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Buying a home is a big deal. Whether you're a first-time homebuyer or shopping for your next home that finally has enough bathrooms, stepping inside a home you call your own is everything good. Deciding to shop for a new home can feel exciting in the beginning.

But once you're ready to take action, things can get stressful very quickly.

We're here to help change that.

This guide will help you navigate the process and give you a mini-blueprint to help you stay on track.

You'll learn the basics about mortgage loans, what to expect when you make an offer, a few common mistakes to avoid, and why it's so important to get pre-approved before you start shopping.

When you know what to expect you can breathe a little easier.

So let's get to it.



Tips for First-Time Homebuyers

You might be new on the block, just out of college and buying your first home.

If not, be sure to check out Advantages for first-time homebuyers to see if you meet the guidelines. You might be surprised.

In this section, you'll also find a quick overview that covers different types of mortgages, a reminder to set a budget ahead of time, and why getting pre-approved is one of most important steps you can take.



Qualifying as a First-Time Homebuyer

Even if you've owned a home before, you might still qualify for the advantages that are available to first-time homebuyers.

According to the U.S. Department of Housing and Urban Development (HUD), a first-time homebuyer is someone who meets any of the following conditions:


  • An individual who has not owned a principal residence for three years. If you've owned a home but your spouse has not, then you can purchase a place together as first-time homebuyers.
  • A single parent who has only owned a home with a former spouse while married.
  • A displaced homemaker who has only owned with a spouse.
  • An individual who has only owned a principal residence not permanently affixed to a permanent foundation in accordance with applicable regulations.
  • An individual who has only owned a property that was not in compliance with state, local, or model building codes - and that cannot be brought into compliance for less than the cost of constructing a permanent structure.



Advantages for First-Time Homebuyers

As a qualified first-time homebuyer, there a number of benefits and options available to you:


  • government-backed loans with low interest rates
  • flexible guidelines when qualifying
  • down payments as low as 3% in some cases
  • HUD-issued grants and state programs offering assistance
  • specialty products combining 1st and 2nd mortgage loans
  • flexible guidelines to secure and source your down payment
  • IRA funds can often be withdrawn without penalties
  • tax deductions for points and/or loan origination fees
  • tax deductions on mortgage interest, energy credits and property taxes


If it looks like you might qualify, be sure to talk with your mortgage lender about what which benefits might be available to you.



How much can I afford?

Answering this question early will save you the emotional angst that shows up when you find a property you love, but can't afford. As tempting as it is to start dreaming big, setting a budget ahead of time will save you time and energy later.

Even if a lender says you're approved for $400k, it isn't a green light to max out when you start house shopping. As a new homeowner, there will be costs in maintenance and renovations, homeowner's insurance, property taxes, and possibly private mortgage insurance. You might also have higher energy bills, homeowner's association fees, and landscaping costs.


A few budget guidelines that may help:


  • prepare for your down payment
    Know how much you're prepared to offer as a down payment, and where you'll source the funds.
  • protect your savings
    It's a good idea to have 6-12 months living expenses set aside in addition to your down payment. Also set aside savings for unexpected repairs, homeowner's insurance, and home maintenance.
  • find out your credit score
    This will affect your loan options, so it's good to find out if there are any errors you can fix, or special circumstances you might need to explain.
  • plan your monthly mortgage payment
    Determine a monthly payment you're comfortable with - one that works with your current situation, and one that might work if your household income changes.
  • current expenses vs. new homeowner expenses
    Take a quick look at things like future utilities or landscaping costs, since these might change. You'll also need to plan on homeowner's insurance and property taxes.



What about my credit score?

In general, a high credit score and low debt-to-ratio will help secure a better loan. So as much as you're able, work toward improving your credit if needed and reducing your debt load (if any).

The good news is that there are lots of loan options even if your credit isn't perfect right now, especially for first-time homebuyers.

A good loan advisor can help you navigate the process and put together a custom home loan that's a great fit.



How to qualify for a home loan

Typically, to qualify for a standard home loan you'll need a debt-to-income (DTI) ratio of less than 40%. For competitive rates and better options, aim for all your housing expenses (principal, interest, taxes, and homeowners insurance) to be closer to 30% of your total monthly gross income.

Your mortgage lender will ask for documentation to verify income, employment, debts and assets, and also run a credit report. Your credit score, debt-to-income ratio, and credit history are all considered when determining your loan qualifications.

First-time homebuyers have some advantages and more flexibility when it comes to these guidelines. Make sure to ask your loan advisor about which benefits you might qualify for as a first-time homebuyer.


Using a mortgage calculator

A mortgage calculator is another useful tool that can give you a ballpark figure that shows you what a monthly payment might look like depending on the interest rate, loan amount, and some optional terms.



Getting pre-approved vs. pre-qualified

As soon as you start shopping for a new home, one of the most important steps you can take is to get pre-approved for your home loan.

Getting pre-approved is different than getting pre-qualified.

Getting pre-qualified is a pretty straight forward process. Your mortgage lender will request some standard information about your earnings, assets, liabilities, and run a credit report. After they have your information you'll receive a ballpark figure of what you might be able to afford when it's time to make an offer on a new home. It's useful as a reference, but once you move forward in the loan process, you might find that the final home loan amount is different.

Getting pre-approved means that your mortgage lender has already approved a full loan amount for your home loan. Getting pre-approved will help you stand out among other potential buyers and also lets sellers know you're serious and you'll be able to close fast.

A pre-approved loan will give you peace of mind when you're shopping and a competitive edge when you decide to make an offer on your perfect home.



Mortgage Basics

In simple terms, a home mortgage loan is the type of loan used to purchase real estate. Mortgage loans are similar to other loans: you borrow a certain amount of money and agree to the payoff terms such as interest rate, monthly payment, number of years.

Here’s a quick run down of mortgage loans available to most homeowners.

Conventional Mortgages

A conventional mortgage is a home loan that isn’t insured by the federal government. There are two types conventional mortgages: conforming and non-conforming.

A conforming loan is a home loan that does not exceed the limits set by Freddie Mac or Fannie Mae (these values differ depending on the state and location, so check with your lender). Non-conforming loans have higher loan amounts that exceed these limits. Jumbo loans are a common non-conforming home loan.

Government-Insured Mortgages

Even though the U.S. government is not a mortgage lender, there are three government agencies that back loans in order to make homeownership more affordable.

  • An FHA loan is a great option for first-time home buyers, and often features approval guidelines that are much more flexible when it comes to your credit history and background. With some down payments as low as 3.5%*, FHA loans are a great option for many families starting their journey as new homeowners.
  • The VA loan is designed specifically for veterans and active-duty service members. Exclusive to members of the military, this loan provides many benefits including lower down payment options, flexible credit requirements and payment plans that work for your family.
  • A USDA loan is designed to help borrowers purchase land or property in rural areas. These loans often offer flexible guidelines, great rates, and sometimes 100% financing with no money down. These loans are insured by the government and serviced by direct mortgage lenders that meet federal guidelines. Designed for buyers looking outside metropolitan areas, USDA loans are a great option for farmland, creative land use, and residential properties.

Fixed Rate and Adjustable Rate Mortgages

  • A 30-year fixed-rate mortgage offers you a fixed rate for the life of the loan, a fixed monthly payment and long-term stability. A 30-year fixed rate mortgage is designed to provide you with stability and consistency. Your monthly payment is set for the life of your loan, with an interest rate that won’t change. Even though you might not stay in your home for 30 years, having a fixed payment and a known payoff date can you help you set long-term financial goals.
  • A 15-year fixed-rate mortgage offers you a fixed rate, fixed monthly payment and long-term stability. A 15-year fixed rate mortgage gives you the same stability as a 30-year mortgage, and helps you pay off your mortgage loan in half the time. Often, these loans have a lower interest rate and may require a higher down payment. The benefits include stable monthly payments, a faster payoff, and less interest over the life of your loan.
  • An Adjustable rate mortgage (ARM) typically offers a lower rate in the beginning, a lower monthly payment, and flexible terms. After a defined term (usually 2-5 years), the monthly payment and rate may change based on the terms of the loan. An adjustable rate mortgage (ARM) is designed to give you long-term flexibility by providing a fixed rate at the beginning (a predictable monthly payment). Typically, adjustable mortgage rates are lower in the beginning which can help homeowners get into an ideal property with a low monthly payment
  • A Jumbo loan meets the needs of buyers looking to move into a home that exceeds the purchase limit of conforming loans. Jumbo loans are often paired with other specialty products to make sure your mortgage fits the big goals for you and your family. Jumbo loans are available as fixed-rate or adjustable, and typically require stronger credentials when it comes to your credit and income verification.

Preferred Rate also offers dozens of specialty loan options and government-backed mortgage loans which can be combined with the popular mortgage terms listed above to create a truly customized mortgage loan for you.

Build Your Team

Connect with a Realtor

A real estate agent will be your front line partner in your search for the perfect home. Sometimes it can take several months to find the perfect home, so take some time to find a real estate agent you connect with and a professional you can trust. It’s a great idea to interview at least three realtors before you decide to move forward.

A great realtor can help find properties that are in your price range and meet your family’s needs, and even help get access to homes that would otherwise be difficult to view.

Real estate agents can help you spot the pros and cons with any property quickly based on what you’re looking for. A great real estate agent will have knowledge about specific locations and neighborhoods, schools districts and community life, current home values and historic trends.

Take the time to find a real estate agent who you feel comfortable working with, and also one who has a great reputation with other realtors. When a real estate agent works great with other realtors, this can really benefit you when you’re ready to make an offer.

Once you’re ready to make an offer, your real estate agent will help you negotiate all the details of the offer and guide you through every step of the process including home inspections, counter-offers, getting your loan, and finalizing paperwork.

A great real estate agent can steer you away from common mistakes, and help you get the property you deserve at a price you can afford.

Connect with a Loan Expert

The entire mortgage process can feel complex pretty quickly once you’re ready to make an offer.

This is why connecting with a great loan advisor in the beginning can set you up for real success, a competitive loan and a lot less stress.
One of the best options when it comes to partnering with a loan expert is to find a lender who can take care of all the steps along the way and be your loan advisor from day one.

A full-service mortgage lender will get you pre-approved before you find your dream home, so can shop with confidence

A great loan advisor at a full-service mortgage lender will take care of every step of the lending process:

  • make sure all your documentation is in place
  • determine your qualifying advantages
  • secure your rate and lock it in
  • get your loan amount pre-approved
  • take care of underwriting
  • guide you through the entire closing process
  • get your loan funded & signed!

When you decide to partner with a full-service mortgage lender, you’ll be able to connect with a great loan advisor who can make the process easy and stress-free.

A great loan advisor will be able to:

  • take time to understand the big picture for you and your family
  • be your guide through the entire process
  • get you pre-approved and lock-in your rate
  • handle the underwriting and make sure all your docs are in order
  • explain fees (if any) along the way
  • finalize the details & terms of your new home mortgage loan
  • clearly explain the terms of your new mortgage loan
  • guide you through the closing process
  • celebrate with you when your new home loan closes!
Preferred Rate is a full-service mortgage lender with expert loan advisors throughout the nation who are ready to partner with you.

What’s more, Preferred Rate has dozens of specialty loan programs and unique options available to our customers, and our loan advisors are true experts when it comes to putting together the perfect mortgage — one to meet your financial needs right now and sets you up for financial freedom later.

Get Pre-Approved

Now it’s time to gather your documents: bank statements, pay stubs, tax returns, and some other basic info to verify income, assets, and liabilities.

It might feel more fun to check out houses first, but getting your pre-approval process started now will save you money, time and stress later on!

Your loan advisor will have an easy-to-follow checklist to help make this step fast and easy.

Getting pre-approved vs. pre-qualified

As soon as you start shopping for a new home, one of the most important steps you can take is to get pre-approved for your home loan.

Getting pre-approved is different than getting pre-qualified.

Getting pre-qualified is a pretty straight forward process. Your mortgage lender will request some standard information about your earnings, assets, liabilities, and run a credit report. After they have your information you’ll receive a ballpark figure of what you might be able to afford when it’s time to make an offer on a new home. It’s useful as a reference, but once you move forward in the loan process, you might find that the final home loan amount is different.

Getting pre-approved means that your mortgage lender has already approved a full loan amount for your home loan. Getting pre-approved will help you stand out among other potential buyers and also lets sellers know you’re serious and you’ll be able to close fast.

A pre-approved loan will give you peace of mind when you’re shopping and a competitive edge when you decide to make an offer on your perfect home.

Lock in your mortgage rate

The economy and the housing market can shift rapidly.

Having a secure rate locked in means that even if rates go up, your new rate is secure. It also means that if rates go down, your “locked in rate” can float down with the market.

The first step to getting pre-approved means you’ve already submitted the required documentation to your loan advisor, and it’s time to lock in your mortgage rate.

Locking in your mortgage rate early is one of great benefits of starting your pre-approval process right away. You’ll know your rate is secure while you gather necessary documentation for your loan advisor, and continue the search for your new home.

Once your rate is locked in and your loan advisor has all the necessary documents, it’s time to breathe a little.

Your loan advisor will be working hard to get you pre-approved and put together some great loan options for you — and you can get back to eating fresh cookies at Sunday open houses.

Shop For a New Home

Most home buyers have been dreaming about their perfect home for a while. Below are a couple tips to keep it moving along with ease.

Trust your realtor

Today, most people start looking online first. This can be a great place to see what’s available in the locations you want and get a sense of listing prices.

That said, your realtor will be your strongest asset here. They’ll be able to guide you through some common pitfalls, and direct you toward the properties that truly fit what you’re looking for. Take time to communicate and trust the process.

Stay within your budget

It’s tempting to check out houses “just for fun” even if it’s beyond your budget.

Try to stay within your budget as much as possible. Over-extending your budget (even if your lender approves a higher loan amount) will only add stress, especially if unexpected maintenance or repairs pop up.

Shop within your budget and when you finally move in, you’ll be glad you have a little extra to relax and dream about your first upgrade to the backyard.

Get your questions answered

Homework time. After you’ve visited a property, take time to reflect on what you really want since things can shift as you start viewing homes in person. Asking the right questions will help provide a bigger picture.

  • — What can you learn about the neighborhood?
  • — How are the schools? What school districts serve the area?
  • — What about crime statistics?
  • — Are there HOA fees or high local property taxes?
  • — Is the neighborhood mostly homeowners, or rental properties?
  • — Is there a lot of real estate turnover in this neighborhood?
  • — What would the commute look like (to work, or school, etc)?

Make An Offer

How it works

Congratulations! You’ve found a great home and you’re ready to make an offer!

Next, it’s time to agree on an offer price and enter into a contract. Your realtor will help negotiate a competitive offer and give some guidelines on whether to offer a price that is lower or higher than the listing price.

You’ll write an offer letter that includes your offer price, purchase terms, and any contingencies or conditions that will allow you to back out of the deal.

Trust your realtor to put together a competitive offer — their expertise will help move negotiations forward and they are working with your best interest in mind.

The seller can accept the offer, reject the offer, or present a counter offer. Together with your realtor, you can discuss whether to continue negotiations, back out, or accept the offer and move forward.

Once you and the seller agree on the price, a purchase agreement will be drafted by the seller’s agent. This will be a legally binding contract with agreed terms including the purchase price and an estimated closing date.

Earnest Money Down

Once you reach an agreement with the seller, it’s time to make a good-faith deposit, also called “earnest money down.” Once you make this deposit (~2% of the purchase price), you’ve confirmed serious interest and the seller will take the house off the market.

This is the beginning of a contractual expectation between you and the seller, but a purchase contract is not in place yet. If you decide to back out of the purchase without a contingency clause, the seller might keep the good-faith deposit.

Your deposit will go into escrow while the next phase begins: home inspections, contingencies, and final approval and funding of your loan. Escrow typically lasts about 30 days.


Contingencies are written into the purchase contract as a way to protect the buyer and offer a way out of the deal. Contingencies can be set for various reasons. For example if an appraisal comes back lower than the purchase price, or if the home inspection reveals structural damage or other costly repairs, or if the buyer’s loan isn’t approved. The contingency period usually lasts from 5 to 30 days. During this period of time, home inspections are completed and the loan approval process continues.

Once the contingency period has passed, and contingencies have been removed, the buyer can no longer back out of the deal without losing their earnest money (good-faith deposit).

Home inspection

Even when the home you want to buy looks perfect, hiring a professional to do the home inspection is important.

A trained professional will be bonded and insured, and it’s good to ask for referrals before you move forward. If your new home has any special circumstances, like a historic home, or built near an earthquake faultline, find out how thorough their inspection will be.

Structural integrity, roofing, plumbing, and HVAC systems are things you want an expert to evaluate. If anything comes up, see if you can get a second opinion or even a quote to find out how much any needed repairs might cost.

If the home inspection shows serious problems that the seller didn’t disclose, you’ll generally be able to walk away and get your deposit back. Another option is to negotiate to have the seller make the repairs or discount the selling price.

Closing – What to Expect

You’re almost across the finish line! Closing is the final step, all the paperwork will be finalized and signed, and your home purchase will be official.

The final walk through

Before you meet to sign all the final paperwork, you’ll be able to do a final walk-through of your new home. It’s a great idea to bring a checklist so you can be systematic and thorough.

Check to make sure the owner made any agreed repairs and take pictures of anything that raises concern. Also check for things like mold, electrical problems, plumbing issues, and the heating and air conditioning. Test things out and take your time.

Closing costs

Three days before you meet to sign the final paperwork, your closing agent will send you final instructions about closing guidelines and what to expect at the meeting.

Your agent will also include the closing disclosure which will outline all the closing costs and fees that you’ll be expected to pay, as well as the details of your loan.

Check this document carefully and make sure there aren’t any errors, increases or decreases, or unexpected line items. Connect with your agent ahead of time (before the closing meeting) to go over any questions you might have.

Title & Insurance

The Title Company will collect and prepare the final loan documents as well as the required legal documents to close the deal. The escrow company will be acting as a third party to help collect and transfer all documentation and necessary funds between all interested parties.

Escrow companies are licensed and highly regulated, and they’re in the mix to make sure everything goes smoothly and that all documentation is secure, and complete, and that all the funds get disbursed correctly.

Signing day

Depending on where you’re located, you’ll meet together with a few of the following people: the escrow (closing) agent, a title company representative, your mortgage lender, and the real estate agents. This is when you’ll sign the final legal documents to close the deal.

Make sure to bring the following:

  • Identification (driver’s license, passport)
  • Payment for the down payment
  • Final payment for closing fees

After all the paperwork is signed you’ll get the keys to your new home!

Move Into Your New Home

Congratulations! For real this time.

You are now officially a homeowner! A few final recommendations:

Home maintenance: Regular maintenance to your home will help prevent big surprises later. Keep an eye on things, and make it fun.

Renovations & repairs: There may be parts of your home that are already begging for an update. Make a financial plan and figure out some priorities. Decide what can wait, and what repairs might need to be addressed immediately.

Forget the housing market: If you’ve been shopping for several months, it’s hard to stop cold. Now that you’re a homeowner, don’t worry about small shifts in the market. Save that energy for when/if you need to move or relocate in the future.

Housewarming: send out your change of address to friends & family, and make it an event! Home ownership can be the beginning of some great memories together.

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