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In 2025, potential first time home buyers will have a prime opportunity to make the plunge into homeownership. We expect interest rates to come down and the housing supply to increase. All of which equates to better terms and cheaper prices. However, a great deal of work goes into buying a house.
Most people have some understanding of the financial requirements involved. But buying a house requires getting several details right the first time. So we want to walk you through what it takes to be a successful first time home buyer and give you the resources and tools to evaluate if you’re on the right track.
Key Takeaways
- A comprehensive overview of the requirements to buy a house
- Detailed resources to simplify the financial planning process
- Products like FHA loans and HUD-approved classes make the process easier
- Professional tips to guide you through every step of the journey
- Links to tools that help you stay organized and prepared
Income Requirements to Buy A House
If you were to loan someone money, you would want assurances that you’d get it back in the future. So you might want to know that individual’s payment history and if they have a stable income. Further, it would be reasonable to desire compensation for assuming the risk of loaning out your money.
Mortgage companies are no different. They want to make sure the people they lend money to have a high probability of paying them back.
One of the first items of interest for a lender is your financial position. By that, we mean your income, credit score, and debt-to-income ratio (DTI). During the typical home buying process, you will be asked to provide income verification for the previous three years. Either W-2s, pay stubs, or tax returns will suffice.
The lender will also run your credit. No surprise there. Most lenders are looking for a credit score of 580+ for FHA loans and 620+ for conventional loans. Generally, people who have paid their debt bills on time for the last 3 years have little issue getting approved. You can still get approved if you have spots on your credit history, but it does become more challenging.
The final thing a lender will look at is your DTI. Most lenders want to see that number below 43%. This means your debt payments should take up 43% or less of your monthly income. If you find yourself above 43%, paying down credit cards and even trading into a cheaper car are options to consider.
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Financial Tools and Resources
Technology has given us access to many wonderful tools for assessing and improving our financial circumstances. Bankrate and NerdWallet, for instance, have several useful calculators for calculating figures like down payments, budgets, and other items. Our website also has several calculators available, which can be found here.
You should also consider creating a household budget. Websites like Honeydue, Pocketguard, and YNAB are comprehensive budgeting tools for day-to-day and month-to-month expenses. First time home buyers benefit from robust budgeting because homeownership is replete with unexpected expenses.
There are also government programs and incentives worth investigating. Down payment assistance programs are available in every state. For instance, if you are Native American, several programs are available to help you get into a new home. There are also FHA, USDA, and VA loans, which we’ll cover next.
Top Products for First-Time Homebuyers
Beyond a conventional loan, you should attempt to qualify for one of an FHA, USDA, or VA loan. Here are few features of each:
- FHA Loans: These offer low down payment options for those with moderate credit. With just 3.5% down, buyers can move into their first home.
- USDA Loans: These are great for rural properties, offering no down payment. Primarily geared towards buyers interested in rural living. However, several suburban areas also qualify. 97% of United States land is eligible for USDA loans.
- VA Loans: These are exclusive to veterans, offering no down payment and competitive rates.
If you qualify for one of these loans, securing a home could be much easier and possibly save you tens of thousands of dollars in the long run. One of the specialists on the Moreira team can assist you in finding out if you qualify.
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Importance of Pre-Approval
Getting pre-approved will streamline the experience for first time home buyers. It demonstrates that you’re serious about buying a home rather than kicking tires. It proves that a bank is willing to lend you money. And it eliminates the suspense of wondering if you’ll be approved after you decide on which home to buy.
It’s also relatively simple. For instance, if you go here, you can fill out some information, and someone on the Moreira team will get started with you immediately. It will tell you all the documents you need (such as I.D. and income verification), and you don’t have to worry about any high-pressure tactics to get you through the process.
A pre-approval is also valid for 60–90 days. So when you get pre-approved, you still have time to keep looking at homes and consider your options.
Expert Guidance to Simplify the Process
You’ll also want to be familiar with the different types of professionals you’ll be dealing with during your home buying journey. The most obvious one is the real estate agent. Even if you’ve never bought a house, you’ve probably dealt with a real estate agent at some point.
A real estate’s job is to bring knowledge of the area and ideally give you the inside track on upcoming home listings. They should be professional, courteous, and able to provide good information on whatever home they’re showing you. A knowledgeable real estate agent makes a world of difference during the home buying process.
The next one is the mortgage broker. The Moreira Team is a mortgage broker. A good mortgage broker will compare lenders to find you the best rates and payment options.
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At the Moreira team, we pride ourselves in staying on the ball so you and the real estate agent don’t have to hound us for simple tasks to be completed. We keep things as transparent and straightforward as possible to eliminate confusion.
But even if you decide to use a different mortgage broker, make sure they’re professional and have a good handle on their workflows. Local real estate agents often know which brokers to stay away from.
And the last professional you’ll typically deal with is the home inspector. This individual will walk through the home and look for any issues needing immediate attention. The inspector will examine appliances, water heaters, HVAC, electrical components, and other important items to ensure everything is in working order.
If the inspector does find a problem, you can usually negotiate with the seller for repairs to be made as part of the deal. We recommend that you always have an inspection done before you sign on the dotted line.
Further, depending on the location and age of the home, it may make sense to have a pest control company do an inspection as well. They’ll look for termites, ants, rodents, and other unwanted critters that require removal. This is considered optional, but the $50-100 inspection fee is well worth it.
Conclusion
Buying a home can seem like a daunting process. But millions of Americans successfully do it every year, and so can you. Just remember to take it one step at a time and surround yourself with some people you can trust. And the Moreira team wants to be one of those you trust to get you through the process. Visit us here to begin the rate quote process.