Tips for First-Time Homebuyers in America
We use affiliate links and may collect a share of sales or other types of compensation from the links on this page if you decide to shop and buy from them. However, we would never recommend products that we wouldn’t use ourselves.
Are you a first-time homebuyer? Maybe you’ve been wanting to own a home for a while but didn’t have the savings for a down payment. Or maybe you and your family are ready to start a new chapter and you think now is the right time to buy a home.
Whatever the case may be, now is a great time to get in on the housing market before interest rates start to creep back up and housing prices continue to rise.
This article will provide practical tips for first-time homebuyers in America and how you can own your dream home through real estate today.
How to get started as a first-time homebuyer
Connecting with a real estate agent
The first thing that you should do when planning on buying a home is to connect with a qualified real estate agent in your area with expertise in the local market. Your ideal real estate agent should have connections with other listing agents to help find a potential buyer for the listings they present.
Real estate agents will send you plenty of homes on the Multiple Listing Service (MLS) where you can narrow down the homes you like and want to see in person. Real estate agents may also know of homes that are getting ready to come on the market but haven’t yet, giving you the ability to see the home and potentially put in an offer before anyone else.
Once you’ve connected with a real estate agent, they’ll probably suggest you get started applying for a pre-approval letter from your lender. The purpose of the pre-approval is for the lender to approve you for a mortgage ahead of time to give you the confidence that you’ll receive a loan if you decide to purchase a home. In fact, many sellers won’t even consider your offer if you don’t have a pre-approval letter.
The lender will need to run your credit and collect information about your income, assets, liabilities, and credit history. Based on this information, the lender will issue a pre-approval letter that indicates you’ll be approved for a loan after your offer is accepted.
It’s important to know that a pre-approval letter doesn’t guarantee that you’ll receive a loan since other issues could be uncovered when you submit your formal loan application.
Considering your loan options
Once you get pre-approved, you will want to consider what type of loan program to choose once you get your offer accepted.
First, the Federal Housing Administration (FHA) loan is meant for first-time homebuyers to make it easy to own a home and achieve the dream of homeownership in America. FHA loans are guaranteed by the federal government and come with mortgage insurance that you must pay each month on top of your regular mortgage payment.
FHA loans have lower down payment requirements and lower credit scores to be able to qualify, making this loan program ideal for young people without established credit or those that may have some blemishes on their credit report.
The next loan that you’ll have to choose from is a Conventional loan. This is the choice of most real estate owners since you may not pay monthly mortgage insurance and Conventional loans can be issued quicker than FHA loans. These loans also favor those with good credit and reward them with low interest rates.
You must have a credit score of 620 to qualify for a Conventional loan, however the best rates are reserved for those with scores of 800 and above.
Most real estate investors who purchase investment properties use Conventional loans since it’s difficult to get a loan with any other type of program. The FHA doesn’t issue loans for investment properties and other loan programs have restrictions on who can qualify for a loan.
In order to avoid paying monthly mortgage insurance, you’ll need to make a 20% down payment on the property, which is often too much for first-time homebuyers.
Other loan options
There are two other main loan options in addition to FHA and Conventional loans, which are USDA and VA loans. However, qualifying for these loans is sometimes difficult which is why we aren’t going to cover how to get these alternative loans.
Comparing interest rates and fees
One of the best tips for first-time homebuyers is to shop around mortgage lenders to see who can offer the best rates and the best closing cost breakdown that saves you money. Believe it or not, lenders can make exceptions if you bring them a competing Loan Estimate for the same property since they want to do everything they can to earn your business and service your loan.
Lenders know that the competition is fierce and they need a way to stand out from the rest of the other lenders by giving you a great interest rate and financing terms. If a lender can acquire you as a customer, the lifetime value that a single customer provides is enormous since you’ll be in their portfolio of loans they can sell on the secondary market.
When submitting offers on a home, you should work closely with your real estate agent to decide on an offer that is reasonable and that gives you the best chance at buying the home. You’ll likely be competing against dozens of other potential homebuyers who want the home just as bad as you. In fact, you may have to waive several contingencies if you hope to get your offer accepted.
If the seller likes your offer, they may come back and submit a counteroffer that you can either accept or make another counteroffer. This is where you should consult with your real estate agent to come up with the best course of action at this stage in the real estate process.
Be prepared to get outbid
One of our tips for first-time homebuyers is to expect that you’ll get outbid by the competition. In 2021 and 2022, we’ve seen the housing market shift to a strong seller’s market where they can nearly command any price they want.
For desirable homes, you should expect that there will be many other offers that are better than yours. It’s become commonplace to waive contingencies, pay cash, and offer over the asking price just to buy a home today.
Since the real estate market is pricing many people out, it might make more sense to wait until the market cools off and prices start to drop. However, there is no telling when this will happen and if now might actually be the best time to buy if you can get your offer accepted.
If you are comfortable where you’re living right now and don’t need to move out of necessity, we recommend staying put and riding out the seller’s market until it dies down. We’re headed into an economic recession as we speak which could help home prices drop gradually over time.
First-time homebuyers should follow our advice on how to best prepare for the home-buying process. You may find that buying a home this year is too costly and doesn’t make sense for your situation.
However, those that are ready to move into a new home shouldn’t be deterred by the stiff competition. But you should prepare for a long and sometimes frustrating process that is the norm in today’s real estate market.
Do you want to get started real estate investing? Check out our top picks of the best real estate books for beginners this year.
Interested in learning more about partnering with us to grow your business? Contact us today to find out how to advertise with us and grow your business organically with the power of SEO.