First Time Homebuyer Tips

Buying your first home is exciting, but it can also be stressful. With so many factors to consider such as how much you can afford to pay for a home, what mortgages are available for first-time buyers, and much more, it can be overwhelming.  

If you’re a first-time homebuyer, trying to navigate your way through the buying process and finding the best mortgages for first-time buyers can feel like trying to find your way in the dark. The good news? With a few first-time homebuyer tips ready, the process won’t seem nearly as daunting – and the first tip is understanding the mortgage process. But first, let’s go over the different types of mortgages out there.   

Types of Mortgages Available for First Time Homebuyers  

Depending on your unique situation, you’ll be presented with several different types of mortgage loans for first-time buyers, including:  

Conventional Mortgages 

Conventional mortgage loans are known as “conforming” loans, which means they conform to the Federal Housing Finance Agency (FHFA) under which Fannie Mae and Freddie Mac purchase mortgages. Conventional loans are suitable for first-time buyers who have good credit and can make a down payment.   

Requirements   

• The required down payment for a mortgage is usually between 3% and 20%. However, at Arkansas Federal Mortgage, we specialize in down payments as low as 3% to 5% to help you take the first step toward purchasing your home.   
• Private mortgage insurance (PMI) is required if the down payment is less than 20%. 
• A credit score of 620 or higher is usually required to qualify for a conventional mortgage.  
• A debt-to-income ratio must be 50% or lower.  
• The loan must fall within the loan limits set by Freddie Mac and Fannie Mae.  

Fixed-Rate Mortgages   

These are mortgage loans that have a fixed interest rate for the entire term of the loan. These are an excellent option for first-time buyers looking into different types of mortgages and loans and those who want to know what they will be paying every month.   

Requirements   

• Typically, a minimum down payment of 3% is required.  
• A minimum credit score of 620 is usually required. 
• A debt-to-income ratio of no more than 50% is needed. 
• Finances for closing costs, which usually is between 2% to 6% of the purchase price. 

Adjustable-Rate Mortgages   

An adjustable-rate mortgage (ARM) is a loan that offers a lower interest rate than a fixed-rate mortgage. These loans allow you to pay less interest initially but will adjust periodically over the life of the loan. This means that your monthly payments may increase or decrease over time.   

Requirements 

• A minimum down payment of typically up to 3%.  
• A minimum credit score of 620 is typically required.  
• A debt-to-income ratio must be 50% or lower.  

Jumbo Mortgages 

Jumbo mortgages are also known as conventional mortgages that exceed the maximum loan limit set by Fannie Mae and Freddie Mac, and in 2024, the limit was updated to $766,550. These loans are great for those who have good credit and can make a sizeable down payment.  

Requirements   

• A down payment greater than 10% is usually required. 

• A minimum credit score of 680 is standard.  
• A debt-to-income ratio (DTI) of no more than 45%.  
• Finances for closing costs are usually between 2% and 6% of the purchase price.  

Government Insured Mortgages   

A government-backed mortgage is a loan insured by a federal government agency called the Federal Housing Administration. These loans are offered by private mortgage lenders and offer several different types of mortgages loans for first-time buyers, including:  

• FHA Loans: The most accessible loan, requiring a minimum credit score of 580 and a down payment of 3.5% of the purchase price of the home OR 10% for those with a credit score of 500-579. You’ll also need to pay an upfront mortgage insurance premium of 1.75% of the loan amount, along with an annual premium of 0.45% to 1.05%.  
• USDA Loans: Backed by the Rural Development Guaranteed Housing Loan Program for limited to low- and moderate-income borrowers in eligible rural areas. While there is no down payment requirement, you will need to pay an upfront mortgage insurance premium of 1%, with an annual premium of 0.35%.  
• VA Loans: You must be an active-duty service member/veteran, eligible spouse of a veteran, or a U.S. citizen who served in the armed forces of a government allied with the U.S. during World War II to qualify for a VA loan. No minimum credit score is required, and you’ll face an upfront funding fee at closing of between 1.4% to 3.6% of the loan amount.  

Now that you know what types of loans are available for first-time homebuyers, let’s dig into how to get one.   

How to Apply for a Mortgage as a First Time Homebuyer  

One of the biggest first-time home buying tips is learning how mortgages work. While it may seem confusing at first, the mortgage process is fairly straightforward. With the help of a professional mortgage team, you won’t get overwhelmed with the process of applying for a mortgage because these individuals understand all the ins and outs of the mortgage industry, making them an excellent resource for understanding the homebuying process.   

A few things you’ll need to have ready include:  

• Your personal financial information, such as your income, employment information (pay stubs, W-2s, or other proof of income), and your tax returns  
• Bank statements (to verify assets)  
• Your renting history, if applicable  
• Photo ID  

Your lender will be able to tell you if any other important information is needed. Once you’ve accumulated the necessary documents, you can then move on to the application process.

First-Time Homebuyer Tips for Navigating Mortgages  

If you’re a first-time buyer, then you’ll want to review these tips for getting a mortgage first:   

• Plan your monthly budget ahead of time  
• Set realistic price expectations  
• Check your credit score early on and continue to build it up  
• Explore your pre-qualification options/secure a pre-qualification letter  
• Research first-time homebuyer programs  
• Compare mortgage rates/fees  
• Choose your mortgage team carefully 

Preparation   

In preparation for your first mortgage, you need to start researching the various mortgage programs available to first-time homebuyers. You’ll want to discuss your options with your mortgage team and how to best prepare your credit score to ensure you’re getting the best rates possible.   

Some of the most essential first-time homebuyer tips include getting pre-qualified for a mortgage. Pre-qualifying for a mortgage means you have a general idea of how much you can afford to spend on a mortgage and what you need to qualify. Your mortgage team will be able to review your financial situation and help with this. It is a great way to get a sense of your financial situation and start the homebuying process.  

Review Loan Estimates  

During the pre-qualification process, your mortgage team will be able to provide you with a range of home loan estimates based on your financial information and the documentation you’ve provided. It’s important that you’re honest with your lender so that you can get a good estimate. You’ll also want to make sure you’re comfortable with the numbers before moving on to the next step.   

House Hunt, Find Your Home & Make an Offer  

Once you’re pre-qualified and comfortable with your loan estimate, its time to start the exciting journey of house hunting. When you find a home that captures your heart, it’s your chance to make an offer.  

Fill Out Mortgage Loan Applications  

If the sellers accept your offer, gather your documents and move on to the application process where you’ll fill out the basic information section of the application, which will ask for your personal information, such as your address, contact information, and income.   

Next, you’ll be asked to fill out your financial information. This is where you’ll want to be thorough with your documentation. The more documentation you can provide for your income, such as pay stubs, W-2s, or other proof of income, the better.  

After you’ve filled out your financial information, you may be asked to provide additional documentation, such as income for your partner, your bank statements, and your rent history, if applicable.  

Finalize Necessary Paperwork  

After you’ve submitted everything asked for on the application, your mortgage team will go through the process of underwriting and finalizing your loan. Once your loan is approved, you can proceed to the payment and closing costs process.   

Your mortgage team will help you navigate the closing process and walk you through what documents must be completed and submitted.   

First-Time Homebuyer Tips from Arkansas Federal Credit Union  

One of the best ways to learn about the homebuying process is speaking with a loan officer. This allows you to ask questions, discuss loan program offers, and get answers to your questions.   

As one of the largest and most trusted mortgage lenders in Arkansas, we can help you find the right loan for you. Plus, with local lending and servicing from start to finish, we are with you every step of the way–from your first questions to your last payment. Contact us today to get started.