Many first-time homebuyers are excited about the opportunity to invest in themselves and begin building generational wealth through their home’s equity. Here are JVM’s best tips for first-time homebuyers, founded on our team’s expansive knowledge and experience with helping thousands of homebuyers navigate the mortgage process.
1. Prepare For The Financial Responsibility
The number one tip for first-time homebuyers is to be sure you’re ready to take on the financial responsibility of a mortgage. The average mortgage loan term is 15– 30 years, though some homeowners may choose to pay off their mortgage early. And while homebuyers do not need to stay in their home for that long, buying a home is still a big commitment. First-time homebuyers should speak with a Client Advisor to make sure they are prepared for the financial responsibility of a mortgage and homeownership before they begin the qualification process.
2. Get Pre-Approved
While the pre-approval process differs per lender, this is how it generally works. First, homebuyers fill out the application and upload their financial documents (e.g., W2 forms, tax returns, bank statements, and pay stubs). Next, the lender will examine the documents and pull the homebuyer’s credit report.
Buyers will be pre-approved for a specific loan amount based on the lender’s review of their application and credit report. Homebuyers who get pre-approved before looking for a home have many advantages, especially if they plan to buy in a competitive market.
WHY GET PRE-APPROVED?
- Sellers consider offers more seriously.
- Pre-approved homebuyers have an easier time finding real estate agents.
- Pre-approval Letters help homebuyers focus their home search and budget.
- Pre-approved homebuyers have a greater opportunity for success.
3. Check Credit Scores Early
When qualifying for a mortgage, credit scores can impact and influence mortgage rates and loan qualification. First-time homebuyers should consider subscribing to a consumer credit monitoring service (like Credit Karma) to see where their credit currently stands. Keep an eye out for any mistakes or unpaid accounts. If there is anything negative on the report, get it fixed as soon as possible.
If you have damaged credit, begin the credit repair process at least six months before you plan to buy a home. Our mortgage experts are also credit experts. We’d be happy to help you get started on a plan to help you repair your credit to qualify you for a mortgage.
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October 2, 2023
View mortgage rates for October 2, 2023
4. Save For A Down Payment
Homebuyers have several options when it comes to the size of the optimal down payment. The minimum amount required varies from one mortgage program to another.
Freddie Mac and Fannie Mae (the government-sponsored entities that purchase home loans from lenders) allow mortgages with loan-to-value ratios to be as high as 97% for low balance loans and 95% for high balance loans.
This means that the minimum down payment for most conventional loans can be as low as 3% of the total purchase price, depending on the loan amount.
Homebuyers who pursue conventional mortgage loans to buy property often choose to put down 20% or more. This allows the homebuyer to avoid paying monthly mortgage insurance (generally required with a down payment of less than 20%).
For those borrowers who cannot afford to put 20% down on a home, there are financing options with a lower investment requirement. These include FHA loans, and for veterans and members of the military, there are VA loans available that offer 0% down payment options.
We often recommend putting down an amount that allows you to still save money for moving costs, new furniture, other household needs, home improvements, and paying down consumer debt.
5. Review Loan Types Available
There are many types of mortgage loans available for first-time homebuyers. JVM Lending’s team can help homebuyers determine which loan type best suits their financial situation.
Conforming Loans: Conforming mortgages “conform” to Fannie Mae and Freddie Mac underwriting guidelines and are therefore eligible for purchase by Fannie and Freddie. Fannie and Freddie are the quasi-governmental organizations set up to create a secondary market for mortgages (outside of banks alone). Most of all mortgages obtained in the United States are conforming. Conforming loans must comply with the loan limits in your county.
Conventional Loans: Conventional mortgages are institutional mortgages that are not insured by the Federal Housing Administration or guaranteed by the Veterans Administration or the U.S. Department of Agriculture. Conventional mortgages are most institutional mortgages other than government loans – they include conforming loans, jumbo loans, and portfolio loans.
FHA Loans: Federal Housing Administration (FHA) mortgages are insured by the FHA, and they offer more flexible down payment and underwriting guidelines. They are not just for first-time homebuyers but are available for all borrowers who qualify – for both purchases and refinances.
VA Loans: Veterans Administration (VA) mortgages are guaranteed by the VA with very flexible underwriting and down payment guidelines for veterans and their spouses only. VA loans do not require down payments for funding, but they do require that borrowers meet the VA eligibility requirements.
Jumbo Loans: Jumbo mortgages are loans that exceed a particular county’s loan limit. Jumbo mortgages usually have stricter underwriting guidelines because they are not backed by Fannie Mae or Freddie Mac but are instead held or securitized by large banks or private funds. Stricter guidelines include tighter debt ratio requirements, larger down payment, and reserve requirements, and tighter credit standards.
Adjustable-Rate Mortgages: Adjustable-Rate Mortgages (ARMs) are “fixed” at a rate for an initial period and only become adjustable after their fixed period ends. This can vary between 5, 7, or even 10 years.
Fixed-Rate Mortgages: Most mortgages are fixed at one rate for the duration of the life of their loan – typically over a period of 15 or 30 years.
6. Prepare For Closing Costs
There are two types of closing costs that homebuyers should prepare for: Nonrecurring and Recurring.
Nonrecurring closing costs include the one-time fees that buyers pay only at the time of purchase. These can include:
- Escrow fees
- Title Insurance fee
- Appraisal fee
- Underwriting fee
- Notary fee
- Recording fee
- Transfer taxes
- Credit report acquisition fees
- Mortgage origination fees
- Processing fees
- Home inspection fee
Recurring closing costs include any fees that will recur after the purchase of your home closes. These can include:
These are some of the closing costs that homebuyers may experience. Depending on your own homebuying situation, you may have additional costs. In some cases, these fees may not apply to your closing costs.
7. Work With A Real Estate Agent
First-time homebuyers should find a trustworthy local real estate agent. It’s crucial to find an agent who’s worked in your preferred location extensively and can share helpful insights on new developments, taxes, and other issues.
If you don’t have a real estate agent yet, we can refer you to a trusted agent in our network.
8. Make A Homebuying Plan
It is crucial that homebuyers make a homebuying plan with clear goals and measures that they then share with their lender and real estate agent. It can be helpful to determine what your needs and non-negotiable items are and what are “nice-to-haves” that would be great perks but are not deal-breakers. Having a clear homebuying plan will inform your financing options with your lender and narrow down your home search with your real estate agent.
9. Submit A Confident Offer
An Earnest Money Deposit (EMD) is a check that accompanies a buyer’s offer. The purpose of an EMD is to prove that the buyer’s offer is serious and in good faith and to provide additional “consideration” to make their offer “valid.” EMD’s tell the sellers that the buyer is serious about buying their property and that they are willing to put their money where their mouth is.
Homebuyers should be confident when submitting offers and 100% sure they are ready to buy the house they offer on. In some cases, if homebuyers back out of their offer, they risk losing their EMD, which can vary in amount between $1,000 and 3% of the offered purchase price.
In a buyer’s market, homebuyers might be able to “lowball” their offer and start negotiations with the seller. In a hot market homebuyers need to make a strong impression right away with their first offer. Using the research they’ve done, offering with a strong and airtight pre-approval letter, and working with an experienced real estate agent will ensure that their offer is strong and confident.
10. Schedule A Home Inspection Early
Your dream home may seem perfect on the outside, but there could be significant issues hiding just beneath the surface. It is imperative for your safety that homebuyers have an inspector examine every inch of the new property.
Once the purchase contract has been signed, homebuyers have a set period to inspect the home. Even though the offer has been signed, a hired professional could find something that homebuyers cannot live with or afford to fix.
Even though homebuyers don’t need to schedule the inspection until after the contract has been signed, homebuyers will want to have researched inspectors beforehand. Ask your Realtor or friends and family for referrals and then reach out to inspectors for pricing.
If you are worried about about having an inspection contingency when you make offers, be sure to consult with your real estate agent and a JVM mortgage expert.
11. Craft A Budget And Stick To It
Many homebuyers can feel overwhelmed when they first take on all the costs that come with homeownership. Some homebuyers can get overly invested in a home only to find out that they can’t qualify for their mortgage or afford the upkeep and maintenance that comes with the home.
Once you set a budget for a home purchase, do not go over it. Even if a home seems like it would be perfect – if you do not have the funds to purchase the home or fund the renovations and repairs, it won’t do you any favors, in the long run, to take on a project you can’t afford. The right home is out there for you – work with your real estate agent to find a home that fits your needs and your budget.
12. Save Documents For Seasoned Funds
“Seasoned” means that the funds have been in a homebuyer’s bank account for over two months and/or that the funds came from a legitimate source. Lenders verify if the funds are seasoned by thoroughly reviewing financial documentation.
Lenders want to make sure funds are seasoned for several reasons: (1) to make sure buyers did not secretly borrow down payment funds that have to be paid back (impacting debt ratios); (2) to make sure buyers have “skin in the game” with their own funds going towards the down payment; and/or (3) to make sure buyers have the ability to save.
Every lender is required to review every deposit in every borrower’s bank and investment account statements – and every “unusual” deposit has to be explained and “paper-trailed.” If homebuyers don’t have the documents necessary for lenders to “season” funds, they might encounter some delays in their loan application.
First-Time Homebuyers In California, Texas & Beyond
The best way for first-time homebuyers to prepare to make a real estate purchase is to gather as much information as possible from the very beginning. It is especially important for first-time homebuyers to be realistic about what they can actually afford now and in the years to come as they plan for their first home purchase. Homeownership comes with many expenses that can catch first-time homebuyers by surprise if they aren’t prepared. Additional housing costs like home insurance, HOA dues, maintenance costs, and property taxes can quickly add up if homebuyers do not have a well-planned budget in place. We generally recommend that first-time homebuyers set aside 1% of the cost of their home for maintenance each year.
To explore different housing payment scenarios, use JVM’s Mortgage Calculator tool and make educated projections for what price points fit your budget.
Buying a home is an incredibly exciting time and can be a smooth and easy experience – especially if you are working with a reputable lender and real estate agent. Many first-time homebuyers are eager to start their homebuying journey. Referencing this guide with our helpful tips can ensure that your home purchase goes as smooth as possible! If you ever start to feel overwhelmed about the process, check in with our team. Our Client Advisors are available 7 days a week and are experts at every type of purchase in California and Texas.
Questions? Keep In Touch With JVM Lending
If you have questions about the homebuying process or how to qualify for a mortgage as a first-time homebuyer, contact JVM Lending at (855) 855-4491. Our expert Mortgage Analysts and Client Advisors are available 7 days a week to answer questions and guide you through the homebuying process.
One of the biggest advantages available to JVM homebuyers is JVM’s Homeownership Advantage. JVM Lending offers homebuyers benefits that go far beyond mortgages, including moving assistance, monthly home value updates, home concierge services, and interest rate monitoring services. Keep in touch with JVM Lending to continue to take advantage of all the many offerings JVM offers their homebuyers.