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First-Time Buyer FAQ

Common Questions From First-Time Home Buyers


First -time home buyers are people who have not bought a new home in three years. Even if you bought a house three years ago and have owned it since, you will still be considered a first-time home buyer even though you aren’t a first-time homeowner. Here are answers to questions that most first-time home buyers will have and their answers.


Q: Why should I buy instead of rent?

A: Homes are investments. Renters will find that they have to pay monthly investments which take their money away forever. However, homeowners will find that they are able to deduct their mortgage loan interest payment from federal income taxes, and usually state taxes.  This ends up letting you save a lot each year due to the interest you pay making up most a decent chunk of your monthly payment for most of the years of the mortgage. You’re also able to deduct property taxes paid as a homeowner. Along with that, the value of your home may potentially go up over the years. And, all in all, you’ll be able to literally own a house that’s yours.


Q: What programs are available to first time home buyers?

A: There are quite a bit of home loan programs available for first-time buyers. You could get an FHA, VA, USDA, or conventional mortgage loan.


Q: What are “HUD homes” and are they a good deal?

A: HUD homes can be very good deals. When people with HUD-insured mortgages can’t meet their payments, their lender forecloses on the home, then HUD pays the lender what’s owed, and HUD takes ownership of the home. Then it is sold at market value as quickly as possible. Read all about buying a HUD home; check our listings of HUD homes and homes being sold by other federal agencies!


Q: Can I become a homeowner even if I’ve had bad credit, and don’t have much for a down payment?

A: You could be a good candidate for federal mortgage programs if you’re in this situation. First off, contact a HUD-funded housing counseling agency to help sort through your options. Also, be sure to contact your local government to make sure if there are any local homebuying programs that could fit your needs. Look in the blue pages of your phone directory for your local office of housing and community development or, if you just can’t find it, contact your mayor’s office or your county executive office.


Q: Are there special homeownership grants or programs for single parents?

A: Yes, there is help for single parents. First off, make sure you are familiar with the home buying process and that you know how to pick a good real estate broker. Single parents will not have the benefit of being on two incomes to qualify for a loan, so you should consider getting pre-qualified. Getting pre-qualified allows you to quickly qualify for a house you like in your price range. You should consider contacting one of the HUD-funded housing counseling agencies in your area in order to talk to other options for help that could become available to you. Research buying a HUD home, as they can be pretty good deals. Also make sure to look in the blue pages of your phone directory for your local office of housing and community development or, if you just can’t find it, contact your mayor’s office or your county executive office.


Q: Should I use a real-estate broker? How do I  find one?

A:  Using real estate brokers is a very good idea. All the details involved in home buying, especially financial ones, can be pretty stressful. Good real estate professionals can guide you through the entire thing and make the experience a lot more smooth. A real estate broker will be very informed with all of the important things regarding the neighborhood you will be choosing such as the quality of schools, the number of children in the area, the safety of the neighborhood, traffic volume, and more. They will help you find out the price range that is affordable and will search the classified ads and several of the listing services for homes you will want to see. With their immediate access to homes almost as soon as they are put onto the market, the broker can and will save you a lot of wasted time spent driving around. When you’re ready to make an offer on a house, the broker will point out ways to construct your deal to save you money but still have a reasonable offer price. They will be there for almost every minute regarding purchasing your new home, and at no cost whatsoever! The payment comes from the home seller, not from the buyer. Along with all this, if your goal is to buy a HUD home, it is necessary to use a real estate broker in order to submit your bid. To find a broker that sells HUD homes, check your yellow pages of the classified section of your local newspaper.


Q: Who pays the realtor fees when buying a home?

A:  The seller will pay realtor fees out of proceeds from their home sale (if there is enough equity, of course). If the deal ends up failing before it closes, the realtors will probably just not get paid.


Q: What types of properties can I buy as a first-time homebuyer?

A: You’re able to purchase a single-family residence, a small family (2-4) primary residence, condominiums, townhomes, row homes, and co-ops, as long as they’re common in the area.


Q: How much money will I have to come up with to buy a home?

A: That depends on a huge number of factors, including the cost of the house along with the type of mortgage you get. Overall, you need to earn enough money to cover three different costs: earnest money, the deposit made on the home when you submit your offer; the down payment, a percentage of the cost of the home that must be paid when settlement begins; and closing costs, the costs associated with the processing of the paperwork to buy a house. When an offer on a house is made, your real estate broker will put the earnest money into an escrow account. If your offer is accepted, the earnest money will be sent to be paid as a down payment or closing costs. If it’s not accepted, it will simply be returned to you. The amount of your earnest money varies. If you are looking to a HUD home, for example, your deposit will generally have a range of $500 – $2000. The more money you can put into your down payment, the less your mortgage payments will end up. Some loan types will need 10-20% of the purchase price. This is why so many first-time homebuyers turn to HUD’s DHA to help. FHA loans require very little down payment. Closing costs, which you pay at settlement, average only 3-4% of the price of the home. The costs will cover several fees that your lender charges along with other processing expenses. When you apply for a loan, the lender will give you an estimate of the closing costs so you won’t be surprised. If you purchase a HUD home, they may pay your closing costs.


Q: Can any portion of the down payment to be a gift from a relative?

A: Yes, FHA lets gift funds to apply toward any percent of your down payment, closing costs and prepaid items. Conventional financing allows for gift funds but 5% of the funds must be your own unless the gift is 20% of the purchase price or higher.


Q: How do I qualify for a loan?

A: Credit, income, and asset establish mortgage loans. All three must be present, no matter what; talk to a broker or a lender about it. It’s a good idea to be pre-qualified for a loan, so you’ll be able to go to a lender and apply for a mortgage before you actually begin looking for a home. You’ll then know immediately how much will be affordable and it will speed up the process once you find the perfect house.


Q: Should I get a home inspection?

A: While a home inspection isn’t necessary for a lender, it is less stressful to know that the property you’re about to buy will not be a drain on your financial resources. Home inspectors search for the condition of the property, including the mechanical, electrical, plumbing, etc. If the inspection report is not great, you can try to get the seller to fix those problems or just give up with the offer.


Q: Should I talk to a lender and get pre-qualified before looking at a home?

A: Yes, it’s always advised to get pre-qualified before looking at homes, especially if you’re not pre-approved. You’ll be able to know exactly how much you’ll be able to afford and as a first-time home buyer, there will maybe be programs available to help you with your purchase.


Q: In addition to the mortgage payment, what other costs do I need to consider?

A: One of the biggest “other costs” are monthly utilities. If they used to be covered in your rent, this may be news to you. Your real estate broker will be able to get information on how much the utilities typically cost. Also, you might have a homeowner association or condo association dues. For sure, you’ll have property taxes, and you could potentially have city or county taxes. Taxes are usually combined with your mortgage payment. Once again, the broker will be able to predict those costs.


Q: So what will my mortgage cover?

A: Almost all loans have four parts: principal, the repayment of the amount actually borrowed; interest, payment to the lender for the money you borrowed; homeowner’s insurance, a monthly amount ensuring the property from fire, smoke, theft, or any other potential hazards absolutely necessary by most lenders; and property taxes, the annual city and/or county taxes assigned to your property, divided by the number of mortgage payments you make in a year. Most loans are 30 years long, however, there are some that are 15-years. In the loan’s life, you’ll usually pay much more in interest than in principle, sometimes two or three times more. Due to the way loans are built, in the first years, you’ll be paying mostly interest in monthly payments. However, in the final years, your monthly payments will be mostly comprised of principal payments.


Q: What do I need to take with me when I decide to apply for a mortgage?

A: This is very important to know- if you visit your lender with these things, a lot of time will be saved. You should have:

  • Social security cards for both you and your spouse, especially if both of you are applying for the loan
  • Copies of your checking and savings account statements for the last 6 months
  • Evidence of any other assets such as bonds or stocks
  • The most recent available paycheck stub explaining your earnings
  • A list of all credit card accounts and the monthly amounts owed on each one
  • A list of account numbers and balances due on huge loans, like car loans
  • Copies of your last 2 years’ income tax statements
  • The name and address of someone who can verify your employment. It’s best to include both your boss and a co-worker you are close in case one is unavailable.

Depending on the lender, you could be asked for even more information.


Q: What if my offer is rejected?

A: They usually are, but that’s nothing to frown at. Now’s when you begin negotiating, and with the help of your broker. You may have to offer more money, however, the seller may cover a percentage of the closing costs or make repairs that traditionally wouldn’t happen. Most of the time, negotiations on a price go back and forth several, SEVERAL times before a deal is made, so be sure to keep in mind exactly how high you actually can go while yelling out numbers.


Q: So what will happen at closing?

A: Basically, what you’ll do is sit down at a table with your broker, the seller’s broker, maybe the seller, and a closing agent. The closing agent will give a lot of papers for both you and the seller to sign; while they give a basic explanation of each paper, you should give a quick minute to make sure you actually comprehend what it’s saying. If you don’t understand one or if there’s a problem, be sure to consult with your agent in order to make sure you know for sure what you’re signing, especially since the amount of money you’re being handed is huge, and you’re committing to it for a long time. Also, before you go to closing, your lender is required to give you a booklet basically explaining the closing costs, a “good faith estimate” of how much money you’ll have to give at closing, and a full list of papers and documents needed at closing. If your lender doesn’t supply you with these, contact them before you go to closing. These documents are incredibly important. Be sure to read our booklet on settlement costs, as it’ll help you understand your rights in the process. Don’t hesitate to ask questions!