First-Time Home Buyer Guide: How to Buy a House

Are you considering buying your first home? If so, you’re in for a fun and exciting ride! Buying a home can be a daunting process, but it’s also a very rewarding one. It is probably the most expensive and very emotional investment that you make in your life.

Understanding the real estate market is not easy, but as a first-time home buyer, the home buying process can become easy if you research, plan, and make smart money moves.

We’ll discuss the different steps of the buying process, what to look for when house hunting, and how to prepare yourself financially. So whether you’re just starting to think about buying a home or are already in the midst of the process, this article is for you!

Rent or buy?

Before you start looking for a house to buy, you need to ask yourself if your decision is correct? Should you rent instead of buying? The answer to this question will mainly depend on your circumstances. Here are a few signs that you are better off renting a house than buying:

  • How long do you plan to stay in the house? Are you expecting any relocation in the next couple of years?
  • How big a home can you afford? If it will not fit your family in a couple of years, it is better to wait.
  • If you are not 100% happy with the home, it is better not to buy it. Otherwise, you would be stuck with something that you don’t like.

Consider all these points while deciding to buy your first home.

How much home can you afford? Arranging finances for that

So, you are sure you want to buy your first home. The next step is to find out how to buy a house? How much you can spend on a home? Review all your spending and check your monthly budget. Take into account all your debts to get a clear picture.

  • How much are your savings?
  • How much do you spend every month?
  • How is your credit history?

First time home owners loan options are many, and you will get access to several state programs, federal loans, and tax breaks. Even if you have owned a home earlier, to qualify under the first time home buyer programs, according to the U.S Department of Housing and Urban Development, you should meet the following first time home buyer qualifications:

  • You have not owned a principal residence for three years. If you have owned a house but not your spouse, then you can qualify as a first time buyer with them.
  • If you are a single parent and owned a home with a former spouse
  • If you are a homemaker who has been displaced and only owned a home with a spouse
  • If you own any type of principal residence which has not been permanently affixed to any permanent foundation as per the applicable regulations.

How much mortgage do you qualify for? 

How to apply for a mortgage loan is something every first time home buyer should know. This is one of the most important things to take into account when buying a home. Before shopping for a house, you should find out how much money the lenders are ready to give you as a first time home buyer mortgage. They will make this decision based on your monthly income, debt, credit history, and a few other things.

It is important to get a mortgage pre-approval from a lender before placing an offer on a home. The approval letter will also help you find out how much you can afford and let the sellers know that you can secure a home loan. Most sellers do not even allow offers that don’t come with a mortgage pre-approval. By getting the first time buyer mortgage pre-approval, you are ready to make an offer as soon as you find your dream home.

What are your financing options?

Even after getting a mortgage, you need to put up money as a down payment and cover the cost of documentation, inspections, and closing costs. Just because a bank or a lender agrees to give you a large sum as a mortgage, it does not mean that you borrow the full amount. A 1st time home buyer can make this mistake and end up with no money left for covering his or her regular expenses. They end up paying huge monthly mortgage payments and become house poor.

Data shows that a typical American home buyer spends seven years saving for a down payment. Seven years is a long time to wait to own a home, and people should get a chance to buy a home when they need to.

What help can you get?

Several finance options and home loans for first time buyers in the U.S. can help them buy a home. The options for first time home buyer government programs include:

  • IRA: the Individual Retirement Account or Roth IRA is a good source because every first-time home buyer can withdraw up to $ 10000 without paying a penalty of 10% for early withdrawal.
  • HUD resource list: the Department of Housing and Urban Development does not directly give home buyers grants but funds to organizations that offer funds to first-time home buyers. The FHA first time home buyer loan is also a part of HUD. The HUD website has all the details. The Federal Housing Administration manages and administers the FHA loans. This is a good option for home buyers because the requirements are not very strict to qualify. However, the FHA does not directly give money to people. It insures the loans offered by lenders approved by the FHA. To apply for an FHA first-time home buyer loan, you only have to use an FHA-approved lender.
  • Native Americans: Native American first home buyer loan allows them to apply for Section 184 loan. The first time home buyer interest rate on loan requires a very low guarantee fee of 1.5% and between 1.25% to 2.25% down payment, depending on the amount of the loan.

Different types of first-time home buyer programs

  • Down payment assistance 

Not everyone can come up with big amounts for the down payment. Down payment assistance is a loan that is given at favorable rates. These grants for first time home buyers can be used for making the down payment instead of paying from their bank account. These can be paid back in easy installments.

  • Deferred Mortgages

This is a loan that you don’t have to pay back until you live in the house you bought. This is another type of first time home buyer down payment; you have to pay the overdue mortgage loan amount when you plan to sell or refinance your home.

For example, You borrow $30000 for a down payment using the deferred mortgage method and sell it at a good profit after 5 years. After the sale, you will need to pay back the $30000 to the lender, but you can keep the rest of the profit.

Usually, down payment assistance is available through local foundations or state government schemes only. This is limited to 1st time home buyers whose income is much below the average in the area and who have a good credit history.

  • Forgivable mortgages

As the name suggests, the lenders erase these down payment loans once a buyer meets certain conditions, mainly connected to time. These no down payment first time home buyers are encouraged by the municipal governments because such loans encourage long-term home ownership and more neighborhood involvement.

For Example: a first-time home buyer takes a forgivable loan of $ 20000 for the down payment. If the borrower continues to live in the house after the specified term and has paid off the primary mortgage as specified in the terms, then the lender will write off the $ 20000 loan.

  • Tax credit to first time home buyer

Governments already provide tax credits to home buyers through the IRS and tax deductions on mortgage interests. However, the federal and state governments give first time home buyer assistance through additional tax benefits.

In 2009, 1st time home buyers were given up to $ 8000 in tax credits.

  • Closing cost assistance

This assistance is used as a stimulus for first time home buyers and offers up to 100% of the buyer’s closing costs. These costs may include title transfer expenses, transfer taxes, and mortgage fees.

Free Information about first time home buying

It may not seem as lucrative as a low interest down payment loan or tax credit, but educational programs that help you understand the home buying process are extremely valuable. These educational courses can teach a first-time home buyer about the buying process, various loan options, applying for a mortgage, etc.

Get Pre-approved for a Mortgage

The first step in the home buying process is to get pre-approved for a mortgage. This will give you an idea of how much money you can borrow and your monthly payments. It’s essential to shop around and compare rates from different lenders before you choose one.

Federal programs for first time home buyers

How does the first time home buyer program work? Any citizen or legal resident of the country can take advantage of the federal programs and the state and local ones. Some of the best federal programs for 1st time home buyers are:

  • The government backs the best mortgage lenders for first time buyers.

There are three loan options that the government backs

  1. FHA loans
  2. USDA loans
  3. VA loans

These loans offer you a chance to buy a home even with poor credit and a low down payment. The lenders find these loans less risky because of the government backing. Each of these loans has its own set of requirements to qualify for them.

  • Good neighbor next door program

Suppose you are an emergency medical technician, law enforcement officer, firefighter, an educator, or working in such a profession considered to be socially important, then under this program. In that case, you can get up to 50% off select HUD properties. These properties are foreclosures and are offered at very affordable rates. You can check the complete list of such properties on the HUD website.

  • Homeowner voucher program

Another great option from the HUD is the Housing Choice Voucher Homeownership Program. People with low income needing assistance to buy their first home can apply for this. To qualify for this loan assistance, you need to fulfill the following conditions:

  • You should be a first-time home buyer, as directed by the HUD
  • You should be able to meet the minimum threshold income standards directed by the local Public Housing Authority (PHA).
  • There must be at least one adult working full time for at least one year
  • You should complete the homeownership and housing counseling program.

Other programs for first time home buyers

  • There are various charitable organizations and NGOs that offer assistance to low- and moderate-income group people in buying their first home. The financial assistance offered is usually dictated by income levels, and the interest charged is either very minimal or sometimes zero.
  • Another well-known housing non-profit is Habitat for Humanity. It is an international organization and operates in about 70 countries worldwide. They offer simple and affordable homes to low-income families. Their volunteers help in building, and they make no profit on the home after you close.
  • The Neighborhood Assistance Corporation of America (NACA) is another non profit organisation that helps people buy homes. They offer the buyers counseling and education and help them find lenders. Loans from NACA require no down payment or closing costs.

Searching for a house

Once pre-approved, it’s time to start looking for your dream home! When you’re house hunting, it’s essential to remember your must-haves and nice-to-haves.

Your must-haves are the features that are non-negotiable, such as a certain number of bedrooms or a specific location. Nice-to-haves are features that would be nice to have but aren’t deal-breakers if they’re not met. For example, you might want a home with a pool, but you’re not willing to pay more for it.

Now that you are clear about your finances, the next steps to buying a house are to find the one you want and then go for it. Instead of getting fixated on one property, you should take your time and look at different properties. Use the services of a real estate agent, search online, ask people, and drive around the different neighborhoods to understand what to know when buying a house

  • Choose the right neighborhood where you can afford a home. If schools are a priority, then look for areas around good schools. Spend some time in the neighborhoods you are considering to get a feel of the area.
  • If you are on a budget, don’t be afraid to look at houses that may not be in good condition but have the potential. If the house is in the desired location and well-built, you can live in it for some time and start the renovation slowly.
  • Many websites allow you to compare the prices of houses in different areas. This helps you shortlist the kind of property you want and can afford in the area you prefer.
  • Make full use of open houses. It is only after touring a house and checking the neighborhood that you get a sense of that house fully. When you go for the open house, make sure to check the following:
  • Check the front and backyard to see how much maintenance will be needed
  • Check the closet space for storage
  • Make sure to find out how far the home is from the train and bus stops, the general noise level, and most importantly if any offers have already been made.
  • As you look at homes, keep in mind your budget and the monthly payments you can afford. It’s easy to get caught up in the excitement of buying a home and spend more than you intended. Once you’ve found a few homes that you’re interested in, it’s time to start negotiating!

Once you are ready, make an offer.

Once you find the house you want to buy, you should not waste time and make an offer. To arrive at the best price, you should follow the first time home buyer tips:

  • Analyze the market

Check the price of comparable houses recently sold to get a fair price. A good real estate agent will be able to help you understand pricing and work with you to come up with a good negotiation strategy.

  • Home inspection

A thorough home inspection is necessary to assess the condition of the house. You will need a professional to do this job. A home inspector’s report will usually cover the condition of the home from the foundation to the roof, plumbing, air-conditioning, etc. It will give you a chance to reconsider or even renegotiate if needed. This is important to ensure that there are no significant problems with the property before you finalize the purchase.

  • Be prepared to negotiate.

Sometimes, making the offer is just the first step in a long negotiation battle. You will want to get the house for as little as you can while the seller wants to get maximum profit. Your first offer should be below the asking price, but you must consider market conditions. More competitive markets mean that you will face more bidders. Always keep your budget in mind before making an offer.

  • Bidding war

In a competitive market with other bidders, you need to make a solid offer to have an edge. Some things that can help include:

  1. Increase your down payment
  2. Be open to a different closing date
  3. Raise your offer if your budget permits
  • Formal offer

Once both parties agree on the price, it is time to make a formal offer and send it to the seller’s agent. Most sellers ask for a cash deposit to show good faith. This prevents a buyer from refusing to buy the house after agreeing. You will need the help of an agent to negotiate and prepare the documents.

Even if you like the house, try not to fall in love with it. Counteroffers are common in a highly competitive market, and you may face disappointment.

Buy the house

Once the seller accepts your bid, you are all set to finally get the keys to your first house. Close the deal by signing the papers and making it official. You will have to pay the closing costs, and then the deed of ownership will be handed to you.

The bottom line

Buying a home is a huge decision! Make sure you research and are prepared before making such a big purchase. A real estate agent can be a great resource during your home-buying journey. They can help you find the right home and negotiate the best price, so consider working with one.

For first time buyers, there is a lot of help available, and they need to be aware of it. Many government and non-government first time home buyer grants, loans, and financial help are available to make buying a home easy. Buying a home for the first time is a big thing for most people and requires planning and strategizing. If you don’t have enough money, it does not mean you will not be able to achieve your dream. These are just small hurdles; with the right information, you can own your first home and live happily in it.

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