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First-Time Home Buyer Guide 2023

13 min.

Who is considered a first-time home buyer?

First-buyer is someone who has never bought a primary residence before. State and federal government agencies frequently provide incentives to first-time homeowners, such as down payment assistance, special subsidies, and closing cost assistance programs. First-time homebuyers can take advantage of various financial institutions' loans and incentives. However, it's important to remember that a principal residence doesn't have to be a physical house. Someone may spend all of their time aboard a boat, for instance.

First-Time Home Buyer Guide 2023

U.S. Housing and Urban Development (HUD) established guidelines to assist a financial institution in determining whether a borrower is a first-time buyer eligible for Federal Housing Administration (FHA) loan programs. To qualify as a first-time buyer, a person cannot have owned a primary property in the preceding three years from the date of purchase. For this definition, a couple is deemed to be first-time buyers if neither member had ever purchased a home before, regardless of whether one member currently or previously owned a home.

Pros and cons of being a first-time home buyer


  • Affordable upfront costs. The required amount of the down payment is typically smaller for first-time homebuyer programs. For instance, if you take out a USDA loan from the United States Department of Agriculture (USDA), there is no down payment requirement.
  • Mortgage lenders accept applicants with lower credit ratings. Home buyer programs may make qualifying for a mortgage more straightforward, which is especially helpful if you have a standard credit history. For instance, you are qualified for a loan insured by the Federal Housing Administration (FHA) with a credit score higher than 500.
  • Assistance with the closing costs. A few of the programs also help with the costs associated with closing. In addition, if you get an FHA loan, you can use a present from a friend or family member to assist offset some of the costs of closing the deal.


  • Income limits. Your household's annual income must satisfy specific criteria for you to be eligible for some of these programs. For one thing, USDA loans come with a very stringent income limit, which varies according to where you live and the number of persons in your home.
  • Possible inclusion of private mortgage insurance. Even though your initial cash outlay for a down payment will be lower, you may still be required to get mortgage insurance. In addition to the amount you make toward your mortgage, you must pay an upfront fee and homeowners insurance every month if you have an FHA loan and choose to use it.
  • Minimum investment property requirements. The homeowner and the lender are safeguarded by the minimum property requirements of most programs geared toward first-time homebuyers. For instance, to qualify for a loan from the Veterans Administration (V.A.) insured by the Department of Veterans Affairs, a property must meet specific criteria to ensure that it is both secure and structurally sound.

Loan programs for first-time home buyers

  1. Down payment assistance (DPA) is a form of financial aid given to first-time homebuyers that might take the form of a grant, a second mortgage with different payback conditions, or matching savings. Loans for the down payment can be obtained from several sources, including grants and second mortgages. Deferred-payment loans do not collect interest but must be repaid in full upon the sale of the house or refinancing the principal mortgage. Public and private programs can help you with closing costs, just like there are programs that can help you with a down payment. Additional charges incurred at the conclusion of your mortgage transaction are known as "closing costs". A normal house loan closing fee range is between two and 6%. Like down payment aid, closing cost aid might come as a grant or a loan.With seller concessions, the seller of a home may contribute to the buyer's down payment or closing fees sometimes. There is an opportunity that the seller will contribute to closing costs, such as those associated with hiring an attorney, paying real estate taxes, and purchasing title insurance. They may also help with the property taxes and the payment of points upfront to reduce your interest rate.
  2. Nonprofit programs. First-time homebuyers looking for a low-interest mortgage may find nonprofit organizations greatly helpful. One such organization is the Neighborhood Assistance Corporation of America, a nonprofit that offers mortgages to people with low-to-moderate incomes without demanding a down payment or closing charges. According to the nonprofit, this is accomplished by employing "character-based" standards to qualify borrowers rather than the risk assessment employed by most mortgage lenders.

Applying for a first-time home loan

  1. Determine the loan amount. Find out how much of a loan you may expect from a lender before you start looking for your first property. Lenders will look at your overall debt, monthly income, and length of employment to determine how much they believe you can pay. You may think you can afford a $300,000 home, but they may only give you a $200,000 loan. Further, many real estate agents are unwilling to work with buyers who cannot provide a clear budget. Consider the home's full price, not simply the monthly payment, when determining how much of a loan to apply for. Think about how much you'll spend on mortgage payments, homeowner's insurance, closing expenses, and repairs and renovations over a year.
  2. Choose a lender and pre-approve. Finding the perfect mortgage company may be simpler than you think after you have an idea of the type of mortgage loan you're looking for, especially if you compare at least three lenders and let them compete for your enterprise. Before making an offer on the house, getting pre-approved for a loan is a good idea. Mortgage pre-approval is often required before sellers will even consider an offer. One way to achieve this is to apply for a mortgage and finish all the associated paperwork. It's to your best advantage to look around for a lending option and compare rates and expenses.
  3. Home inspection. When a seller accepts a buyer's loan offer, the next step is typically a house inspection. It is customary practice for a property to enter escrow after both parties have signed the purchase agreement. This procedure occurs at the same time as the evaluation or just before. A home inspection is a visual analysis of the home's exterior, interior, and any accessible mechanical systems. If faults are found during the house inspection, having the seller drop the price or make repairs before closing is possible. If there is a key problem with the house and you cannot come to terms with the seller over a lesser purchase price or other solution, you may elect to back out of the deal altogether.
  4. Closing Process. The final phase of getting a home loan is the mortgage closing, often known as the mortgage settlement. Closing is the time when all the financial and legal pieces of a real estate transaction come together:
    • You sign the mortgage loan documents;
    • The seller executes the deed to the property;
    • Funds are collected and distributed;
    • The closing agent records the necessary instruments to officially make you the property owner.

A general summary of closing practices can help you through the process of settling a mortgage loan. Still, the precise procedures and regulations can differ according to state and local legislation.

How to pay off your first-time home loan

Mortgage repayment isn't difficult, but neither is it as easy as logging into your account and paying down the debt. Before transferring the deed into your name, the title company will typically request a payoff statement from the lender, also known as a payoff letter. The amount of money needed to pay off your mortgage is detailed on a document called a mortgage payoff statement. Depending on the details of your case, it could take several extra days to close your mortgage account.

Your mortgage's prepayment clauses may allow you to pay it off early without penalty. You may increase your monthly payments even if you cannot refinance your loan. To reduce the length of your mortgage loan, you may choose to make a one-time balloon payment. This can be a good option if you have some spare cash and won't need it for a while. This is also a good option if you don't have sufficient funds coming in each month to make larger payments. Make sure you're not going against the terms of your loan by paying it off early by talking to your lender first.

Another strategy to save money on interest and pay off your mortgage faster is to make a single, upfront payment known as a "lump sum". This way, you can pay off your loan faster and the cost of your mortgage won't rise significantly. However, you should know that early payoff won't make you pay additional fees.

Is it hard for first-time buyers?

Yes. For first-time homebuyers, the home buying process of a home can be difficult. After all, there are a lot of stages, things to do, and criteria, and you might be worried about making a mistake that will cost you a lot of money. However, a first-time buyer of homes is eligible for several unique financial assistance and homebuyer education classes developed to attract more people to the real estate market.

What is the best option for first-time home buyers?

Compared to a conventional loan, Federal Housing Administration (FHA) loans require a smaller initial deposit from borrowers and are simpler to qualify for overall. In addition to having cheaper upfront costs, less severe credit standards, and payment requirement, an FHA loan is great for first-time homebuyers since you can make a down payment as low as 3.5% of the home's total price.

How much money should I save before buying a house?

If you plan to buy a home with the assistance of a mortgage, it is a good idea to put aside at least 25% of the home purchase price in cash to use as a down payment, as well as money to cover relocation and other associated expenditures. Therefore, if you purchase a home that costs $250,000, you can spend more than $60,000 to cover the various loan origination fees associated with the purchase.

What does your credit score need to be to buy a house for the first time?

When applying for conventional loans to purchase a home for the first time, you carry a minimum credit score of 620 or better. This is because conventional mortgage lenders have stricter qualification guidelines. If your credit score is below 620, lenders will either not be able to approve your mortgage loan or will be required to offer you a higher loan interest rate, which can result in higher monthly mortgage payments. If your score is above 720, lenders will either be able to approve your loan or will offer you lower mortgage rates.

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