First-Time Home Buyer Guide

Get Your Finances Ready

The steps to buying a home begin with getting a clear picture of your finances. Preparing before you tour homes or apply for a mortgage can strengthen your application, establish a realistic budget, and make the home-buying process easier to manage.

Review your credit

Your credit score can affect both mortgage eligibility and the interest rate and loan terms you receive. Even a small difference in your rate can add up to a significant difference in interest costs across the life of a mortgage.

If your score isn’t where you want it to be, understanding how your credit score affects borrowing can give you useful context before you apply for a mortgage. Start by: 

• Reviewing your credit reports for errors
• Paying down credit card balances
• Keeping long-standing accounts open when appropriate
• Limiting applications for new credit before applying for a mortgage

Know how much house you can afford

Start with a monthly housing payment that leaves enough room in your budget for your other expenses and savings. Remember to account for more than principal and interest. Property taxes, homeowners insurance, HOA dues and mortgage insurance can all affect the true monthly cost of owning a home.

Your income, existing debt, available savings and expected housing expenses all play a role in how much house you can afford.

Save for the down payment

The down payment amount varies by mortgage program. Some programs allow low or no down payments. Putting more money down can decrease the amount you borrow, which may lower your monthly payment and total interest expense.

With a conventional mortgage, a down payment below 20% may also require private mortgage insurance (PMI), adding another cost to your monthly payment.

Budget for closing costs and other expenses

Your down payment isn’t the only upfront expense to plan for. Closing costs can include lender charges, appraisal and title costs, prepaid expenses, and other fees associated with the purchase and mortgage. You may also want to set aside money for:

• Moving expenses
• Utility deposits
• Immediate repairs or improvements
• An emergency fund for unexpected home repairs

Get Pre-Approved for a Home Loan

Getting pre-approved for a mortgage gives you an estimate of how much a lender may be willing to lend, allowing you to focus your home search within a realistic price range. In a market with multiple offers, a pre-approval letter can also show sellers that you have already started the financing process.

Mortgage pre-qualification and pre-approval are not the same. Pre-qualification is generally an initial estimate based on information you provide. During pre-approval, the lender reviews your credit and financial information more closely. If approved, you’ll receive a letter showing the loan amount the lender may be willing to provide, subject to additional conditions.

Pre-approval letters have expiration dates set by the lender. Check the date on yours and ask what information may need to be updated if your home search continues beyond that period.

Knowing what to expect when applying for a mortgage can also make it easier to understand what comes after pre-approval, including documentation, underwriting, and final loan approval.

Work with the Right Real Estate Agent

A real estate agent does much more than schedule home tours. For a first-time buyer, an experienced agent can guide the search, explain local market conditions, and identify properties that match your budget and priorities.

After you find a home you want to buy, your agent can advise you on the offer price and terms, communicate with the seller’s agent, and coordinate steps such as the inspection.

Talk with several agents before choosing one. Look for someone who knows the local housing market, has experience working with first-time buyers, and communicates in a way that works well for you.

Buyer-agent relationships may involve a written agreement covering services and compensation. Read the agreement carefully, ask questions, and understand the terms before signing.

Compare Mortgage Lenders

The lender you choose can affect your interest rate, fees, loan terms, and overall borrowing experience. Comparing more than one lender gives you a clearer picture of what each one offers.

Look beyond the advertised interest rate. Compare:

• Annual percentage rate (APR)
• Loan terms
• Closing costs and lender fees
• Down payment requirements
• Available mortgage programs
• Mortgage insurance requirements
• Prepayment terms
• Service and communication

Credit unions are member-owned, not-for-profit financial institutions, so include them alongside banks and other mortgage lenders in your comparison. Review the full cost of each loan and the lending experience rather than focusing on a single number.

Understand Common Types of Mortgages 

The mortgage you choose can affect your down payment, monthly payment, borrowing costs, and eligibility requirements. Mutual Credit Union offers several mortgage loan programs, including fixed-rate mortgages, FHA, VA, and USDA loans. Understanding how common mortgage types differ can make it easier to compare financing before you apply.

Conventional Loans

Conventional mortgages are not insured or guaranteed by a federal government agency. Some conventional programs allow down payments as low as 3%, although qualification requirements vary by lender and loan program.

If you put down less than 20%, private mortgage insurance (PMI) may be required. PMI adds to the monthly cost of the loan and may be removed once certain equity requirements are met.

FHA Loans

FHA loans are issued by approved lenders and insured by the Federal Housing Administration. They can be available to borrowers who may not meet the credit or down payment requirements of some conventional programs.

Eligible borrowers may qualify with a down payment as low as 3.5%. FHA loans also require mortgage insurance premiums, which add to the cost of borrowing.

VA Loans

VA-backed mortgages are available to eligible veterans, active-duty service members, and certain surviving spouses. Eligible borrowers may be able to purchase a home with no down payment and no monthly mortgage insurance.

A one-time VA funding fee may apply, although some borrowers are exempt. The fee may also be financed into the loan.

USDA Loans

USDA-backed mortgages serve eligible borrowers purchasing homes in qualifying rural areas. Qualified buyers may be able to finance the full purchase price without a down payment.

Eligibility includes household-income limits and property requirements, including location and use as a primary residence. USDA loans also include upfront and annual guarantee fees.

Fixed-Rate vs. Adjustable-Rate Mortgages

Mortgage interest rates may be fixed or adjustable.

With a fixed-rate mortgage, the interest rate remains the same for the life of the loan. This creates a predictable principal-and-interest payment throughout the repayment term.

An adjustable-rate mortgage (ARM) generally begins with a fixed rate for an initial period. After that period ends, the rate can change at scheduled intervals based on the loan terms and market conditions. Before choosing an ARM, review when adjustments can occur and how much the rate and payment could change.

Find the Right Home

Once you’re pre-approved, you can start looking for your first home. Before touring properties, make a list of must-haves and features you would simply prefer. Few homes will check every box, so decide in advance where you are willing to compromise.

Look beyond appearance when comparing properties. Cosmetic updates such as new fixtures or fresh paint may be relatively simple projects, but major repairs can add substantially to the true cost of buying the home.

You also don’t have to spend the maximum amount you’re approved to borrow. Choosing a less expensive property can leave additional room in your budget for repairs, maintenance, and other homeownership costs.

Make an Offer

Once you find a home you want to buy, the next step is submitting an offer. Your real estate agent can advise you on the offer price, local market conditions, and possible contingencies for inspection, financing, or other circumstances.

The seller may accept your offer, reject it, or respond with a counteroffer. Review any counteroffer carefully with your agent before deciding how to respond.

Once both parties agree to the terms and sign the purchase agreement, the home is under contract. If earnest money is required, you’ll generally submit it shortly after the offer is accepted. The deposit is held in escrow and is commonly applied toward the purchase at closing, subject to the terms of your agreement.

Close on Your Home

There are several steps to complete before the home is officially yours. Here’s what to expect:

• Complete the home inspection: Hire a home inspector to check for problems. You may be able to negotiate repairs or credit if any issues are found.

• Get a home appraisal: Your lender will have your home appraised to confirm its value before approving your mortgage.

• Receive final mortgage approval: Your lender will complete the underwriting process to verify you meet the loan requirements.

• Purchase homeowners insurance: Your lender may require proof of coverage before closing. 

• Complete the final walkthrough: Go through the home again to make sure it’s in the condition you expect and any agreed-upon repairs have been made.

• Review your Closing Disclosure: Your lender will provide you with this document at least three business days before closing. 

• Close on your home: Sign the final documents, pay any remaining down payment and closing costs, and get the keys to your home. 

Take the Next Step Toward Homeownership

Buying your first home is a major decision, but knowing the steps ahead can make the process easier to manage. Preparation, a realistic budget, and the right lending team can put you in a stronger position from your first home tour through closing day.

Ready to take the next step toward homeownership? Review Mutual Credit Union’s home loan programs and connect with a lender about financing your first home.