Resources to help everyone walk through the entire homebuying process, from understanding key terms and finding a mortgage lender, to closing and moving into your first home.
A first-time homebuyer can be someone who's never owned residential property before, or it can be someone who has only previously owned property under some narrow circumstances.
A mortgage is a specific type of loan used to purchase a home or a piece of real property. Mortgages are offered by banks, credit unions, and other financial institutions across the country.
An appraisal is a property valuation by a recognized expert who uses various accepted methods of establishing the value of an item, business, or piece of real estate.
"Redlining" describes a practice by some mortgage lenders when they refuse to lend money or extend credit in certain areas of town or for other discriminatory reasons.
The Fair Housing Act is a federal law that prohibits lenders, sellers, landlords, and agents from discriminating against buyers and tenants based on race, color, religion, sexual orientation, nationality, disability, or family status.
Steering is a practice in real estate where agents discriminate against prospective buyers by showing properties based on the buyer’s race, religion, gender, sexual orientation, or other protected factors.
FHA loans are loans issued by private lenders but backed by the Federal Housing Administration (FHA). Because they're insured by the FHA, these loans bring homeownership into reach for low- or moderate-income buyers.
VA loans are a type of mortgage product reserved for military service members, veterans, and spouses and survivors of veterans. They’re unique from most other mortgages in that they do not require a down payment or mortgage insurance.
A home inspection is an evaluation of the current condition of a structure and its systems. If you’re just starting the homebuying process, it may surprise you to learn that a home inspection is not required to take out a mortgage.
A conventional loan is a mortgage loan that a homebuyer receives from a private non-government lender. There are many types of conventional loans available, each with their own requirements for borrowers.
A mortgage preapproval is an official document that details how much a lender is willing to let you borrow. Some sellers require a mortgage preapproval before accepting your offer to buy a house.
The main factors to save for when buying a house are earnest money—the deposit you make when putting an offer on a home—the rest of your down payment, and closing costs. Most earnest money deposits average between 1% and 3% of the home price, and closing costs average about 2% to 5% of the purchase price of the home. As for the down payment, experts suggest saving at least 20% of the price of the home, but depending on your situation, less than 20% may work too.
Prepaid costs—also referred to as prepaids—are upfront cash payments that you make in addition to your down payment, in order to obtain a mortgage. These can include property taxes, hazard insurance, private mortgage insurance, and special assessments. They are paid at closing and placed into an escrow account to later cover the expenses related to a mortgage.
The biggest costs to plan for when buying your first home include the down payment and the monthly mortgage payments. You will also pay various one-time fees, including those related to closing costs, mortgage application, home inspection and appraisal, and more. Before finalizing your purchase, speak with your real estate agent, lender, or attorney in order to understand all costs involved.
Before making an offer on a house, a buyer should ask specific questions about three main things: price, home condition, and location. When asking about location, for example, you may ask about where the nearest schools are located or whether or not the house is in a flood zone.
When it comes to the down payment, most experts suggest that you should be willing to put down 20% of the purchase price of a home. While putting 20% down is not the only way to achieve homeownership, when you put that much down, you’ll avoid paying for private mortgage insurance. To calculate the amount you would need for a 20% down payment, multiply your home’s purchase price by 20% (or 0.20).
An appraisal is a process, solidified by a written document, that shows an opinion of how much a property is worth. Typically, the appraisal happens after an offer has been made and the home in question has been inspected. It’s not always required, but recommended. The buyer usually has to pay for and arrange the appraisal, and once it is complete, the final report is sent directly to the lender.
The IRS offers deductions to those who qualify for the prepaid mortgage interest. For instance, the IRS allows certain first-time homebuyers to avoid a specific tax penalty if they withdraw money from an IRA to help pay for their home. In order to qualify, though, you must meet the specific definition that the IRS uses for “first-time homebuyer.”
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