First-time homebuyer's guide | finder.com

First-time homebuyer guide 2018

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Don’t let being green to the market hold you back from borrowing for your dream home.

Buying your first property is among the biggest decisions you’ll make in a lifetime. And if you get your home at a good price with strong mortgage rates and terms, it can also become an investment that grows your money over time.

Why we like:

Competitive rates and no prepayment penalties on a variety of loans.

  • Competitive rates
  • Variety of loan options
  • Quick closing

Why we like: First Internet Bank

Competitive rates and no prepayment penalties on a variety of loans.

  • Online application.
  • Variety of loan options.
  • Online account access.
  • No prepayment penalties.
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Compare mortgage options for first-time home buyers

Name Product Min. down payment Origination fee
3.5%
N/A
Competitive rates and no prepayment penalties on a variety of loans.
3.5%
1.0% to 5.0%
A nontraditional lender offering impartial guidance on a range of loans, though with potentially high fees.
3%
0.5% to 1.0%
Streamline your mortgage from quote to final payment — all from your computer or phone.
3%
0.5% to 1.0%
Flexible options, fast approvals and support online backed by a trusted brand.
3.5%
Depends
Connect with vetted lenders quickly through this free online marketplace.

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What are you looking for?

How do I compare mortgages as a first-time homebuyer?

Start with positioning yourself for the strongest rates and terms you’re eligible for. Consider your current finances, including how much you’ll be able to put down.

Once you have a sense of a realistic budget for your home, consider the ways that you can save more on your mortgage:

  • Look for a mortgage with lenient requirements. If you you’ve saved up less than 20% of your potential home’s value for a down payment, narrow your search to lenders that advertise low-deposit mortgages.
  • Ask a parent to guarantee your loan. If your parents own property, your lender may allow them to secure your mortgage with their equity, allowing you to put down less than 20% up front. Make sure they understand the risks that include losing their own home if yours ends up in foreclosure.
  • Take advantage of first-time benefits. You may be eligible for tax breaks and even lower-deposit mortgages as a first-time homebuyer, depending on where you live and what you’re buying.

What should first-time homebuyers look for in a loan?

If your lender doesn’t offer specific loans for first-time homebuyers, you may still be able to suss out an ideal mortgage by looking for:

  • A low interest rate. No one wants to be stuck with a high interest rate, especially first-time buyers. A lower rate means lower monthly payments, making your mortgage more affordable. Some lenders offer special introductory variable rates, which start low for the first year or two but will revert to a higher rate later.
  • Down payment requirements of 10% or less. Saving a down payment is often one of the hardest challenges for first-time homebuyers, especially if you need to save the traditional 20% of a property’s value to qualify for a loan. Loans targeting new buyers often have a max insured loan-to-value ratio of 90 or 95%, meaning you can get the loan with just 5 to 10% down. But you’ll need to pay private mortgage insurance if you’re borrowing above 80%.
  • First-time-friendly loans. FHA loans allow for down payments that can be as low as 3.5% of your home’s value, while government-sponsored Fannie Mae and Freddie Mac loans can require 3%. If you’re a veteran, still other options require no down payment to secure a mortgage.

How much can I borrow?

To get an idea as to how much you can borrow, enter your household’s income, the number of your dependents and any existing debts into our calculator.

The calculator estimates your expenses using a standard cost-of-living index, giving you a home cost you’re likely able to afford.

How can I save up a down payment?

Typically, the higher your down payment, the lower a risk you are to a lender — and the stronger the rates you’re likely to see. But saving up when you’re new to savings or early in your career can be difficult.

To lighten the task of saving up a hefty down payment, look to top tips that include:

  • Ask for help. Most lenders want to see that you can consistently save up money. But many are willing to accept at least part of your down payment in the form of a cash gift or inheritance from family, friends or partners.
  • Sell high-dollar assets. By selling equipment or tapping into an eligible retirement account, you’re simply moving one investment to another.

Bottom line

Buying your first home is an exciting step, but working out the best way to position yourself for a strong mortgage can be stressful. Research your financing options and compare lenders to find the best rates and terms you’re eligible for.

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Frequently asked questions

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