8 First-Time Home Buyer Questions

Becoming a first-time home buyer is an exciting milestone that can raise lots of questions. The first question you’ll need to confidently answer is whether you’re ready to own a home. You’ll likely also have questions about the different mortgage types and the paperwork you must submit with your home loan application.

We answer these common first-time home buyer questions and provide the insights and resources you need to navigate the home buying process like a pro.

1. Am I Financially Ready To Own A Home?

It’s ideal to be financially ready before you start shopping for a home. You’ll need to budget for a down payment, closing costs and a home inspection, among other expenses. You’ll also need to figure out your ideal monthly mortgage payment.

The size of your down payment will depend on the type of loan you choose and the lender's requirements. Closing costs are additional home buying fees, such as loan origination fees, appraisal fees and title insurance.

It’s crucial to schedule a home inspection before you finalize a home purchase. A home inspector evaluates a property's condition and identifies any potential issues. An inspection will provide more insight into the condition of the home and what you might need to budget for in the future.

2. How Long Do I Plan To Live In The Home?

Deciding how long you plan to live in the property can help you determine the ideal home type and appropriate home loan option.

If you don’t plan on living in the home very long (typically less than 5 years), a starter home that needs little or no renovations or upkeep may be the better option. With a move-in ready starter home, you may be able to get into the home quickly, and you won’t have to worry about renovations or time-consuming upkeep. If your stay is short, it may not make financial sense to pay for significant upgrades, then pack up and leave a few years later.

If you plan on staying in a home a lot longer (or maybe forever), picking that diamond in the rough that needs some work may be more affordable. You can upgrade and personalize the home to meet your long-term needs without paying as much upfront. Location may also play a huge role in your choice if you plan to live in a home longer.

How long you plan to stay in a house can also affect your mortgage choices. If you anticipate moving out after 5 years or less, consider a low or zero-down-payment mortgage so you have more cash available for other expenses or investments. The potential downside of a low or zero-down mortgage is that you’ll likely have less equity in the home when you sell it.

If you plan to stay in the home longer, at least 10 years, you should prioritize building equity. In this scenario, a larger down payment and a shorter loan term, such as a 15-year mortgage, may be more beneficial because you can pay off your mortgage faster and save on interest payments over the life of the loan.

3. Is My Credit Good Enough To Buy A Home?

A credit score is a major factor that lenders consider when determining eligibility for a mortgage loan. It not only affects your chances of qualifying for a loan, but it also impacts the interest rate a lender will charge.

One of the first steps you should take before browsing home listings is to check your credit score. You’ll typically need at least a 620 FICO credit score to get a favorable interest rate on a conventional loan. A score of 760 and up will earn you the best terms. With a higher credit score, you’ll likely get a lower interest rate and enjoy a smoother loan approval process. If your credit score is in the lower range, some loans have lower credit score requirements, like Federal Housing Administration (FHA) loans.

4. Should I Get A 15-Year Or A 30-Year Mortgage?

Before you decide on a 15-year versus a 30-year mortgage, consider your finances and long-term goals. A 15-year mortgage typically offers a lower interest rate than a 30-year mortgage, so you’ll pay less interest over the loan’s term. However, the monthly payments on a 15-year mortgage are higher because you pay off the loan in half the time.

If you have other financial goals or want more flexibility with your monthly budget, a 30-year mortgage may be ideal. It may also be a better fit if you plan to move or sell the home before the end of the loan term.

5. Fixed-Rate Vs. Adjustable-Rate Mortgage: Which Is Better?

Home buyers typically have two standard loan options: fixed-rate or adjustable-rate mortgages (ARMs). Each one has its advantages and potential disadvantages.

A fixed-rate mortgage offers stability and predictability because the interest rate stays the same over the life of the loan. This consistency makes it easier to budget and plan for the future. A fixed-rate mortgage is a great option for borrowers planning to stay in the home long term.

An adjustable-rate mortgage starts with a low, fixed interest rate for 5, 7 or 10 years. After the initial period, the interest rate adjusts periodically based on market conditions. While an ARM may offer a lower initial rate, borrowers are taking on the risk of high rate increases in the future, which would result in higher monthly payments. An ARM is a suitable option for borrowers who may not plan on staying in the home long term.

6. What's The Best First-Time Home Buyer Mortgage For Me?

With so many options available for a first mortgage, you should research and compare different mortgage types to find the best fit for your finances and future goals.

One option is an FHA loan. FHA loans are designed for first-time home buyers. The loan’s credit score requirement is lower than many other loans, and depending on a borrower’s credit score, they can make a minimum down payment of 3.5%.

Another option is a conventional loan. Conventional loans typically have a higher credit score requirement but may offer more flexibility with loan terms and interest rates. Some conventional loans require as little as 3% down if the borrower meets a certain criteria.

It's also worth exploring loan programs that offer zero-down mortgages, including Department of Veterans Affairs (VA) loans, available to active-duty service members, veterans and their surviving spouses, or the U.S. Department of Agriculture (USDA) Single Family Housing Guaranteed Loan Program, available to low- to moderate-income borrowers purchasing homes in qualified rural areas.

7. What Documents Do I Need To Qualify For A Loan?

A critical part of successfully obtaining a loan is paperwork. You’ll need to gather the documents lenders require for qualification. What you’re required to submit will vary based on the lender and loan program, but there are some standard documents you should prepare to submit.

You’ll need to provide income verification, which typically includes W-2 forms and tax returns for the past 2 years and a current paystub. Lenders must verify you have a stable source of income and can afford your monthly mortgage payments.

Your lender will likely ask you to provide bank statements, usually for the past 2 – 3 months. Lenders examine bank statements to verify your savings and checking account and look for large deposits or withdrawals that may raise red flags. If you’ve made any large deposits be prepared to provide documentation such as a gift letter.

You may also need to provide documentation for any assets, such as investments, retirement savings or other properties you own.

All this paperwork helps lenders evaluate your overall financial picture and determine your ability to cover the down payment, closing costs and monthly mortgage payments.

8. How Do I Get The Best First-Time Home Buyer Mortgage Rates?

The interest rate on your mortgage will significantly impact your monthly payments and the overall cost of your loan. Consider a few key factors to get the best rates.

Your credit score plays a major role in determining the interest rate you'll receive. Lenders typically offer lower rates to borrowers with higher credit scores.

Another factor to consider is your loan-to-value ratio (LTV). It’s a percentage that compares your total loan amount to the appraised value of the home you want to buy. Lenders prefer borrowers with a lower LTV because you’re borrowing less to purchase the property and are less likely to default on the loan. To improve your LTV, make a larger down payment or make the same down payment on a less expensive property.

Lastly, another crucial factor is your debt-to-income ratio (DTI), which is your fixed monthly expenses (including your future mortgage payment) compared to your gross monthly income. If your DTI ratio is too high, it can signal to a lender that you’re taking on too much debt. If your debt-to-income ratio is favorable, it could lead to more favorable loan terms.

First-Time Home Buyer FAQs

How do I choose the right neighborhood to buy my first home in?

Choosing the right neighborhood for your first home is an important decision. Consider your proximity to amenities, schools, transportation and neighborhood safety, among other factors. Research property values in the area and do some digging to see if any major neighborhood development plans are in the works.

Visit the area at different times to get a better feel for the community. Consult with real estate agents or residents for deeper insights. The right neighborhood should align with your lifestyle, preferences and long-term goals.

What are the potential pitfalls of buying a fixer-upper as a first-time home buyer?

There are several potential pitfalls to consider when buying a fixer-upper as a first-time home buyer. The cost of renovations can skyrocket, especially if unknown problems crop up or renovations fall behind schedule.

Is it worth paying for a home inspection before purchasing a property?

Paying for a home inspection is highly recommended before buying a home. An inspection provides valuable information about a property's condition and identifies potential issues or repairs.

If you’re a first-time home buyer, it may be worth discussing an inspection contingency with your real estate agent or real estate attorney. An inspection contingency gives a buyer the chance to back out of the transaction without losing their earnest money deposit if the inspection reveals significant problems.

What are the advantages of buying a newly constructed home versus an older home?

When deciding between an old house and a new house, consider their pros and cons. Newly constructed homes often have modern amenities and energy-efficient features, and an owner can easily customize certain aspects of the home. New homes typically require less maintenance and come with a builder warranty, providing peace of mind for the homeowner.

Older homes may have more character, are part of established neighborhoods and may even be less expensive than newer homes. But they’re more likely to require time-consuming and costly maintenance and upkeep.

How can I negotiate the price of a home as a first-time buyer?

Knowing how to negotiate a home's purchase price will come in handy when searching for the perfect house. Here are a few tips to help you negotiate effectively:

• Research the market and comparable home prices in the area.
• Tailor your offer to the seller’s needs or leverage any property issues discovered during the home inspection.
• Develop a negotiation strategy with your real estate agent.
• Prepare to compromise to create a win-win situation for both parties.

The Bottom Line: Ask The Right Questions To Buy Your First Home

Becoming a first-time home buyer is exciting, but you’ll need to answer many questions before and during the home buying process. Buying a home requires careful consideration of your readiness to own a home, your financial situation, your credit score and your mortgage options.

While you can answer certain questions yourself, connect with an experienced real estate agent to answer more complex questions and get started on your home buying journey.