Nine Questions that First-Time Home Buyers Should Ask
First-time home buyers will need to decide if they want to work with a real estate agent, what kind of mortgage works for them, and more.
Written by Pat Roache
Reviewed by Hillary Kobayashi
It’s your first time buying a house but have you asked yourself what kind of mortgage you need? Or do you know what a home inspection is and why it’s important? And do you really need to work with that realtor whose ad you always see on bus stop benches? These are just a few important questions for first-time home buyers!
The home buying process can be an intimidating ordeal if you’ve never done it before—there are a lot of factors to consider before committing to homeownership! From home loans to escrow,
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Nine first-time home buyer questions to ask
Perhaps the most important question you can ask yourself as a first-time home buyer is whether or not you’re ready to buy a home. However, that’s a pretty loaded question, and it requires a strong understanding of the financial commitments involved.
Here are some more specific questions you can ask as you decide whether or not buying your first home is the right choice for you.
1. Should I work with a real estate agent?
Using a real estate agent is a smart choice when tackling the housing market—whether it’s your first time or not.
Also known as a buyer’s agent, your realtor should be someone that you can get along with and who understands your unique needs and wants—their primary job is to help you find the new home of your dreams, after all!
Your realtor’s work doesn’t end once you’ve found your perfect home, either. They are a fantastic resource to help you negotiate your offer, complete a home inspection, and even find movers when you’re ready to move in.
And the best part? Real estate agents are first and foremost hired by home sellers. That means you’re not paying them! The realtor’s payment comes off a commission charged to the seller—not you—so don’t be surprised if your agent is working hard to find a place that’s worth your money.
2. What credit score do I need to get a mortgage?
Before you start seriously browsing homes, you’re going to have to
apply for a mortgage loan
. Lenders look at factors like your employment history, debt-to-income ratio, and credit score to decide whether or not you’ll be approved.Most mortgage lenders require borrowers to have a credit score of 620 or higher to get approved for a loan. A credit score of 740 or higher is likely to reward you with lower interest rates, but anything lower than 620 could make it hard for you to qualify for a conventional loan.
But have no fear: that’s where home-buyer programs come in! These programs are designed to aid low-income individuals and borrowers with poor credit histories in getting approved for home financing. USDA loans and FHA loans are specifically targeted at first-time home buyers. VA loans are also great options for veterans of the armed forces.
3. How do I get pre-approved for a mortgage?
To get pre-approved for a mortgage, you’ll need to fill out an application (which you can typically do online) and submit documents to a loan officer so they can review your eligibility.
Required documents for a mortgage pre-approval typically include the following:
- Bank statements
- Pay stubs
- List of credit cards and how much is owed on your accounts each month
- Documentation for additional assets
- Income statements
- Your Social Security number
- A reference for employment verification
If everything looks in order, you’ll be issued a pre-approval letter. This doesn’t guarantee that you’ll actually receive the loan, but it does make you look better to prospective home sellers when you’re ready to put down an offer.
4. What type of mortgage do I need?
There are two main types of mortgages that you can get from a conventional lender: fixed-rate mortgages and adjustable-rate mortgages.
Fixed-rate mortgages have a set interest rate that will not change through the lifetime of your loan. This is the most common type of mortgage and a good option for buyers who intend to live in their home for a long time.
You can probably guess on your own that adjustable-rate mortgages have interest rates that fluctuate based on the market. You’ll start with a fixed rate for a certain amount of time, but once that time has passed, the interest—and your monthly payment—are prone to annual adjustments. This type of mortgage may be beneficial for short-term buyers.
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5. What is a good interest rate for a mortgage?
Interest rates are on an upward trend with the current housing market, but the best mortgage rate for you will typically come down to your credit score and the type of mortgage you choose.
As of November 2022, a good interest rate for a 30-year fixed-rate mortgage is around 7%, according to Bankrate. For a 15-year fixed-rate mortgage, a good interest rate is between 6% and 6.5%. Adjustable-rate mortgages typically get lower interest rates, and currently, the ideal rate falls between 5.5% and 6%. Interest rates for federal home-buying programs tend to be much higher.
Your interest rate determines your monthly mortgage payment, so it’s important to find one you’re happy with. But try not to fret if the current housing market is leaving you hopeless. You’ll likely have
multiple opportunities to refinance your home mortgage
as the housing market continues to fluctuate up and down.6. How big of a down payment do I need?
Most conventional loans will want you to make a down payment of 20% of the initial purchase price for the home. However federal home-buying programs require much less of a down payment—as low as 3.5% for FHA loans and 0% to 3% for VA and USDA loans.
That said, you can still get a conventional loan with a lower interest rate and make a smaller down payment—typically as low as 3%—but there’s a trade-off. Lenders will require borrowers to purchase
private mortgage insurance (PMI)
if they are unable to make a 20% down payment.PMI protects your lender if you miss a loan payment and will add to the long-term costs of homeownership. It’s best to save up for the 20% down payment and avoid it if you can.
7. What is a home inspection and do I need one?
A home inspection is a professional appraisal of the house that you plan on buying. These should be made before you agree to purchase a home, but take note that it’s up to you to hire the inspector—not the person selling the home. Here’s why.
A home inspection is an opportunity for buyers to make sure that the home they want is up to code without any significant problems. A seller may take responsibility for any repairs, but more often than not they’ll offer the buyer a credit. That allows the buyer to decide if they want to back out or renegotiate the deal based on the home inspection results.
While a home inspection may not be required to close the deal on your new home, it’s an incredibly smart choice to make sure you’re prepared for any potential problems and can use them to your advantage.
8. What are closing costs (and how much are they)?
The closing costs on your home are the last expense you’ll have to consider when determining
how much you’ll need to save up to buy a home
.Typically, you can expect the closing costs to comprise 2% to 6% of your loan amount. Note that that may be more than 2% to 6% of the home’s purchasing price. Closing costs typically include the following associated expenses:
- Appraisal fees
- Lender fees
- Property taxes
- Homeowners insurance
- Title insurance fees
- Homeowner association fees
The buyer will usually pay all of their closing costs themselves; however, you and your seller may strike a deal in which the seller pays a certain percentage of your closing costs. This may be reason enough to consider that home inspection!
9. Do I need homeowners insurance?
Homeowners insurance is not legally required like
car insurance
is, but it is an essential purchase to protect your investment.When it comes to choosing the right homeowners insurance for you, you’ll have the following options to consider:
- Coverages A and B: These typically come standard on a homeowners insurance policy and cover physical damage to your home’s structure and interior (main dwellings and other structures).
- Coverage C: This covers personal property, like furniture and clothing, from damage, destruction, and theft.
- Coverage D: Also known as additional living expenses (ALE) coverage, this covers temporary living accommodations if you need to leave your home for covered repairs.
- Coverage E: Also known as personal liability coverage, this protects you from lawsuits filed by others for damages sustained on your property.
You may not need every type of coverage, but it’s always a good idea to get as much protection as you can afford.
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What’s the biggest mistake that first-time home buyers make?
The biggest mistake that first-time home buyers make is not saving enough for a 20% down payment. Saving this much can often take up to seven years, but it’s well worth it to avoid paying for expensive private mortgage insurance (PMI).
What is the first thing to do when buying a new house?
Besides having your finances in check, the first thing to do when buying a new house is to decide on the type of mortgage you need. Going in with a pre-approval for your desired type of loan will set you up for success once you’re ready to put down an offer.
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