What is a first-time homebuyer, anyway?
If you're a first-time buyer in just about any region of the USA these days, it can feel like the odds are against you. Prices are higher, bidding wars abound, and sellers can be a lot pickier about who they want to sell to (cash offers with no inspections often move to the front of the line.)
Plus, since it typically takes the average first-time buyer much longer to save up for a down payment, you may be limited to what types of mortgage options are available to you.
VA loans have significant advantages, but they are reserved for U.S. service members and veterans. And USDA loans are geared to people looking to buy a home in a part of the country that's more rural and whose community could use a boost with new neighbors. If neither of those sounds like you, you might want to look into the Federal Housing Administration (FHA) loan programs.
You don't have to be buying for the first time to qualify as a first-time homebuyer.
To avoid confusion, the US Department of Housing and Urban Development (HUD) established a set of criteria to help lenders identify who exactly is a first-time homebuyer. See if you fit into any of these descriptions:
- A first-time homebuyer is an individual who has not held ownership in a principal residence during the three years ending on the date of the purchase.
- First-time homebuyers are both individuals in a married couple where one spouse is (or was) the homeowner, but the other has never owned a home.
- A first-time homebuyer is a single parent who has only owned a house or condo with a former spouse while married.
- A first-time homebuyer is an individual who has only owned a home with a spouse and is a displaced homemaker or caretaker (providing unpaid services for family members).
- A first-time homebuyer is an individual who has only owned a principal residence that was not permanently affixed to a permanent, structural foundation (such as a mobile home) in accordance with applicable regulations.
- A first-time homebuyer is an individual who has only owned property that does not comply with state, local, or model building codes and cannot be brought into compliance for less than the cost of constructing a permanent structure.
Get familiar with these five steps if you're a first-time homebuyer:
Step 1: Get yourself pre-approved
The only way to really, truly know how much home you can afford (or should afford) is to ask a lender. Getting pre-approved lets you see how much you can afford so you don't waste time looking at homes that are out of your range. Know these three components inside and out:
- What is your income? A stable income assures a lender you can make your monthly mortgage payment over and over without any trouble.
- What is your debt? Add up auto payments, credit card payments, student loans, alimony, child support, and other debt.
- What does your liquid cash look like? Consider total assets, the amount you have in your checking and savings accounts, and other investments.
Step 2: Determine your monthly mortgage payment – including escrow
Once you know your buying power based on the pre-approval process in Step 1, you should determine what that monthly nut is that you'll need to shell out. Add in escrow, too. Escrow is a third-party account used to retain funds, including the property owner's real estate taxes and hazard insurance premiums. Escrow is only applicable in specific loan programs.
Step 3: Understand all the expenses associated with homeownership
A good rule of thumb for first-time homebuyers is to estimate that it will cost about 1% of the purchase price per year to maintain your home. For a $200,000 home, you should budget approximately $2,000 per year or roughly $170 per month for maintenance. Condominiums and co-ops work a little differently, as they will have regular maintenance fees that you'll know upfront. You will also have utilities, gas, electric, water, sewage, cable, telephone, insurance, property tax, etc.
Step 4: Establish future priorities and plan for the unexpected.
Buying a new house is a one-time purchase. Next comes all the little (and not so little) things that add up. What are your needs for the new home? Furniture, lawn equipment, barbecue grill? Do you plan on buying a new car in the near future? Do you plan on starting a family? How long can you go without an income if you suddenly lost your job? These are all things you need to consider from a financial perspective and save up for — on top of your proposed down payment and closing costs.
Step 5: Get guidance.
Contact a Movement Mortgage Loan Officer in your area. He or she can look at your unique situation, fill you in on what to be aware of as a first-time homebuyer, and help tailor a mortgage that's right for you. However, if you feel like you're all set, we've got your back. Apply online with the Movement Mortgage Easy App. This tool will help you get pre-approved quickly by letting you upload all required documents straight into the app.
Keep researching!
Meanwhile, here the following blog articles make great reading for first-timers doing their homebuying research!
