First-Time Home Buyer Guide

Buying a house for the first time can be exciting and nerve-wrecking all at the same time. Here’s a first-time home buyer guide to help make your home buying process as smooth as possible.

What Are the Qualifications for First-Time Home Buyers?

To qualify as a first-time home buyer in the eyes of many buyer assistance programs, you either must have never owned a home before, or have not owned one in the previous 3 years or longer.

Is There an Income Limit for First-Time Home Buyers?

This may vary depending on the mortgage program you are looking to apply for, but the main thing most programs are looking for is that you have a sufficient income to debt ratio to be able to cover the monthly mortgage payments.

What is the Minimum Credit Score for a First-Time Home Buyer?

The minimum credit score to buy a house is not as high as you would think. Most require only a minimum FICO score of 640, but chances are higher of approval with a 680 score or higher.

First-Time Home Buyer Loans

There are a few different loan options when purchasing a home. Here’s an overview of what you may come across:

Conventional Loan

These are loans that have rules structured by Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation).

They are typically backed by credit unions, banks, etc. and require only a 3% minimum down payment.

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FHA Loan

This is the most popular program for home buyers in America. This is especially common for first-time home buyers or those who have a lower credit score. These loans typically require a minimum of 3.5% down payment.

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VA Loan

If you are a veteran or a surviving spouse of a veteran, this loan is made for you. It is backed by the U.S. Department of Veteran Affairs, which can offer the option of no-down payment.

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USDA Loan

This is a program that specifically targets rural areas and is backed by the U.S Department of Agriculture. You do not have to live on a farm to qualify for this loan.

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State Programs

Many states offer their own assistance for first-time home buyers. Here’s a tool that will allow you to find some in your state.

How Much Should a First-Time Home Buyer Put Down on a House?

When you are working with a lender for pre-qualification, they can make recommendations on what will get you the best return on investment with your down payment.

Depending on which loan you are applying for, your down payment requirement may vary. 20% is the preferable amount for lenders, but many loans require as little as 3%.

You want to keep in mind what is most important to you? The difference in your monthly mortgage payment, or the ability to make upgrades/furnish your new home with the money you would have used towards a down payment? If you have that luxury with your down payment, these are things to consider.

First-Time Home Buyer Down Payment Assistance

Depending on which program you are applying for, the assistance provided may vary and come in the form of:

• Grants
• No-Interest loans (forgivable or deferred-payment) – If it is a forgivable loan, in a certain number of years (as determined in the loan) the money will not have to be paid back as long as you still own the property and live in it afterwards. If it is not, you typically do not owe payment towards the down payment/closing costs until you sell the home, refinance, or the mortgage term has ended.
• Low-Interest loans – in this case, your down payment and closing costs would be worked into the loan and paid off over a specified time period.

Online First-Time Home Buyer Classes

First-Time home buyer classes are sometimes required for specific down payment assistant options. They are helpful in guiding you through what the process of buying a house looks like start to finish (including the nitty gritty of fees, loans, etc.)

Some of these courses are free, while others charge a fee typically ranging from $75 – $125. They are often simple to complete and can be done on your own time and at your own pace.

Your lender may have a recommendation on a first-time home buyer course or you can find many via Google to see what works best for you financially and time-wise.

First-Time Home Buyer Tax Deduction

When filing your taxes after buying a house, there are a few things to keep in mind that can save you some money with your return:

Mortgage Interest

As of 2017, you are able to deduct the interest on your mortgage up to $750,000 (if your loan started after December 16, 2017). If your mortgage is older, your limit is $250,000 more.

You will receive the information on your mortgage for this deduction via Form 1098, which will be sent to you from your lender.

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Points

If you paid for points when purchasing your home and that cost is equivalent to what you paid for your down payment, you are able to deduct those points as interest. This is applicable even if the seller paid for the points for you as a part of your negotiation. This will be reflected in Form 1098.

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Real Estate Taxes

You are able to deduct local property taxes on your home. This only applies to tax amounts that were paid during the year, not payments put into your escrow account to cover future tax payments. You will see this reflected on the tax form sent to you by your lender.

If you are not paying through an escrow account, you will want to check your records to determine the amount you paid.

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Energy Credits

If you made an improvement to your home that could help conserve energy, you might be able to get an additional tax break from it. This could be a credit applied up to $500.

This includes windows, skylights, outside doors, insulation systems, some central air conditioners, water heaters, etc.

How Do I PreQualify as a First-Time Home Buyer?

Pre-qualification allows you to receive an estimate on how much home you can afford. It is recommended to be pre-approved before shopping so that the sellers know that you are verified for a certain loan amount up front (which typically lasts 60-90 days).

To find out what you may qualify for, complete NerdWallet’s pre-qualification calculator here (this is just an estimate based on data you enter).

How Do I Get Pre-Approved as a First-Time Home Buyer?

There are a few things that you need for pre-approval for a home loan, but they are all fairly simple to gather.

Proof of Income

Typically, you will be required to provide W-2s for the previous 2 years, as well as current pay stubs. Sometimes, they may go as far as requesting bank statements to show income.

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Proof of Assets

You will be required to provide that you have the funds to be able to pay for the down payment, in addition to any closing costs. Depending on the finances, they may also require additional information on how you received these funds (if you received a gifted payment, trust payment, etc.).

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Credit Score

Your credit will be run for pre-approval and often times again upon closing to determine your interest rate and qualification for the loan – this is why you do not want to make any major purchases before the close of your home. Save buying new furniture and appliances until after the keys are in your hands.

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Employment Verification

This often goes hand-in-hand with proof of income. Typically, you will be required to provide a phone number for your place of employment that will be called (at random) to confirm that you still work for the employer that you put down on your application.

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Other Documents

You will be required to provide identification documents such as your driver’s license, social security number, etc. to run your credit.

Books for First-Time Home Buyers

There are a wide variety of books available for home buyers (both first-time and seasoned buyers). Here’s some 4-5 star books on Amazon to check out!

Your Las Vegas Real Estate Team

If you are looking to buy or sell in Las Vegas or surrounding areas, our team is here to help! We can also help you find an agent anywhere in the US and several countries.

You can reach us at (702) 838-7700 or info@lasvegashomessold.com.