What to know as a first-time home buyer: Tips from a mortgage expert

Tips for first-time home buyers

Buying your first house is exciting but complicated. And since many first-timers don’t know what to expect from the home buying process, it’s only natural to make a few mistakes.

Fortunately, you don’t have to navigate this territory alone.

We recently spoke with Ivan Simental, mortgage advisor and host of The Mortgage Reports podcast, for an honest conversation on how first-time home buyers can prepare. Here’s what you should know.

In this article (Skip to...)

• Advice for buyers
• Common misconceptions
• Buyer surprises
• Common mistakes
• Questions to ask
• First-time buyer perks
• Low-income buyers
• Best loan programs
• Advice for today’s market

Meet the expert

Ivan Simental Ivan Simental (@itsivansimental) is a Mortgage Loan Office with 6 years of experience. He has a passion for empowering potential buyers to purchase their first home.

“Growing up I was surrounded by real estate and mortgages. That was the family business,” says Ivan.

“I asked my mom why she does it and her answer was simple, ‘Everyone should have a piece of the American dream.’ That always stuck in my head and I never really knew what it meant until I got into the business.”

Now, says Ivan, “It brings me joy to help others achieve this when they thought it was not possible.”

To help you get started, Ivan shared his thoughts on ten key questions for first-time buyers:

1. What’s the number one piece of advice you give to first-time home buyers?

Homeownership is one of the biggest decisions — and financial investments — you’ll ever make. So you want to know you’re taking all the right steps.

Therefore, says Simental, it’s important to seek professional advice sooner rather than later.

The sooner you prepare, the easier it’ll be. So even if buying is still a few years off, use this time to create a savings plan for your down payment and other mortgage-related expenses. And take steps to clean up your credit.

Good first steps include:

1. Plan your monthly budget. How much can you comfortably afford to spend on house payments?
2. Set a realistic purchase price range based on your monthly budget
3. Figure out your home loan options based on your finances
4. Put together a savings plan for a down payment and closing costs

If you want, you can even work with a HUD-approved housing counselor for pre-purchase advice. Your coach can evaluate your financial situation and then create a personalized plan to help you reach your goal.

2. What are the biggest misconceptions that people have about buying their first home?

Some people drop out of the market or choose not to buy because they believe “it’s going to be too hard,” says Simental. But while the process does have its challenges, it’s far easier when you have the right team guiding you along the way.

In other words: you don’t have to go it alone.

The real estate agent and loan officer you choose to work with will be there every step of the way — from setting your budget and choosing a loan program, to finding your dream house and closing on it.

So take some time putting together an ace team before you set out to buy a house.

“The best way to have a great team is by working with someone who has great reviews online, or who’s a referral from a trusted family member or friend,” Simental recommends.

3. What are first-time home buyers often surprised by?

First-time homebuyers are usually surprised by the many options available to them, explains Simental.

For example, first-timers often think you need a 20 percent down payment to buy a house. But in reality, many can qualify for a mortgage loan with as little as 3 percent down.

In addition, says Simental, buyers are often unaware of the wide range of down payment assistance programs available.

These first-time home buyer grants and loans can assist with your down payment and closing costs — which happen to be two of the biggest obstacles to homeownership. So if your savings need a little extra boost, it’s worth asking your loan officer about DPA programs in your area.

4. What’s a common mistake first-time buyers make?

One of the biggest mistakes a first-time home buyer can make is “going house hunting before they’re pre-approved for a home loan,” says Simental.

Although there’s no rule that says you have to get pre-approved, a pre-approval letter has its benefits.

Namely, it will tell you the maximum loan amount you qualify for. So you won’t get your heart set on a house only to find out you can’t afford it.

Plus, a pre-approval indicates that you’re a serious buyer. As a result, sellers and real estate agents will have more confidence in you. Many sellers won’t even accept an offer letter from a buyer without a mortgage preapproval in hand.

5. What questions should first-time buyers ask?

To reiterate, it’s okay to ask a lot of questions — and you should.

According to Simental, you should start out with the basics to figure out how much home you qualify for. Ask your lender:

• What’s the difference between a pre-approval and a pre-qualification?
• How much house can I afford on my current income?
• How much should I save for the down payment and closing costs?
• What’s included in my monthly mortgage payment?

Once you’ve chosen a home and you’re ready to move forward with a full loan approval, you should ask a few more questions to narrow down the right mortgage lender. For instance:

• What types of home loans do you offer?
• What interest rate do I qualify for?
• Does my mortgage rate include discount points?
• How long does your underwriting process take?
• What’s your typical timeline to close a mortgage?
• How long is your free rate lock period?

You should always shop around with at least three mortgage lenders to make sure you’re getting the best deal on your new home.

Look for the lowest interest rate and most affordable closing costs. Also make sure your rate lock will last until the expected closing date so you won’t have any surprise rate changes before closing.

6. What are the perks of being a first-time homebuyer?

First-time home buyers might get access to special options that other buyers don’t, like down payment and closing cost assistance programs as well as low-down-payment mortgages. Options vary by location, but these programs are usually accessible to those who haven’t owned a home within the past three years.

But, Simental stressed, the best programs really depend on an individual’s situation and there’s “no one-size-fits-all” solution for first-time buyers.

Your loan officer will assess your eligibility and help you find the right type of mortgage for your situation.

7. What advice would you give to people who want to buy a house, but have lower income or limited cash to save each month?

“Speak with a trusted loan officer and come up with a realistic game plan of how (and when) you can become a homeowner,” Simental recommends.

Buying might be easier than you think once you’ve explored all the options available in today’s mortgage market.

Qualifying borrowers can take advantage of programs that offer:

• Lower down payment requirements (0-3%)
• Lower credit score requirements (580-620)
• Flexible income guidelines
• Help with your upfront lender fees and closing costs
• Affordable mortgage rates
• Reduced private mortgage insurance (PMI) costs

8. What are the best first-time home buyer programs?

“An FHA loan with 3.5% down is a great option,” Simental says. “You can also get a conventional loan product with 3% down, as well as USDA loans and VA loans with 0% down — but you must meet certain parameters for these two programs.”

Again, Simental stressed that “It totally depends on the individual. And I know I sound like a broken record but it’s true.” So explore your options and find the right type of loan for your home purchase.

9. What advice would you give to first-time home buyers tin today’s crazy real estate market?

Between bidding wars and low inventory, buyers typically act fast in tough real estate markets. However, buying in today’s market as a first-time homebuyer requires patience, warns Simental.

And, he says, “it doesn’t hurt to work with a team you trust and like.”

A good agent or Realtor can communicate listings and schedule showings early, and help you craft the most enticing offer. They can also work with the seller to negotiate any obstacles to closing, like home appraisal or home inspection issues.

Your loan officer is also key. They will help you understand your budget, the amount of money needed to buy, and what your future mortgage payments will look like.

A great loan officer will also know creative strategies to overcome first-time home buyer hurdles, like high student debts, low savings, or a short employment history.

10. Is there anything you wish you’d known before you bought your first house? 

Understandably, some homebuyers don’t think to speak with a mortgage lender until they’re ready to buy a house. Yet one regret expressed by Simental was “not asking for help a year or two before he was ready to buy.”

Even if you’re not ready to apply for a loan, you can still meet with a mortgage consultant. This is an opportunity to start researching loan programs, down payment requirements, minimum credit score requirements, and more.

This is a great way to avoid unpleasant surprises when you’re ready to buy — like finding out your credit score is too low, or your debt-to-income ratio (DTI) is too high. Plus, a loan officer can help you put together a realistic savings plan to get the home you want in the shortest time frame possible.

Recap: What to know as a first-time home buyer

To recap, here are 7 key things every first-time home buyer should know according to Simental:

1. Start saving early. You can never have too much money but you can for sure not have enough
2. Decide what you are comfortable paying every month before looking at houses
3. Improve your credit score and credit report, if you can, for the best possible rate and loan options
4. Explore different mortgage options to see which one fits your needs
5. Ask about down payment and closing cost assistance if you need it
6. Get pre approved — rather than pre qualified — if you’re ready to start house hunting
7. Have a budget and stick to it

Yes, today’s housing market is tough. But the more prepared you are, the more quickly you’ll be able to move to score your dream home. So start working on your personal finances as soon as possible.

When you’re ready to buy, contact a lender right away to set a budget and figure out exactly how much cash you’ll need.

Follow these steps, and you’ll have a far better shot at success as a first-time home buyer.