, so it eliminates the chances of a disappointing surprise.
• Knowing how much money you can potentially borrow eliminates a lot of guesswork. This means you can focus on the houses that you can afford.
• Showing sellers that you are a serious buyer with a higher likelihood of being able to complete the purchase. You may also enjoy better service and have better bargaining power.

It’s important to understand that pre-qualification is not the same as pre-approval. Pre-qualification estimates how much house you can afford, while pre-approval is a conditional offer (but not a commitment) to lend you a specific amount of money.

Research Homes and Neighborhoods

Once you know how much you can spend, you can focus on what kind of home you want and where you might want to live.

• Single-family homes: Single-family homes have open space on all four sides and aren’t attached to any other building.
• Condominiums: Condominiums or condos are separate living spaces within one larger complex. Special features may include common areas, fitness centers, and recreation spaces. A homeowner’s association (HOA) determines rules, regulations, and monthly assessment fees.
• Townhouses: Townhouses are typically two- or three-story dwellings that are attached to other units. They frequently come with small yards in the front and back. Like condominiums, townhouses generally have association fees that cover shared amenities.

When looking at homes, be sure to take all costs into consideration, including:

• HOA fees: These generally cover items such as grounds maintenance and landscaping, pool maintenance, and snow removal and trash removal.
• Maintenance costs: The age and condition of the home are key factors in how much you’ll likely pay in maintenance costs.
• Commuting costs: Are you close to major transit routes? Do you have easy access to public transportation?
• Property taxes: These can differ significantly depending on the neighborhood.

As you decide where you want to live, consider these neighborhood features:

• Schools: Homes near top-rated schools may cost more.
• Local amenities: These include restaurants, grocery stores, restaurants, shopping, trails, and parks.
• Condition of nearby developments: Do they have well-kept yards and landscaping?

Work With a Team of Professionals

Now’s the time to look at different mortgage lenders and enlist the help of a real estate agent.
You’ll want to compare mortgage rates from different lenders, as well as different types of mortgages. If you have a relationship with a financial institution, you might be able to get a better deal. When talking to a lender, ask these questions:

• What types of loans do you offer?
• How would I qualify?
• What are my down payment options?
• Will my mortgage rate be locked and for how long?

Your real estate agent is there to assist you as a licensed professional to help protect your rights, get you access to homes for sale, and manage the complex buying process. What kinds of things should you look for when selecting one?

• Local housing market knowledge
• Honesty
• Great communications skills
• Experience and licenses
• Satisfied customers

Ask Your Mortgage Lender About First-Time Homebuyer Programs

Lenders have a variety of mortgage options, from traditional loans to low-down payment loans.

• Fixed-rate mortgage: This is a traditional mortgage with a fixed rate for the entire term, generally 30 years.
• Adjustable-rate mortgage (ARM): This loan has an initial fixed rate. After the fixed-rate period ends, the rate becomes variable and adjust every year.

As a first-time homebuyer, you may be able to take advantage of programs that can help get you into your first home without having to make the traditional 20% down payment.

Low-down payment government loans are backed by government agencies and offer special terms, including low down payment or, in some cases, no down payment.

• FHA loan: Insured by the Federal Housing Administration
• VA loan: For qualified U.S. military members; backed by the U.S. Department of Veterans Affairs
• USDA loan: The U.S. Department of Agriculture (USDA) guarantees loans for some rural homes for up to 100% financing

Many state and local programs are available for first-time homebuyers. Visit the U.S. Department of Housing and Urban Development’s State Information page at hud.gov/states, locate your state, and search for “Homebuying programs” or “Homeownership assistance.”

Take the Next Step Toward Homeownership

Following these first-time homebuyer tips can help you feel more confident and prepared as you begin your homebuying journey.