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A First-Time Homebuyer Guide

arial view of neighborhood

Your First-Time Homebuyer Guide

Homeownership offers many benefits, including your own personal space, a smart investment, potential tax advantages, the option to refinance later, and the possibility of long-term financial gain. It's also a key way to build generational wealth.

There are many things to consider when buying your first home, but thorough research and working with an experienced lender can help you achieve your homeownership dream.

We are here every step of the way to help you learn about mortgage rates, down payments, fixed-rate mortgages, closing costs, how to use a mortgage calculator and more.

Benefits for First-Time Homebuyers

  • Down Payment Assistance: Access government, non-profit, and lender programs to help with your down payment.
  • Low or No Down Payments: Explore loans like FHA, VA, and USDA, which may offer low or no down payment options.
  • Educational Resources: Utilize resources from HUD, Fannie Mae, and non-profits to learn about the homebuying process.
  • Closing Costs Assistance: Discover government, non-profit, and lender programs to help with closing costs.

Who Qualifies as a First-Time Homebuyer?

The U.S. Department of Housing and Urban Development (HUD) also recognizes other situations that may qualify you as a first-time homebuyer. According to HUD's eligibility guidelines, you may qualify if:

  • You haven't owned a primary residence for three years.
  • You're a single parent who only owned a home with a former spouse.
  • You're a displaced homemaker who only owned a home with a spouse.
  • You've only owned a non-permanently affixed residence.
  • You've only owned a property not compliant with building codes, where repairs cost more than building a new structure.

family entering their new home

First-Time Homebuyer Programs

Down Payment Assistance

Struggling with a down payment? Here are some options:

Tax Deductions

Homebuyers may qualify for tax deductions, such as:

  • Property tax deductions
  • Mortgage interest deductions
  • Deductions for energy-efficient upgrades

Consult an accountant to learn which deductions you may qualify for.

Homebuyer Education

Explore educational programs for first-time homebuyers at federal, state, and local levels. Ask your loan officer for beneficial resources.

Federal First-Time Homebuyer Programs

Government-Backed Loans

The U.S. government insures home loans, offering flexible terms and lower risks for lenders. These loans are great for first-time buyers worried about credit scores or high down payments.

Popular Government-Backed Loans

  1. FHA Loans:
    • Guaranteed by the Federal Housing Administration.
    • Minimum credit score: 500-580.
    • Down payment requirement: 3.5%-10%.
    • Flexible credit, DTI, and down payment options.
  2. USDA Loans:
    • Guaranteed by the U.S. Department of Agriculture.
    • No down payment required.
    • Minimum credit score: 580.
    • No PMI, 100% financing for qualified borrowers.
    • Property must be in an eligible area. Search the address of a property to see if it qualifies.
  3. VA Loans:
    • Guaranteed by the U.S. Department of Veterans Affairs.
    • For eligible Veterans, military members, and spouses.
    • No down payment, lower interest rates, no monthly mortgage insurance.

Each loan has additional lender requirements. Contact NAF to find the right loan for you.

first time home buyer holding the new home keys

First-Time Homebuyer Step-by-Step Guide

Step 1: Assess Your Finances

Credit

Debt-to-Income Ratio (DTI)

  • DTI should be ≤28% before a mortgage, ≤50% including a mortgage.
  • Measures your ability to pay bills, considered by lenders.

Down Payment

  • Depends on mortgage type and credit score.
  • FHA loans require 3.5%, Conventional 97 loans 3%, Conventional loans 3%-20%.
  • VA and USDA loans require no down payment.

Earnest Money

  • A "good faith deposit," usually 1%-3% of the sale price.
  • Shows commitment, held in escrow, applied to down payment/closing costs.
  • Not always required but can make your offer competitive.

Step 2: Choose Your Mortgage Type

Fixed or Adjustable Rate?

  • Fixed-Rate: Interest rate stays the same over the loan's life, offering predictable payments.
  • Adjustable-Rate (ARM): Interest rate can change periodically after an initial fixed period, offering lower introductory rates.

Loan Types

  • 30-Year Fixed-Rate: Consistent interest rate for 30 years, easier to budget.
  • 15-Year Fixed-Rate: Same stability, shorter term, often better rates.
  • Conventional Loan: Most common, fewer restrictions, minimum 3% down payment, PMI required if less than 20% down.
  • VA Loan: No down payment, no PMI, Guarantee Fee may apply. Great for Veterans and service members.
  • FHA Loan: Lower down payment, less stringent credit requirements. Popular among first-time buyers.
  • USDA Loan: No down payment, accepts lower credit scores, geographic limitations apply.

Step 3: Get a Quote

Get a quote from a certified loan officer from a trusted lender.

Step 4: Get Pre-approved

Get pre-approved for a mortgage.

  • The lender reviews credit, income, and assets.
  • The pre-approval letter is required by agents and sellers.
  • Sets your maximum loan amount, not your spending limit.

Step 5: Find an Experienced and Local Real Estate Agent

Step 6: Shop for a Home That Best Fits Your Unique Needs

  • Visit open houses, check listings, and explore neighborhoods.

Step 7: Hire a Home Inspector

  • An inspector checks for the home's condition and needed repairs.
  • Often a lender requirement.

Step 8: Prepare to Make an Offer

  • Consider budget, market conditions, and repair costs.
  • Research the area to contextualize the asking price.

Step 9: Negotiate Closing Costs

  • Closing costs are final fees, usually 2%-5% of the purchase price.
  • Negotiate with the seller, lender, and agent.

Step 10: Find Homeowners Insurance and Close on Your Home

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First-Time Homebuyer FAQs

What's a good debt-to-income ratio (DTI) for buying a home?

  • Lenders generally prefer a maximum DTI of 43%, though different loans have different requirements.

Do I need mortgage pre-approval before house hunting?

  • Pre-approval isn't required but offers advantages and is recommended:
    • Know exactly what you can afford.
    • Gives sellers security about your offer.

What is PMI (Private Mortgage Insurance)?

  • PMI is required for Conventional loans with down payments under 20%.
  • Ways to avoid PMI:
    • Put down more than 20%.
    • Cancel PMI once you reach certain equity levels.
    • Refinance to a different loan to potentially eliminate PMI.

 

*Due to maximum seller concession rules, discount can be less than $8,000 in some cases where other concessions have been made to the consumer.

**NAF Homes, Inc. (“NAF Homes”) has a business relationship with NAF Cash, LLC (“NAF Cash”) and New American Funding, LLC (“NAF”). NAF Homes, NAF Cash and NAF are affiliates with the same beneficial owners. As a result, the referral of a customer by NAF Homes to NAF Cash or NAF may provide NAF Homes, its affiliates and/or its employees with a financial or other benefit. You are not required to use NAF Cash or NAF as a condition of the purchase, sale or refinance of the subject property or to obtain access to any settlement service.

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