3 Key First-Time Homebuying Tips

Buying your first home is one of the biggest, most exciting decisions you will make, but it can also be overwhelming. Understanding how the home financing process works can help alleviate the anxiety you might feel throughout. Before applying for a mortgage, here are three important factors to take into consideration as a first-time home buyer.

Evaluate Your Credit Report

When applying for your first home loan – or any loan for that matter – it is important to know your credit score, as well as what is on your credit report. This is one of the main factors lenders take into consideration when determining your eligibility for a loan. Here is what lenders most often look at when reviewing your credit report:

• Credit score
• Payment history
• Outstanding debt
• Length of credit history
• Variety of credit: Lenders want to see that the borrower has experience using multiple sources of credit in reliable ways. For example, having a credit card plus an auto loan shows your ability to repay both installment loans and revolving debt.

If the information on your credit report meets the lender’s criteria, the loan program and interest rate that you’re eligible for will, in most cases, be determined using these factors. To make sure you are receiving the best loan terms (including interest rate and repayment options), be sure to check your credit report regularly for new items or possible errors. This can be done for free at sites like annualcreditreport.com. If your score isn’t as high as you want or need it to be, you can get some helpful information from these blogs on Building Credit and Credit Basics. If you see any errors on your credit report, you may have the option to file a dispute, but it is important to consult with a mortgage advisor to make sure the timing doesn’t affect your eligibility for your potential loan.

Review Your Finances

Another important factor when applying for a loan is proving you have a stable income because, again, you must be able to show you can repay your debt obligations. The options for proving your income stability vary based on your employment type. Most people will need to provide two years of employment history, while additional documentation may be required for self-employed and commission-based jobs. We would recommend discussing your income with a mortgage advisor to ensure you have the correct documentation on hand when applying for a mortgage.

There’s a common belief that a 20% down payment is needed to purchase a house, but there are loan programs available that require less money as a down payment. Programs like the CommunityAmerica First-Time Homebuyer loan and other FHA loans require smaller down payments¹, so it is important to discuss all of your options with a mortgage advisor to determine the right loan for you. If you are just starting the process and are simply curious about how much house you can afford, carefully review your finances and check out this handy calculator.

Budget for Additional Costs

In addition to the down payment and closing costs, it is important to remember that being a homeowner comes with additional expenses that you might not have had while living in an apartment or renting a home. From HOA dues to utilities, property taxes, maintenance costs, and repairs, having at least two months’ worth of expenses as an emergency fund can be a life saver.

We get it, the prep to buy a home may seem a little intimidating. At CommunityAmerica, we are here to make the homebuying process as smooth as possible as one of Kansas City’s top mortgage lenders. When you feel comfortable, meet with a mortgage advisor to start the process or ask questions. If you’re in research mode, check out our Empower Blog for tips to building credit, budgeting, and saving, and if you want to crunch some numbers, check out our Mortgage Calculators.