Information on Buying a Home for the First Time

First-time buyers must wade through an often complicated process.

Buying a house for the first time can be a challenging experience. You'll need to learn the basics of credit scoring. You'll have to decide on a mortgage loan. And you'll need to work with appraisers, home inspectors, attorneys and mortgage brokers. Fortunately, by familiarizing yourself with the basics of buying a home, you'll give yourself an advantage over other first-time buyers.

The Professionals

When you buy a home for the first time, you'll most likely work with several real estate professionals for the first time, too. There are real estate agents, of course, who can help you find a home, make an offer on it and negotiate it. You'll probably also need to work with a mortgage lender who can help you apply for a mortgage loan to finance the purchase of your new house.

But during the real estate process, you'll also work with a real estate appraiser, who will determine whether the home you want to buy is worth what the sellers are charging, and a home inspector. The inspector will examine a house after you make an offer to make sure that there are no serious problems. Depending on the state in which you live, you might also work with a real estate attorney who will help you decipher the mountain of papers you'll be signing at the closing table.

Getting Pre-approved

It's best for first-time buyers to get pre-approved for a mortgage loan before they even begin looking at homes. When you are pre-approved, your lender tells you exactly how much money he is willing to let you borrow. You then know exactly how much home you can afford. Sellers also view pre-approved buyers as more serious buyers. When they see a pre-approval letter, it can ease any fears they might have of working with first-time buyers; they know you will have enough funds to bring to the closing table.

To get pre-approved, you'll have to send your lender such financial documents as copies of your last two paychecks, your most recent W-2 statement, bank savings and checking account statements and any other loan statements you have. Your lender will use these to determine how much of a monthly mortgage payment you can afford.

Credit Scores

Lenders in 2010 rely heavily on three-digit scores when deciding to whom to loan money and at what interest rates. These scores tell lenders how reliable of a borrower you've been in the past. If you have a history of not paying your bills on time, your scores will be lower. If you never miss payments, they'll be higher. Lenders consider scores of 720 or above to be top-notch. Borrowers with scores below 620 might struggle to qualify for loans from traditional lenders.

First-time buyers often don't have a long credit history. They haven't had to make mortgage payments each month, for instance. But a history of paying your car payments, credit card bills and monthly rent on time will give you a strong credit score.

FHA

Many first-time buyers apply for mortgage loans insured by the Federal Housing Administration (FHA). These loans require a down payment of just 3 1/2 percent of a home's purchase price. Most traditional mortgage lenders require down payments of at least 10 percent of the purchase price. It can be hard for first-time buyers to come up with that sort of cash.

To learn how to apply for an FHA-insured loan, first-time buyers can visit the administration's website (see Resources).

Making An Offer

When you find a home that you like, your agent, if you are working with one, will help you write an offer. The sellers might accept the offer, or they might come back with a counteroffer. In rare cases, they'll reject an offer completely and refuse to entertain any follow-up offers.

Negotiations over price can last through several rounds of faxing or e-mails. This is a normal part of the process. When you and the seller finally agree to an offer, you'll both sign a purchase agreement. You'll also have to provide earnest money--usually around $1,000--to prove that you are a serious buyer. You will set a closing date to sign the closing papers that transfer the property's title to you.

Home Inspection

Before the closing and after the purchase agreement is signed, buyers should hire a home inspector--usually for about $450--to tour the home they are going to buy. The inspector will search for any serious problems. If some are found, buyers can either ignore them, request that the sellers repair them or request that the sellers lower the purchase price to cover the cost of the repairs. For repairs that are serious enough, such as costly foundation problems, buyers are allowed to break a purchase agreement.

References

• U.S. Department of Housing and Urban Development: Common Questions from First-time Homebuyers
• Home Buying Institute: Buying a Home for the First Time