The Ultimate Guide to Getting Your First-Time Home Buyer Loan

Understand the essentials of buying your first home. Getting a first-time home buyer loan can be hard, but our Ultimate Guide will make it easier.
The Ultimate Guide to Getting Your First-Time Home Buyer Loan

For most people, their first home buyer loan is the largest sum of money they have ever dealt with. Buying a home can be stressful, time-consuming, and expensive (especially if moving to a new city).

It is also very exciting and incredibly rewarding. You can reduce the pain and increase the pleasure of home buying by simply educating yourself on the process. There is nothing scarier than not knowing what to expect, but by preparing yourself, you can proceed with confidence. And so, with that in mind, here is the ultimate guide to getting your first-time home buyer loan.

Neighbor's Ultimate Guide to Getting Your First-time Home Buyer Loan will go over the following:

  1. How Does Home Buying Work?
  2. What Types of Assistance Can First-Time Buyers Receive?
  3. How to Find a Good Mortgage?
  4. How to Prepare for Your First Home Loan
  5. Tips for Your First Mortgage Loan
First Time Home Buyer Loan

How Does Home Buying Work?

Do not feel bad about asking this question. To some, it may seem obvious, but if you have never owned a home, you are probably wondering: How does home-buying work?

The short answer is that home buying happens mostly through loans. Yes, there are cases when home buyers offer cash for a property, but that is rarely true for first-time buyers.

The most common type of home loan is called a mortgage. You can get a mortgage home loan, just like any other loan, through a commercial bank. Some smaller banks will also offer mortgages and, depending on your credit and financing situation, it is sometimes worth shopping around.

What Is a First-Time Home Buyer Mortgage Loan?

A mortgage is, essentially, a long-term loan—one of the longest, in fact. Most mortgages last between 15 and 30 years. There are also cases when lenders offer 40-year mortgages, but those are less common. Because of the amount of money you need to borrow and the decades it takes to pay it off, interest rates are a big consideration for most first-time home buyers. You can easily find the average mortgage interest rate in your state by doing a little research. This time and effort will pay off because when you go for your mortgage, you will know what to expect.

What About Down Payments?

Down payments are an important aspect of buying a home, especially if it is your first one. Many young buyers assume they are going to need to put loads of cash down to move forward with buying their homes. In reality, this is not always the case. With a typical commercial loan, you will usually need to put down about 5% of the total loan cost, and with an FHA loan, you usually only need to put down about 3.5%.

This is not to suggest that you should not put down more money than the average amount. There are many people who aim to put down 20% or more on their first home. This can be a good idea as it can reduce the amount you have to pay in mortgage insurance. On the other hand, it is not necessarily wise to drain your bank account on a home purchase. Yes, you should plan and save for your home, but you should only put as much money into your down payment as you can comfortably afford. That means having enough left over to pay for your other monthly expenses as well as some extra for “emergency” expenses.

What Is an FHA Loan?

An FHA loan is a mortgage that is backed by the Federal Housing Administration (FHA). FHAs are especially popular mortgages because of their low down payments—which can be as little as 3.5%—and the fact that they do not require as high of a credit score as traditional commercial loans.

If your credit score is 580 or higher, you will usually get accepted for a low-interest, low-down-payment loan. If your credit is not quite that high but is somewhere between 500-579, you can usually still qualify for an FHA loan. You will just need to put more money down on your mortgage—around 10% or more.

What Types of Assistance Can First-Time Buyers Receive?

Down Payment Assistance

While you may only need to make a down payment as small as 3%, there are times when even that is unaffordable. Thankfully, there are programs out there that can help.

DPA Loans

There are several types of Down Payment Assistance (DPA) loans that can help you make the initial payment on your home. These include:

  • Deferred payment
  • Forgiven loans
  • Second mortgages

DPA Grants

Government-backed loans like those offered by the FHA can help reduce the amount you need to put down, compared to traditional loans from commercial banks. A commercial mortgage can require anywhere from a 5-20% down payment, depending on your credit score and income. An FHA-backed loan, on the other hand, may only require 3%.

Government-Backed Loans

Government-backed loans like those offered by the FHA and can help reduce the amount you need to put down when compared to traditional loans from commercial banks. A commercial mortgage can require anywhere from a 5-20% down payment depending on your credit score and income. An FHA-backed loan, on the other hand, may only require 3%.

Tax Credits

There are a number of tax advantages to buying a new home. Remember to deduct your mortgage insurance from your annual tax filings. This could end up saving you thousands of dollars each year.

Closing Assistance

At the end of your mortgage, you must pay closing costs that can range anywhere from 3% to 6% of the total cost of your home. Thankfully, there are assistance programs to help you cover these costs as well. There is also something called a "seller concession," which can help to lower or remove your closing costs.

How to Find a Good Mortgage?

Government Programs

The first stop for any first-time home buyer is Uncle Sam. The federal, state, and local governments offer a variety of programs that can save you more money than traditional mortgages from large commercial banks.

These programs include:

Good Neighbor Next Door

The Department of Housing and Urban Development (HUD) has a special program for teachers, firefighters, emergency technicians, cops, and other public servants that offers huge discounts on certain properties. If you are employed in any of these professions, you should take a close look at the properties offering HUD's "Good Neighbor" discounts in your area.

HomePath Ready Buyer™ Program

Fannie Mae, one of the largest home mortgage lenders in the country, offers substantial discounts on the purchase of foreclosed homes. Down payment rates on foreclosed properties owned by Fannie Mae can be as low as 3%.

Charitable and Nonprofit Organizations

There are several nongovernmental charitable organizations that offer assistance, advice, and counseling to low-income individuals who want to buy homes. These organizations are good places to connect with if you do not know where to start.

Habitat for Humanity

Habitat for Humanity is the largest charitable homebuilder in the world. Having constructed over 800,000 homes, Habitat for Humanity is a powerful resource for those in need.

Neighborhood Assistance Corporation of America (NACA)

Another nonprofit, the Neighborhood Assistance Corporation of America (NACA), offers counseling and advice to low-income individuals when they are trying to buy a home.

How to Prepare for Your First Home Loan

Taking out a mortgage to buy a home is a big decision. Many young people decide to move forward with a mortgage in order to avoid “throwing money away” by renting. In some cases, this is certainly true. And, there are times when you can actually save money with a monthly mortgage payment versus what you might be spending every month on rent. With that said, you still should not commit to a mortgage without first achieving at least some level of financial and personal stability.

As an Exercise, Try Asking Yourself the Following Questions:

Do you have any major foreseeable life changes coming up?

You do not want to get a mortgage to buy a house right before you get a new job or move to a new city. Ask yourself if you are secure in your current job and, if worst came to worst and you lost your job, do you have other options in the area? Aside from that, consider things like where your family and friends will be living in the future, as well as whether or not you are planning to get married or have kids. All of these factors play a role in deciding whether you should buy and what kind of home you should consider buying.

Will you be staying in the home you are looking to buy for at least five years?

If you are not planning on staying in the home you are looking to buy for at least five years, you may be better off renting. You might be looking at another area or just thinking that you may want to upgrade to a larger place in a few years. If so, and you cannot see yourself in the same home over the course of the next five years, it may be worth holding off on that loan.

How stable is your income?

The best bet is to aim conservative. Base your estimates off a “bad” month and decide what you can and cannot afford from there.

Are you “handy,” or are you going to have to hire someone to help you with periodic house repairs?

Knowing how to fix and repair things is important if you are looking to buy a house. There are many things that can and will go wrong in a house—from A/C to plumbing, electricity, the roof, and more. If you know a thing or two about construction and how to work with your hands, it can be very valuable.

First Time Home Buyer Loan

Tips for Your First Mortgage Loan

Now that you know some of the basics, here are some tips that can help you with your loan:

  1. Research Aid Programs
  2. Compare Rates
  3. Get a Pre-Approval Letter
  4. Do Your Due Diligence
  5. Stick to Your Budget

1. Research Aid Programs

There are many first-time home buyer aid programs at both the local and state levels. You may qualify for tax discounts, as well as a number of other benefits. Be sure to look into these before and after you purchase your home.

2. Compare Rates

Do not go with the first lender you talk to. Even if the rate seems good and everything checks out, any reasonable mortgage lender will understand that you are going to want to compare rates and talk to more than just one person. Comparing three or more lenders is ideal before you make your home purchase. Remember, this is a decision that is going to impact your financing for the next 15 to 30 years. You do not want to rush into anything.

3. Get a Pre-Approval Letter

Get prequalified for your first mortgage is great. But what you really need to do is get a pre-approval letter from your prospective lending institution stating how much you can borrow. A pre-approval letter is more official, and it means that the lending institution did more of a deep dive into your finances, rather than just running a “soft” credit check.

4. Do Your Due Diligence

Buying a home can be a risky investment. That is why, before securing your mortgage, you are going to want to do your “due diligence.” What this means is you should carefully review any contracts or purchase details, and you should hire an inspector to come in and look over the house. Hiring someone who knows about home construction and maintenance to check your home out prior to purchase is a very important step.

Other than the appearance or condition of the house, apartment, or condo, you are also going to want to think about things like:

  • Nearby schools: How are they rated?
  • Local crime statistics: Is your neighborhood safe?
  • Traffic: Will you have to deal with a lot of traffic?

5. Stick to Your Budget

Finally, you should come up with a solid budget. It is important to have a budget and to stick to it, and not to bend the moment you see something you like!


Whether you go commercial or FHA, taking out your first mortgage to buy a house is a big decision. There is no need to panic, but it is good to enter the process with information and responsible planning! Simply follow this guide, do your research, and stay calm. Next thing you know, you will be living in your new home!

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