Put Your Worries to Rest: 5 Tips for First-Time Homebuyers

Katie DuncanDecember 8, 2021


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If you’ve been renting a home or apartment for some time, you may be looking at your homebuying options. While exciting, we know taking on this type of financial responsibility can seem overwhelming and stressful.

First-time homebuyers can face some challenges that might make getting a home loan feel difficult or even downright impossible. Some of the most common of these include:

  • Lack of positive credit history or credit score
  • High closing costs
  • Lower down payment
  • Financial stability or lack of steady income
  • Existing debt, including student loans
  • Feeling overwhelmed by the homebuying process

Meeting with a mortgage expert can help clear up some of the more overwhelming challenges you might be facing. For instance, did you know that you don’t actually need 20% for a down payment?

Here at Amplify Credit Union, we want everyone to have the information they need to make a great financial decision. We do much more than lend mortgages—we walk with homebuyers for every step in their journey, providing solutions and the answers you need to buy your first home.

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Obstacle #1: You have a lack of credit history or a less-than-perfect credit score.

Your credit history is a major determining factor in whether or not a bank will lend you money to purchase a home. If you have a low score due to credit problems in the past or simply a lack of history, you may think that your chances of buying a house are slim to none. You may have more options than you think!

The solution: Explore your loan options and work on your credit score before you set out to purchase a home.

Yes, credit standards in the mortgage industry are stringent. However, with government agencies like the Federal Housing Administration (FHA) assisting in home loans, there are options for getting approved if you have less-than-stellar credit. To learn more about loans that you may qualify for with your credit score, talk to a local lender—like Amplify—who can point you in the right direction.

Another way to ensure your credit history won’t be a problem when it comes time to apply for a loan is to work on your credit before you even start looking for a home. Here are a few simple things to start with:

  • Check your report for errors: One in five people have an error on their credit report. An error can cause serious harm to your score, and the worst part is, you won’t even know it’s there unless you carefully check your report.
  • Pay your bills on time: 35% of your credit score is your payment history. Pay your bills on time, in full, and consistently, and your score will be higher.
  • Pay down debt: Having large balances on revolving credit lines like credit cards can hurt your credit score. Paying these down can improve your credit score.

Remember that your credit history won’t improve overnight. Oftentimes it takes months or years of work, which is why it’s important to get an early start.

Obstacle #2: You don’t have enough saved for a down payment and closing costs.

According to a report from the National Association of Realtors, 11% of all homebuyers cited saving for a down payment as the most difficult part of the homebuying process.

With home prices higher than ever, the amount of money you need to have upfront at closing can be overwhelming. But again: you might not have to put down 20% to qualify for a mortgage.

The solution: Know how much you’ll really need for a down payment.

You’ve probably heard that 20% is a rule. While putting down a large payment has a lot of benefits, it’s not required. Let’s take the FHA mortgage for example–these loans only require a 3.5% down payment. That means a $300,000 home wouldn’t need a $60,000 down payment—instead, you’d only need $10,500 down, which is a much more affordable amount.

As for closing costs, you have options there too. Closing costs vary depending on lender, time of closing, and other factors. It’s important to talk to a mortgage expert to find out what your actual closing costs will be.

Obstacle #3: Your job doesn’t provide enough financial stability or income.

Before lending you money, a lender will want to see that you have the means to repay your loan.

Financial stability and income can come in a lot of different forms—not just the traditional 9-5, W-2 proof of income. Maybe you’re a freelancer, or you recently experienced a major life event. Whatever the reason, you might be worried that a less traditional financial history will disqualify you from a mortgage. If you’re trying to get a loan from a big bank or lender, you could be right—but you don’t have to choose a big financial institution.

Solution: Work with a local lender who understands your situation.

Applying for a mortgage with a local credit union or bank can be very different from applying with a larger lender. Local mortgage lenders will meet with you to discover your income history, help you decide on a budget, determine what type of mortgage you can afford, and review potential financing options. With a local mortgage lender, you’re not just another series of numbers.

Don’t automatically count yourself out because of your financial situation. There are programs available to first-time homebuyers in Texas to help lessen the financial burden and make the process a breeze.

Obstacle #4: You have existing debt, including student loans.

You might worry about how your debt will affect your ability to buy a home. Will high credit card balances, auto loans, and car loans prevent a bank from lending you money? Not necessarily!

Solution: Know how much debt is too much and pay down what you can.

Debt does play a role in mortgage approval. Lenders typically like to see a debt-to-income ratio of 36% or less. This number is a measure of your monthly debt payments to your monthly income.

For example: if you have a $200 credit card bill and a $300 student loan payment each month, your total monthly debt payment would be $500. If you brought home $4,000 a month, your debt-to-income ratio would be $500/$4,000 or 12.5%.

If you perform this calculation and see that your DTI is above 36%, consider making a plan to pay down your debt before you set out to buy a home. However, don’t let a small amount of debt prevent you from purchasing a home. Some debt can even be a good thing. As we already learned, if you’re paying your loans, credit cards, etc., on time, every time, your credit will be positively affected.

Obstacle #5: You don’t know much about the homebuying process.

You might not even know where you should begin in the homebuying process. Nearly 15% of homebuyers reported that the hardest part of purchasing a home was simply understanding the process and steps involved.

The solution: Work with professionals who know the process and do your own research.

You don’t have to walk through the homebuying process alone. There will be a lot of people who can help along the way, but two of the most important figures will be your real estate agent and your lender. Your agent will help you find a house, put in an offer, and guide you through the closing process. Your lender will guide you through all the financial details involved with purchasing a home.

Of course, it doesn’t hurt to do your own research along the way. Looking for more homebuying articles? Check out our blog!

Don’t Let Obstacles Get in Your Way

These five obstacles don’t have to prevent you from purchasing your dream house. If you plan ahead of time, do your research, and work with trustworthy professionals, you’ll be well on your way to being a first-time homebuyer!

Looking for a local mortgage lender?

Learn more about Amplify’s mortgage products and apply today!

Katie Duncan

Katie Duncan is a financial writer based in Austin, Texas. Her articles include financial advice for freelancers, homebuyers, and more. When she’s not writing, Katie loves traveling and exploring the outdoors with her friends and her dog, Poe.