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First-Time Home Buyer? 10 ‘Keys’ To Success

First-Time Home Buyer? 10 ‘Keys’ To Success

The process of shopping for a home, negotiating a purchase price, applying for a loan, and closing a mortgage loan can be complicated even for a seasoned home buyer. As a first-time home buyer, everything about the process is new and unfamiliar.

While your credit union mortgage lender can help you navigate the path to homeownership, the following do's and don'ts will help you avoid some of the more common mistakes and oversights that can trip you up on your way to buying your first home.

First-Time Home Buyer? 10 ‘Keys’ To Success

1. Start with a budget

Take a look at the overall household budget. Do this before you even visit a lender!
  • Step 1: Take stock of your savings, and read more about savings goals needed for a first-time home buyer if needed.
  • Step 2: Track current income, current debt, and other personal or family expenses. Use a budgeting spreadsheet like this one to help you get started.
  • Step 3: Analyze how much you could (and want to) put towards monthly housing costs, if you were to buy a home. Experts recommend staying under 25%-30% of your income for housing costs.
  • Step 4: Run the number from Step 2 through a mortgage calculator. This will help you determine how much house you can afford.
  • Step 5: Add in/adjust the utilities payments you’d make if you bought a house, as well as funds set aside for home improvement (plan on a minimum of 1% of the home’s value set aside per year for improvements and repairs)
Once you’ve balanced your budget—or determined that you have enough income to meet your expenses & debt payments--you’ll be ready to move on to Key 2 – Credit Check.

2. Check your credit health

Pull a free annual report of your credit history from one of the three credit bureaus. Take a look to see if you have any past-due payments or collection accounts. Bring all of your credit payments current and pay off any collections. Be ready to have an honest discussion, as well as possibly writing a letter of explanation, regarding any less-than-stellar marks on your report.

Another reason it’s important to pull your free credit report annually—as many as 40 million Americans have errors on their credit reports. For 5% of Americans, errors are so significant that they negatively impact the individual’s credit score! Errors can be corrected by contacting the reporting credit bureau directly. Complex errors may be more cumbersome to fix, but the bureau is required by the Fair Credit Reporting Act to work with you to get these taken care of.

Your credit score is a number that represents a measurement of the information on your credit report. Check your score, because this can impact your ability to qualify for a mortgage loan. Credit unions tend to be the best choice for a mortgage lender because of their flexibility in the credit score arena. Many other lenders have a minimum score needed to be considered for a mortgage (often around 620) while Credit Karma reported that Arizona first-time homebuyers have an average VantageScore of 671.

Pro tip: Credit Karma’s free app is a good tool for checking your score on a regular basis.

Another reason to clean up your credit and take stock of your credit score is because credit score heavily impacts the interest rate you’ll qualify for. It can be helpful to see specific examples of the impact home loan rates can have on your mortgage before you jump in.

If you know you aren’t quite where you need to be, don’t worry. There are several steps you can take to improve credit significantly in as little as 1-2 years. Pro tip: Make all your debt payments on time. This one category makes up about one-third of your credit score, and can have a positive effect in as little as 12 months.

3. Research mortgage loan options

Look into the different loan options and packages available to you.

Conventional home loans are the most common, with a reasonable minimum down payment requirement (5%) and fixed rates available over a variety of terms. Other options include federal programs like FHA, USDA, and VA home loans, be sure to research your state and local home ownership assistance programs. There are pros and cons to each type of mortgage loan, so empower yourself with knowledge before making this decision. Talk to friends and family who have gone through the home-buying process and get their advice on home loan types as well.

  • Other less common types of mortgage loans (that you probably won’t need to worry about) are:
  • Combo/Piggyback
  • Interest-only/Balloon
  • Reverse Mortgage (for ages 62+)
  • Adjustable Rate Mortgages (ARMs)


How to buy a house 

4. Get preapproved for a home loan

The pre-approval (or pre-qualification) letter is your backstage pass to house buying. It’s usually valid for about 90 days. With this letter, you’ll be able to negotiate a buy/sell agreement as soon as you find a house you love. You could have your offer accepted without waiting around for credit approval. Apply for pre-approval on a home loan amount that matches your budget, and then get out there and start looking!

Your credit union mortgage specialist can get you a pre-qualification letter for a certain amount, as long as you meet their criteria as a borrower. For this step, you’ll need a few documents, including paystubs (proving a steady income) and bank statements (showing available funds for down payment.) Later, you’ll need a lot more documentation; download our quick & easy Mortgage Documentation Checklist to help you keep track of what you need to provide. You can start the process online, if you like (choose the ‘pre-qualification’ option.)


5. Enlist a great real estate agent

Real estate agents help look for homes and neighborhoods that match your needs, understand housing costs, negotiate buy/sell agreements on your behalf, and navigate the home loan approval and closing. These are all processes you will be unspeakably grateful to have an expert help you with! Despite the fees, a real estate agent will save you time, money, and energy as a first-time home buyer.

Keep in mind that there are two types of realtors: ‘Listing’ agents and ‘buyer’s’ agents. Listing agents work for the seller of the home. It’s worth considering finding a buyer’s agent to represent your needs instead of just contacting the realtor who is selling someone else’s property.


6. Find a lender you trust

You want a lender who offers competitive rates, quick turnaround on loan processing, and low closing costs. Credit unions in Arizona are consistently a reliable choice for mortgage lender, due to good rates, lower fees, and excellent member service. Credit unions exist for their members, not shareholders, so your priorities are top of mind for them. Our current mortgage loan offer: no origination fee, saving you up to $2,500 on closing costs.


7. Choose amenities, location, and future goals

  • Amenities
    What do you want in your new home? If you have a large family, one bathroom probably won’t cut it. If you love to cook, a tiny kitchen isn’t ideal. Lots of outdoor toys? You probably want a home with a large garage or shed on the property. It may help to poke around online to see what houses are available, in what locations, and with what amenities – this will ensure your priorities are realistic and in line with your price point.
    After thinking and researching, write down a list of 3-5 non-negotiable items for your new property. When you’ve finalized your list, send it over to your realtor so that he or she has a more specific vision of what you’re looking for when buying a house.
  • Location
    As they say, location is everything. And it’s true! While you may love the extra half-bath on the first floor, the super-size garage, and the garbage disposal in the kitchen, these extra amenities are usually not as valuable as a prime location.
    Let’s say you have children. Not only will you want to find a location that’s safe and low in crime, but you’ll also want to be in a good school district. You’ll also want to be within close proximity to your place of employment, grocery stores, and safe and friendly neighbors. These are things your real estate agent should be able to help you with, so make sure to voice your location requirements from the get-go.
  • Future You
    When looking for your first home, think about what your future housing needs might be. Do you want a house with a large yard for the pets you plan on getting? A pool for when friends come to visit? Plenty of bedrooms for kids? Close to a good school district or shopping center? If you consider your future needs now, you can focus on finding a house that will be able to grow with you.
    Or, alternatively, maybe you’re looking at this as your home for only 4-5 years, and then you plan on moving. If it’s not your ‘forever’ home, your priorities will be different!


8. Press pause on other financial decisions

Credit inquiries can lower your credit score once you’ve made an offer on a home. Any new loans or payments, or even increases in credit card balances will affect your debt to income ratio (total monthly debt divided by total monthly income). The debt to income ratio is one of the key factors lenders consider when evaluating a mortgage loan application, because it helps them determine a borrower's ability to repay the proposed loan. Changes to credit can also affect the rates and terms of your loan.

Other advice to follow while in the middle of the mortgage loan process:

  • Stay with your current employer.
  • Keep cash where it is. Unexplained transfers and withdrawals of large amounts of cash is a red flag.
  • Make sure you don’t stop making payments on your other debts or bills.


9. Get involved with the home inspection

Inspections are part of the mortgage process. Home inspectors, however, don't always find everything. Attend your inspection and pay close attention. Be sure your inspector can access all areas of the house (crawl spaces and attics, entire exterior of house, including roof). Ask questions about what's included and don't be afraid to ask your inspector to take a closer look at something if you notice anything that seems amiss. Have a list of items you’re wondering about ahead of time, and check them off as the inspector reviews these areas of the home.


10. Be confident in negotiations

We live in a society in which prices on most items are set in stone. Clearly, you won’t be negotiating the price of gas at the pump, or whittling down the frozen yogurt clerk to $2 per cone instead of $3.

But real estate prices work differently. While we don’t recommend making extremely low or unreasonable offers, you do have some wiggle room on the price of your new house. An experienced real estate agent can discuss potential ways to work the seller's price down, and will also have an idea of how firmly the price is set in the seller’s mind. You might even be able to get the seller to cover some of your closing costs or handle certain repairs prior to closing on the home.


The Good News…

Following these 10 ‘keys’ will help your home buying process go as smoothly as possible. Even better, if you ever decide to go through this process again sometime in the future, you won’t be a first-time home buyer anymore… you’ll be the expert!

How to buy a house in Arizona


This article is intended to be a general resource only and is not intended to be nor does it constitute legal advice. Any recommendations are based on opinion only.

Rates, terms and conditions are subject to change and may vary based on creditworthiness, qualifications, and collateral conditions. All loans subject to approval.

First-Time Home Buyer? 10 ‘Keys’ To Success