1st Time Homebuyer Grants Homeowner Tips

HELOC Guide: Everything You Need to Know about Home Equity Lines of Credit

What is a home equity line of credit?

When you buy your first house, you typically have to save a boatload of cash — tens of thousands of dollars or even more — depending on your financial situation and the price of your property. 

It’s a big chunk of change, to be sure. But once you get your foot in the door and start making monthly mortgage payments, you begin to build equity. Build up enough equity, and you may be eligible to take out a home equity line of credit (HELOC) and draw against it if you need some extra cash. 

As a new homeowner, one of the best things you can do is plan ahead and have a game plan for the future. That being the case, it pays to know how HELOCs work, when it makes sense to use one, and when to stay away.  

If you’re looking to learn more about HELOCs, you’ve come to the right place. This article covers everything you need to know about HELOCs, including what HELOCs are, how they work, how you can use them, HELOC alternatives, and more. 

Home equity line of credit defined 

A HELOC is a type of revolving credit line that enables homeowners to borrow money against the equity they’ve built up in their homes. This flexible form of financing is secured using the value of the property as collateral.

If you’re like most people, you’re going to need to secure a mortgage when you buy your first home. If you’re able to cobble together a 20% down payment, you’ll need to finance the other 80% of the house. In this scenario, you’ll own 20% of your property when you close the deal, and the bank will own the remaining 80%.

From that point on, each monthly mortgage payment you make increases your equity, meaning you own more of your property over time. If you ever need some extra cash and have enough equity in your home, a HELOC may be appealing to cover things like renovations, home improvement costs, and upgrades.

Essentially, HELOCs are revolving credit lines that can be borrowed against as needed; you’ll have to pay interest on whatever funds you draw. As you repay your balance, the credit line is replenished, and you can continue drawing against it.

Is it common to use a HELOC?

In the past, using a HELOC was less common. But in today’s inflationary environment, things are becoming increasingly expensive. This, in turn, is making it that much harder for young homeowners to pay their bills. In fact, one recent report found that roughly 34% of 25 to 39-year-olds currently have trouble meeting their financial obligations. Even worse, more than 70% of younger Americans are saving less because of inflation compared to Gen X and Baby Boomers.

In light of this, homeowners are looking for alternative ways to make ends meet while still reaching their family, investing, and real estate goals. As a result, many are exploring HELOCs for the first time.

In fact, HELOC applications increased 30% year-over-year in 2022. What’s more, Google searches for HELOCs hit an all-time high in July 2023. This uptick is mainly due to high prices across the overall economy.

How does a HELOC work?

A HELOC is a personal loan you borrow against your own assets. Just like any other type of loan, you have to pay any funds you use back to the bank, and you also have to pay interest on what you draw. There may be other fees too, like closing costs, annual fees, and late payment penalties, among others.

Considering this, a HELOC isn’t free even though you’re borrowing against your own equity. After all, banks offer products like HELOCs to make money.

Even so, HELOCs can be particularly beneficial in certain circumstances. If you’re thinking about applying for a HELOC, here’s the process you can expect to encounter.

1. Determine eligibility 

First, a lender runs a credit check to determine your credit score and assess your credit history. This helps the lender determine your trustworthiness and ability to repay loans. 

At this stage, the lender will also evaluate your overall financial situation. Typically, they’ll look at your debt-to-income ratio, your employment history, and any other assets you might have — like houses, cars, or investments.

2. Calculate your equity

Next, the lender will assess the value of your home and subtract your outstanding mortgage balance. If your home is worth $400,000 and you owe $150,000 on your mortgage, you’ll have $250,000 in equity.

The lender will also calculate a loan-to-value (LTV) ratio, which measures the total mortgage debt compared to the property’s appraised value. Having a lower LTV means that you have more equity in your property.

3. Get approved

After assessing your eligibility, credit history, income, and debt, the lender will determine whether you qualify for a HELOC. If you receive approval, the lender will set a credit limit, indicating the maximum amount you can borrow. 

In addition, the HELOC will likely have a draw period — the duration that you can access funds — which typically lasts anywhere from five to 10 years. Some lenders also offer 20-year repayment periods. It’s also important to note that most HELOCs have variable interest rates, which change based on market fluctuations.

4. Access your funds 

Once approved, you can access your line of credit as needed. As you take funds during the draw period, your monthly payments will reflect the interest on the amount you borrow — just like a credit card. 

How can you use a HELOC?

One of the advantages of a HELOC is that it’s a highly flexible type of loan compared to other forms of borrowing. In fact, you don’t even have to use the funds for real estate purposes. Simply put, the bank doesn’t care how you use the money; all spending is at your discretion.

For this reason, keep an eye on your spending and current interest rates when you use the funds. It’s easy to burn through your HELOC and wind up in serious debt.

With all this in mind, let’s examine some of the more common ways homeowners use HELOCs.   

Finance home improvements 

You can use a HELOC to renovate or upgrade your existing home — potentially adding value and enhancing your living space. For example, you might decide to finish your basement, build a garage, pave your driveway, or replace your roof.

Whenever you make a major home renovation, consult with a real estate professional to determine its impact on your home value; never assume that a project will automatically make your home worth more. For example, something that seems like a lock-in for extra value — like adding an in-ground swimming pool — may actually detract from your property. 

Consolidate debt

If you aren’t careful, it’s easy to rack up debt after a few years of homeownership. On average, Americans now carry around $5,733 in credit card debt

If you wind up in this situation, a HELOC can help with debt consolidation. You can pay off high-interest debts — like credit card balances and personal loans — with a lower-interest home equity loan.

Just remember that high credit card debt can impact your eligibility for a HELOC, along with its terms, since lenders analyze things like debt, credit scores, and available credit before issuing loans. As such, it’s essential to consider your overall financial situation before using a HELOC to pay down high-interest debt.

Cover emergencies

Life comes at you quickly. One minute you’re relaxing on your back porch without a care in the world, and before you know it, you’re racing to the emergency room, scrambling to find a job, or calling your insurance company about a flood. While it’s advisable to have a few months of savings to cover surprise events, 53% of Americans say they don’t have any emergency funds.

HELOCs can serve as an emergency fund, helping you cover things like unexpected medical bills or car repairs. Depending on your interest rate and terms, this could be cheaper than securing a traditional bank loan.

Of course, HELOCs can cover non-emergency purchases, too. Some homeowners use HELOCs to protect big-ticket items like new cars, boats, or weddings. 


Investing can be challenging when you’re struggling to make mortgage payments or put food on the table. Some investors use HELOC funds to overcome cash flow limitations and access the funds they need to invest in stocks and real estate instead of tapping into their paychecks. However, this is generally risky since you can lose money from investments and potentially wind up in a bigger financial hole. 

Start a business

Launching a business can be very resource-intensive. Companies often require significant capital to get off the ground and many operate in the red for several months or years before becoming profitable. 

Using a HELOC to launch a business is risky since 20% of small businesses fail in the first year. Remember, in addition to increasing your debt burden, you’ll also have to make interest payments — which could put pressure on you to make the business succeed faster. 

Before using a HELOC to fund a business, thoroughly evaluate the business idea, create a plan, and assess your risk tolerance.

Cover education costs 

Education costs are going up yearly. Today, the average price of college is upwards of $36,000 per student. This trajectory is forcing parents to explore alternative types of financing apart from traditional student loans and scholarships.

Families often make HELOC withdrawals to pay for tuition, books, food, housing, transportation, and other education expenses. Financing education with HELOC funds can potentially create a sense of commitment for students to complete their studies, helping prevent financial hardships for their families.

That said, roughly 40% of undergraduate students leave universities and colleges annually — resulting in a gigantic waste of money. Think twice before using a HELOC for education. 

Finance a new home

One of the best ways to use a HELOC is to finance a new property as an investment or permanent residence. This option can be advantageous if you’re looking to upgrade your existing home and jump into a new space without putting all of your savings on the line. 

If you have a significant amount of equity, you may be able to use these funds as a down payment on a new home. This can be particularly useful if you want to preserve your cash reserves or if you’re in a situation where you don’t want to sell your current home before buying a new one.

The significant disadvantage to using a HELOC for a down payment is that it can lead to overleveraging, which occurs when you owe more on your new property than it’s worth. This could happen if the real estate market value takes a sudden downturn. 

How is your credit score impacted by a HELOC?

HELOCs can impact your credit score in both directions. Here are some considerations to keep in mind about the link between HELOCs and credit scores:

  • If you’re a responsible borrower, HELOCs can help diversify your credit mix and improve your payment history.
  • When applying for a HELOC, it helps to have a decent credit score. The better your score, the better the loan amount, interest rate, and terms. For example, borrowers with higher scores may be eligible for more favorable loan terms — like longer repayment periods or lower interest rates.
  • When you apply for a HELOC, your account will be hit with a credit inquiry, which can slightly lower your credit score in the short term. Using a HELOC and running up a balance could also increase your debt and credit utilization rate, potentially negatively impacting your score. Other risks include missing payments and lowering your creditworthiness. 

Remember: Taking out a HELOC is a major financial decision that could jeopardize years of progress of building equity in your home. If you want to take out a HELOC, consider consulting with a financial advisor or conducting a top-down financial assessment to ensure you can take on extra risk.

Alternatives to HELOCs to know about 

Is a HELOC the best financial instrument for you? Here are some additional financing options for homeowners: 

  • Unsecured personal loans, which can be obtained from banks, online lenders, and credit unions, don’t require any collateral. In exchange, they typically have higher interest rates.
  • 401(k) loans, which involve borrowing money from your 401(k) retirement plan. Most 401(k) loans come with strict repayment deadlines.
  • Unsecured home improvement loans, which are available from some lenders and are specifically earmarked for home improvement projects and repairs. These loans tend to have higher fixed interest rates because they don’t require any collateral. 
  • Credit cards can also help fund small projects around the house. Some cards also have lucrative reward options, providing cash back or other incentives. However, you’ll need to pay your balance off in full each month unless you want to pay massive interest rates.

What is a home equity loan?

A home equity loan is similar to a HELOC; it enables homeowners to borrow against the equity they have in their property.

However, unlike HELOCs, this type of loan provides a one-time lump sum based on your home’s equity. With a HELOC, you get a revolving line of credit that you can tap into when you need to. Home equity loans are more like mortgages; you have to cover fixed monthly payments for the loan term. That being the case, you should only take a home equity loan if you’re comfortable paying monthly installments.

When you take out a home equity loan, your house serves as collateral. If you fail to repay, your lender can take possession of your property through foreclosure. 

Home equity line of credit: FAQs

What are the pros and cons of HELOCs?


  • HELOCs provide a great deal of flexibility. You can use them for various needs ranging from home improvement and education to paying down debt and buying a new car. At the same time, you can tap into a HELOC as you need to. As long as you replenish your credit line, you can continue borrowing multiple times over the life of the loan.
  • During a draw period, you can usually make interest-only payments. This can help keep your monthly obligations lower. 


  • HELOCs tend to have variable interest rates and can change over time. As a result, your monthly payments could increase when rates rise. 
  • It can be tempting to overspend or overborrow with a HELOC.
  • Defaulting on a HELOC could result in the bank seizing your property and foreclosing your home. If you tap into a HELOC, you need to use it responsibly. 
  • Since lenders look at your equity, finances, and creditworthiness, it may be harder to get approved for a HELOC compared to other types of loans.

Is a HELOC tax deductible?

When it comes to taxes, it’s always wise to consult with a licensed professional. That said, you can deduct HELOC interest on your taxes if you use the money to buy, build, or improve your home — but only if you itemize your deductions. 

Is it possible to extend a HELOC draw period?

Some lenders may allow you to extend a HELOC draw period. However, it depends on the specific terms of your HELOC agreement and your lender’s policies. Some lenders offer flexible draw periods while others take a more rigid approach. When applying for a HELOC extension, your lender will likely consider several factors, including your eligibility and market conditions. 

What is a cash-out refinance? 

Cash-out refinancing involves restructuring your existing mortgage to increase the amount you owe and taking the difference in cash. If you own 50% of a $500,000 home, you can exchange half of your equity for $125,000, minus fees.

This strategy changes your mortgage terms by allowing you to make payments on a larger loan. Your new mortgage will include the remaining balance from your old loan and the extra funds you take out. Since you’re changing the terms, you’ll also have more time to pay the loan back. 

While this can lengthen your mortgage repayment timeline and increase the amount you owe, it can help you solve temporary cash-flow issues.

Should I refinance my home?

Refinancing may make sense if you can get a lower interest rate. But with interest rates closing in around 7%, it’s probably not the best time to refinance. 

When weighing a possible refinance, look for the break-even point: the time it takes for your monthly savings to offset the cost of refinancing. As a rule of thumb, you should only refinance if you plan to stay in your current home beyond that point.

How much does a HELOC cost?

HELOC costs vary by lender. Your HELOC may include:

  • Closing costs, like application fees, appraisal fees, attorney fees, title search fees, and more.
  • Origination fees, which cover the administrative costs associated with opening a HELOC.
  • Interest costs, which depend on how much you borrow, the interest rate, and the loan duration. Interest rates are usually based on the prime rate plus the lender’s margin.
  • Annual fees, which could add to the ongoing cost of maintaining your HELOC. 
  • Application fees, which could also be necessary when requesting a line of credit. 

Additionally, you should also be aware that your home’s appraised value can impact the overall cost of your HELOC. There may also be prepayment penalties in play, too.

Before applying for a HELOC, it’s a good idea to talk to multiple lenders to evaluate different HELOC rates and learn about potential hidden fees. 

What happens if a lender denies a HELOC?

If your HELOC application is denied, the lender must provide an adverse action notice outlining the reasons for the rejection. Some reasons may include a low credit score, insufficient income, or low equity in your home. Should you be rejected, carefully review the reasons for the refusal to understand what aspects of your profile may require improvement. 

That said, just because one lender denies your application doesn’t mean you can’t get a HELOC elsewhere. It may be worth it to apply for a HELOC with another lender that has different eligibility criteria or underwriting standards. 

If your financial situation changes, you can also choose to reapply with the same lender down the line. For example, after you’ve paid off debts, increased your savings, and built more equity, you may be a more attractive candidate.

Do HELOCs use the Nationwide Mortgage Licensing System (NMLS)?

The NMLS is a database for licensing and regulating mortgage professionals and entities. It primarily serves to protect consumers and streamline licensing. 

Since HELOCs are a mortgage product, they are subject to the NMLS. However, the application process can vary based on different state and federal regulations. Additionally, the professionals who originate HELOCs may also be subject to NMLS regulations.

Are HELOCs FDIC insured?

HELOCs do not typically have Federal Deposit Insurance Corporation (FDIC) protection. This is because FDIC insurance primarily covers deposit accounts — like checking accounts, savings accounts, certificates of deposit (CDs), and money market accounts. HELOCs, on the other hand, are a form of borrowing. 

Brush up on mortgage loans!

Before you start worrying about things like HELOCs and refinancing, you have to secure a property and mortgage first — and that requires careful planning.

One of the best things you can do as a first-time homebuyer is to read up on the different types of mortgage loans that lenders offer. Check out our FREE guide to learn which type of mortgage is best for you.


The content provided on this website is offered for educational purposes only. While we endeavor to provide accurate and up-to-date information, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability of the content for any purpose. Visitors are advised to consult with qualified experts before making any financial decisions or taking any actions based on the information provided on this website.

1st Time Homebuyer Mortgage

Mortgage Pre-Approval Checklist

It’s an exciting time! You’re ready to begin the home-buying process by going house hunting and purchasing your dream home.

Before you start packing boxes, however, you need to get your financial affairs in order. 

The first step in preparing to buy a home is getting mortgage pre-approval. To decide if you qualify for a home loan, lenders assess your credit history to determine your ability to make monthly payments and maintain a favorable financial situation.

To make the assessments needed for mortgage prequalification, lenders require documentation to verify income, assets, and expenses. 

A checklist of documents to get started

As you begin the quest for a mortgage preapproval letter, you’ll have to turn over a bunch of documents containing financial information. Depending on the loan type and loan amount you’re pursuing, the required documentation can vary slightly.

Below is a checklist of the five most common documents you’ll need to prepare when you submit for your mortgage pre-approval.

1. Personal identification

To obtain a preapproval letter, you must provide a valid form of ID to prove your identity. State-issued driver’s licenses, passports, and US. alien registration cards are all acceptable forms of identification. You’ll also have to give the lender your contact information.

2. Social Security card

This is an added layer of identity verification. The lender can match your Social Security number with your personal identification to verify that they’re lending to the right person. Additionally, mortgage lenders will use your Social Security number to run a credit check.

3. Proof of employment

Borrowers will also have to show lenders evidence that they can afford monthly mortgage payments. As such, lenders will need proof of current, full-time employment.

When you’re applying for a mortgage, you’ll need to provide pay stubs that verify your monthly income. Additionally, lenders will require your tax returns (usually the two most recent W-2 forms) to confirm your long-term employment, further verify income, and assess other financial information.

If you’re self-employed, you’ll be asked to provide tax documents and business returns for the past three years. Additionally, the lender will request a year-to-date audited profit and loss statement. Whether it’s fair or not, self-employed individuals may have a harder time securing loans than their counterparts who work full-time for someone else — particularly if they’re first-time homebuyers. 

4. Bank statements

Borrowers also need to show credit union and bank statements for the most recent two to three months to verify their ability to afford the down payment and closing costs (e.g., origination fees and underwriting expenses and, for home sellers, real estate agent commissions).

Additionally, lenders review bank account statements to confirm income deposits and uncover potential red flags. Large deposits from unknown sources, bounced checks, or evidence of insufficient funds can negatively impact your approval. 

5. Investments

Investment accounts can help lenders recognize assets and other potential sources of income. that being the case, it’s a good idea to disclose additional financial information via investment account statements from your 401(k), 403(b), IRAs, stocks, bonds, and mutual funds.

Permission to pull your credit report

After you provide the required financial documents and other information, lenders will ask for permission to pull your credit report from one of the main credit bureaus before your mortgage application can move forward.

The credit report shows your payment history, the diversity of credit you have established (e.g., credit cards, mortgages, and car loans), and credit utilization. Essentially, it’s a way to gauge whether you are a serious buyer and are in the home-buying journey for the long haul.

Generally, your credit report will reveal a good credit score if you make on-time payments, consistently pay off debt, maintain a low credit utilization rate, and refrain from opening too many new lines of credit, due to hard inquiries. 

On the flip side, if you’ve filed for bankruptcy, have delinquent accounts, and consistently use most of your available credit (e.g., maintaining high credit card balances), your credit score will be adversely impacted, which could reduce your mortgage options by making it harder to qualify for loan programs.

A good credit score of 670 or above will improve your chances of getting a loan with a decent interest rate. However, some lenders offer conventional loans to borrowers who have credit scores of at least 620. What’s more, some FHA loans can be offered to borrowers with credit scores as low as 500.

If your personal finance situation is less than ideal, you may still be eligible for a loan. Shop around to consider which lender and loan type is best for your needs. 

Monthly expenses list

Part of the loan application process is to assess if you can take on more monthly debt. Loan officers want to know what fixed expenses borrowers are already responsible for each month, which helps them determine how much house they can afford and what purchase price is reasonable for their budget.

While your credit report will likely show the list of your fixed expenses, the lender may also ask you for more details. Fixed expenses are considered regular, recurring payments. Common expenses include:

  • Current rent or mortgage
  • Car loans
  • Student loans
  • Credit cards
  • Medical bills

You do not need to disclose a list of variable expenses, such as gas or groceries. The fixed list of debts is more substantial for the lender to assess, as these expenses require a monthly minimum payment that you will always be responsible for making. Recognizing these fixed debts helps a lender determine your debt-to-income (DTI) ratio, which helps them come up with a better loan estimate for what you can afford. 

Debt-to-income ratio

Assessing your debt-to-income ratio helps lenders determine if you can take on more debt in the time frame you’re hoping to make a home purchase. This ratio shows how much money you have going out versus what you have coming in.

To qualify for a loan, you cannot exceed the maximum debt-to-income ratio, which varies depending on the type of loan you’re applying for. It’s wise to ask your lender about their debt-to-income ratio requirements because if you exceed the maximum, you may find out the hard way that your dream home is out of your price range. 

Supplemental documentation

In addition to the standard documentation that most applicants must submit, depending on your unique circumstances, you may be asked to provide supplemental documentation. In this section, we’ll highlight some of the other documents you may be asked to produce to determine your loan eligibility.

Homeowner documentation

If you already own a home, you’ll likely be asked for recent mortgage statements to assess the equity in your home, principal balance, and current monthly payment. If you’re selling your home, this information can help lenders assess how much you should qualify for moving forward.

If you are keeping your home and applying for a new home mortgage to refinance, your current homeownership will be considered part of your debt-to-income ratio.

Rental information 

Lenders want to know if you can make your monthly mortgage payment on time. One way to assess this is to consider your rent history. As such, you may be asked to provide the names and contact details of former landlords. That way, lenders can verify whether you have consistently paid rent on time.

Gift letters

If a loved one provides a gift to help you cover the cost of your down payment, your lender will require a gift letter to prove this money is not a personal loan. (Remember, a personal loan would alter your debt-to-income ratio.)

If you’re receiving a gift, check with your lender about the rules regarding who can provide gift funds. 

Preparing for a smooth pre-approval process

Getting a mortgage is your gateway to owning your own home!

Now that you know what a lender will expect, you’ll be prepared to manage the pre-approval process efficiently. By understanding what a lender will request, you’ll have a better idea about what mortgage rates you can afford, and you’ll be better prepared to prove that you’re a good candidate for a mortgage loan. 

Keep in mind that this process is anything but a short one. You’ll have to wait several business days for your application to be processed. Still, you’ll want to move quickly once you get preapproved, because your mortgage preapproval letter will likely have an expiration date.

At this point, you know the ins and outs of the mortgage preapproval process. So what are you waiting for? Get the ball rolling and get that much closer to landing the home of your dreams.

Good luck!


The content provided on this website is offered for educational purposes only. While we endeavor to provide accurate and up-to-date information, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability of the content for any purpose. Visitors are advised to consult with qualified experts before making any financial decisions or taking any actions based on the information provided on this website.

1st Time Homebuyer Mortgage

Different Types of Mortgage Loans

Many home buyers are so excited and eager to jump into their journey to homeownership that they don’t educate themselves on the many different types of mortgage loans that lenders offer.

Are you one of them?

If so, it’s time to rethink your approach. One of the most important steps to doing that is to learn about the different mortgage loans available to aspiring homeowners. After all, some types of home loans may work well for other homebuyers but they may not be right for you.

In this post, we provide some key information about the loan options available for both first-time homebuyers and seasoned pros. Keep reading to learn more about which one is best for you.

Types of mortgage loans for all homebuyers

There are several types of mortgage loans that fit the needs of different homebuyers, whether you’re a military veteran who’s lived in several homes or a first-time homebuyer.

Down payments, mortgage terms, interest rates, closing costs, and eligibility requirements vary by the type of loan, as well as the loan amount.

Conventional mortgage loans

As the name suggests, a conventional mortgage is the most common type of real estate mortgage. Like all other loans, these loans have eligibility requirements. For example, qualifying typically involves a need for a higher credit score (minimum of 620) and a lower debt-to-income (DTI) ratio.

With a conventional mortgage loan, you can buy a home with as little as 3% down upfront as long as it’s going to be your primary residence. But if you have a down payment of at least 20%, the mortgage lender won’t require you to buy private mortgage insurance (PMI). And that’s a pretty big deal because a mortgage insurance premium can really put a strain on your cash flow.

Mortgage insurance rates are usually lower for conventional loans compared to other loan types like Federal Housing Administration (FHA) loans. If you’re a borrower who wants to take advantage of lower interest rates with a larger down payment, then a conventional loan is a great choice.

30-year fixed-rate mortgages

One of the most common mortgage options for single-family homes is a 30-year fixed-rate mortgage, which has an interest rate that doesn’t change throughout the life of the loan. If payments are made on schedule, the loan will be completely paid off once the 30-year term is over.

This loan is best for home buyers who want a lower monthly payment since the loan will be stretched out over a longer period of time than, e.g., a 15-year fixed-rate mortgage. At the same time, borrowers have the flexibility to pay off the loan faster by paying more than the minimum amount.

Who knows? If you win the lottery, you might be able to pay of your loan in one lump sum!

15-year fixed-rate mortgages

Want to pay off your home faster? Do you want a mortgage loan program that allows you to refinance your home for up to 97% of its value?

If those options are appealing, consider a 15-year fixed-rate mortgage loan. A 15-year fixed-rate mortgage is similar to a 30-year fixed-rate mortgage, except that the interest rate stays the same over a 15-year term, instead of 30 years.

Of course, this route means you’ll have higher monthly payments. But by paying off your mortgage sooner, you’ll be able to save money in interest payments.

Adjustable-rate mortgages

An adjustable-rate mortgage is the opposite of a fixed-rate mortgage. It’s a home loan in which the initial interest rate is set below the market rate on a comparable fixed-rate loan. Then, as time goes on, the rate rises.

At first, borrowers can benefit from a lower interest rate as well as lower monthly payments. If you don’t plan on having the mortgage for long, then this may be a good option for you. You might also consider an adjustable-rate mortgage if you believe interest rates will be lower in the future.

FHA mortgage loans

If you’re looking to finance a home purchase, the federal government may be able to help. The government offers several mortgage options, including FHA loans.

FHA loans are government-backed mortgages geared towards borrowers with low to moderate incomes, who are often purchasing a home for the first time. With an FHA mortgage loan, buyers can often put down as little as 3.5% of the home’s purchase price.

These loans also have lower credit score requirements. Believe it or not, you may be able to qualify with a minimum FICO score as low as 500.

VA mortgage loans

A VA loan is a type of government loan backed by The U.S. Department of Veterans Affairs. This financial vehicle is designed for veterans, service members, and their surviving spouses.

They can purchase homes with a low down payment, or even no down payment, as well as no PMI. Thanks to their service to the country, these borrowers can also benefit from more competitive interest rates, which can make it easier to afford higher home prices.

USDA mortgage loans

A USDA home loan is a zero-down payment mortgage for eligible rural home buyers. Backed or issued by the U.S. Department of Agriculture, USDA loans typically don’t require a down payment.

So, if you’re considering buying a home in a rural area and aren’t keen on putting any money down, then a USDA mortgage may be a viable option. You can also use USDA funds to build, repair, renovate, or relocate a home.

Jumbo mortgages

Are you thinking about financing a home that’s too expensive for a conventional conforming loan? If so, you might consider a jumbo mortgage loan. In most counties, the maximum amount for a conforming loan limit is $647,200. So, if you’re looking to buy an expensive home in an expensive state like New York or California and the price tag exceeds this amount, you may be able to get a jumbo loan.

Because they’re larger loans, jumbo mortgages typically require a credit score of 700 or higher. You might also need a down payment of 10% or more. For these reasons, you should absolutely apply for pre-approval before beginning the house-hunting process.

Interest-only mortgages

An interest-only mortgage is a type of mortgage that requires the borrower to pay only the interest on the loan for a certain period.

This makes your monthly mortgage payments lower when you first start making payments. However, you’re not building up any home equity during this time. And, once your interest-only period ends, you’ll start paying the interest and principal. Also, the amount of time you have for repaying the principal is shorter than your overall loan term.

This type of mortgage may be ideal for you if have ample assets, good credit, and a short-term ownership outlook. You can also pay down the principal balance if you receive large annual bonuses.

Reverse mortgages

If you’re thinking about refinancing or are looking for extra cash, you can also consider a reverse mortgage. Essentially, these vehicles are geared toward older homeowners who are looking for cash. Each month, a lender sends the homeowner a check, and those funds essentially turn into an interest-bearing loan.

Unless you are interested in giving up equity in your home, you probably should avoid this financial instrument.

Purchasing a home with a more informed outlook

Now that you know about the different types of mortgage loans, you can make a more informed decision when choosing a mortgage. And that’s a great thing. When you go into purchasing a home without knowing your options, you could be stuck in a situation that isn’t ideal for you and your family.

For most folks, buying a home is usually a massive long-term financial commitment. That being the case, it’s best to embark on your journey with as much knowledge and insight as possible.

Good luck finding the perfect loan and ending up in the home of your dreams!


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1st Time Homebuyer Downpayment Savings

How Much to Save for a Down Payment

Your down payment is one of the most important things to consider when buying a home.

But figuring out how much you should save can be a challenge, especially if you’re pursuing homeownership for the first time. 

How much you should save for a down payment depends on a variety of factors, including the type of mortgage you’re applying for, the loan amount, your financial situation, and the price of the home you’re purchasing. 

In this post, we aim to help you determine how much you may need to put down for your house and how to save for your down payment in the first place.

How Much Do You Need for a Down Payment?

There’s no one-size-fits-all down payment amount. How much you’ll need to save will differ from another borrower because all real estate prices are different, and home values are influenced by a variety of factors.

With that said, let’s look at the different down payment options that are available to you. The first option we look at is a higher down payment — which you can think of as a funding fee that often results in lower monthly payments over the life of the loan.

Benefits of a Higher Down Payment

You may have heard that you should put down at least 20% of the home’s purchase price. That’s because it’s usually the most ideal option, for a variety of reasons:

  • Increase your chances of getting your loan approved. A bigger down payment gives you a better chance of home loan approval than if you had a low down payment. This shows lenders that you’re a good saver, which means a lower credit risk. 
  • Take advantage of lower mortgage rates. A higher down payment reduces your loan-to-value (LTV) ratio, a figure that lenders use to determine how much risk they’re taking on with a loan. A lower LTV ratio typically means lower interest rates — and lower monthly mortgage payments.
  • Pay your loan off sooner. The more money you can put down on your home, the less you’ll end up owing on your loan. This means that you can pay off the rest of your mortgage faster, which prevents you from having to spend even more on mortgage interest and allows you to build equity faster.
  • Get a lower mortgage payment. It bears repeating: The higher your down payment, the lower your mortgage will be every month.
  • Avoid paying for private mortgage insurance. If you put down at least 20%, you likely won’t have to get mortgage insurance. Putting down less than 20% means the lender won’t have as much protection. Lenders often offset this risk by requiring borrowers to pay for private mortgage insurance (PMI). If you want your monthly income to stretch the farthest it can, you’d be wise to avoid having to pay for PMI.

How much down payment do I need?

Even though it’s probably best for home buyers to put at least 20% down on their home, it may not be feasible for every homeowner — particularly folks with massive credit card debt. Plus, there are many mortgage loan options — including government-backed loan programs available through the Federal Housing Administration (FHA), Fannie Mae, and Freddie Mac — that allow borrowers to put down less money while still securing a home. 

In fact, across the entire housing market, the average down payment is less than 20%. According to a recent report, the average down payment on a home in 2021 was just 7% for first-time home buyers and 17% for repeat buyers. Why? Because most borrowers can get mortgage lenders to sign off on loans that have much smaller minimum down payment requirements than 20%. 

The Minimum Down Payment

Down payment requirements typically depend on the lender you use as well as your credit health and debt-to-income (DTI) ratio. 

To get a better idea of how much you can put down, let’s look at the minimum down payment requirements for different types of mortgage loans:

  • Conventional mortgage loans: With a fixed-rate conventional loan, your down payment could be as low as 3%. But the catch is you’ll have to pay private mortgage insurance premiums each month until you’ve accumulated 20% home equity.
  • FHA loans: For an FHA loan, you only need a down payment of 3.5% of the purchase price if you have a minimum credit score of 580 (10% if your FICO score is between 500 and 579). For this type of loan, you’ll have to pay both an upfront mortgage insurance premium and an annual premium over the course of your loan.
  • VA and USDA loans: Loans backed by the Department of Veterans Affairs (VA) and U.S. Department of Agriculture (USDA) don’t require a down payment. If you’re looking for a new home and are a military veteran, service member, or surviving spouse, you may qualify for a VA loan. To qualify for a USDA loan, you must purchase a property in an eligible rural area.
  • Jumbo loans: If you’re looking to get a mortgage for a more expensive property with a higher sales price, you may need a jumbo loan. These loans tend to have higher down payment requirements and you may need to put down at least 10% of the purchase price.

How can you save for a down payment?

Unfortunately, saving for a down payment can be tricky — particularly in a world with higher interest rates. But with some sacrifice and dedication, it’s definitely possible.

The first step to saving for your down payment is to determine how much you need. Consider the type of loan you want to apply for and the purchase price of your desired home. Then, think about a realistic timeline in which you can achieve your savings goal.

For example, imagine that you want to buy a home in three years, the homes you’re interested in are worth about $400,000, and you want to put at least 10% down. That means you should save about $1,100 a month to hit that goal. (Of course, your specific situation may vary. Look for mortgage calculators online to crunch the numbers that apply to your unique circumstances.)

So, the next question is, where will you get the extra cash? If you don’t have it, try to cut spending, stick to a budget, and automate your savings. And remember, even if you can cover the down payment, you’ll still be on the hook for closing costs.

Still can’t find the extra cash? Consider a side hustle or even request a raise at your current job. If worst comes to worst, you can also apply for a down payment assistance program or down payment loan.

Wrap Up

Ultimately, there’s no set amount of money borrowers should put down when purchasing a home. But one thing is certain: It takes some dedication and commitment when making such a big investment decision and saving up for it. 

When it comes to saving for a down payment, it’s best to take your time to save as much as you can. This will allow you to make your dream purchase. When you do, you’ll be happy you waited.

1st Time Homebuyer Downpayment Grants

Homeownership Assistance Programs to Know About

As a homebuyer, chances are you have a lot on your plate. Maybe you’re worried about how you’re going to save for a down payment. Or perhaps you feel like your income is too low to be able to cover mortgage payments, homeowner’s insurance, and property taxes on your dream home. You might not have a perfect credit score, and you might have no idea what might happen in the event you encounter financial hardship.

Whatever the case may be, there’s a lot to be concerned about.

The good news is that, if you’re having trouble with any of these roadblocks, you may qualify for a homeownership assistance program. Keep reading to learn about some of the more common homeowner assistance programs to see if they might apply to your personal situation.

Homeownership Assistance Programs Every Homebuyer Needs to Know

1. FHA Loan

The Federal Housing Administration (FHA) is a government agency that fits under the Department of Housing and Urban Development (HUD). The FHA offers loans, which are government-backed mortgages that help homebuyers secure properties without having to cover huge down payments. First-time homebuyers love FHA loans because you can secure them with lower credit scores and less money down. 

Third-party mortgage lenders underwrite and administer these loans while the government insures them. To qualify for an FHA loan, you must have a:

  • 500–579 FICO score for a 10% down payment
  • 580 FICO score for a 3.5% down payment
  • 38–57% debt-to-income (DTI), depending on your credit score

*Important First Step!* – If you are currently in debt, or even unsure about your DTI ratio, there is a high likelihood you aren’t going to qualify for a FHA loan right now. If this is the case, resolving your existing debt is the most important step you can take.

Have no fear because we’ve partnered with National Debt Relief to provide our readers with more direct assistance. National Debt Relief is a reputable company that’s dedicated to helping people resolve card debt faster, and easier. With their service, you could pay off your existing credit card debt with just one low monthly payment. Getting Started is simple – just sign up for a free debt assessment here. You’ll be glad you did, and also one major step closer to purchasing that home!

2. FHA 203(k) Loan

FHA 203(k) loans help homebuyers finance the purchase and rehabilitation of a house with a single mortgage insured by the FHA. In addition to refinancing to make housing payments more affordable, homeowners can also use the 203(k) loan for home improvements.

Unlike a construction loan, part of an FHA 203(k) loan is used to buy the property or pay off an existing mortgage. The rest is put into an escrow account to cover rehab costs as the work is completed. There are two types of 203(k) loans: fixed-rate and adjustable-rate loans. If you’re interested in giving these loans a shot, talk to a mortgage servicer about which type makes the most sense for your unique situation.


  • Minimum 500 credit score
  • Minimum down payment of 3.5% for a credit score of at least 580; 10% for lower scores
  • 31-43% DTI; higher with a higher credit score

3. USDA Loan

A USDA home loan program offers mortgages to low-income rural residents who can’t otherwise obtain conventional loans. It’s primarily designed to assist low-income renters living in unhealthy or unsafe rural conditions in purchasing a house with adequate space and modern utilities.

Applicants can choose between two options depending on their circumstances: a federal guarantee of a mortgage or a direct loan from the government. Both loans require no down payment.

To qualify, you must:

  • Have a minimum 620 credit score
  • Have an adjusted household income that’s equal to or less than 115% of the area median income
  • Be located in a USDA-eligible area
  • Have a stable job history

4. Local Homeowner Assistance Programs

Depending on where you live, you may be eligible for a number of local assistance programs that can make it easier to purchase a home. Just like there are rental assistance programs that provide emergency rental assistance to folks who are struggling to cover rent in the wake of the pandemic, the Consumer Financial Protection Bureau (CFPB)—which is loosely affiliated with the U.S. Department of the Treasury—offers a Homeowners Assistance Fund (HAF) similarly helps folks impacted by the coronavirus make mortgage payments and pay utility bills.

To learn about state programs administered in your area, contact your state housing finance agency or state HUD office and see whether you qualify for the HAF program. 

Besides providing housing programs, HUD also funds housing counseling programs throughout the country. In these programs, housing counselors provide guidance on many housing-related topics, including home buying. Eligibility requirements vary by program, so be sure to research your options. 

5. VA Loan

One of the most useful military benefits is the VA home loan (also known as the Department of Veterans Affairs home loan). If you qualify, you can buy or build a house or refinance an existing mortgage with no down payment, great rates, and no cap on financing.

Veterans and active service members who qualify are able to take advantage of one of their most valuable benefits, making it an easy decision over other more traditional mortgage types. Simply put, veteran and active-duty service members can take advantage of VA loans to make home-buying more affordable.

To qualify for a VOA loan, you must meet the following criteria:

  • Served in the military on active duty for at least 90 days
  • Be a member of the National Guard or Reserves for at least six years
  • During peacetime, have served at least 181 days on active duty
  • Completed 90 days of cumulative service under Title 10 or Title 32. A minimum of 30 consecutive days of service is required for Title 32 service.
  • Be a spouse of a military service member who has died on duty, or who has been disabled on duty. 

To learn more about VA loans, visit

6. HomePath Ready Buyer

By selling properties it owns on the HomePath market, Fannie Mae aims to help stabilize neighborhoods and ensure families find their perfect homes.

Fannie Mae HomePath properties are those acquired through foreclosure or deed instead of foreclosure. Freddie Mae offers this loan program in which buyers cover a 3% down payment and receive a credit of 3% toward their closing costs.

How can you qualify for the Fannie Mae HomePath loan? You must be a low-income borrower, have a credit score of at least 620, and have a maximum DTI of 36%. Plus, you must have limited cash to qualify for a down payment and be a first-time homebuyer. Even if you’ve owned a home before, you can still qualify, as long as you haven’t owned a home in the past three years. 

You’ll also need to hire a real estate agent and complete the HomePath’s Ready Buyer program, which is an online course that covers some of the most common mortgage and homeownership topics. Despite the $75 cost of the program, Fannie Mae reimburses you when you close on a HomePath home.

7. Dollar Homes

HUD’s Dollar Homes initiative is aimed at giving low-income families the opportunity to own a home. To date, thousands of homes have been sold on this website for just $1 each. 

The homes are intended to be purchased by local governments or non-profit organizations for renovation and resale. However, a HUD-approved broker can make an offer on the home, according to the HUD website.

If you’re interested in learning more about this program, make sure they are accepting applications before diving in too deep.

8. Homebuyer Dream Program

Those who qualify for the Federal Home Loan Bank of New York’s (FHLBNY) Homebuyer Dream Program (also known as the First Home Club) can receive a grant of up to $9,500 toward a down payment and closing costs. The program is available to eligible first-time home buyers who are purchasing a home through a community-based lender. 

Through this program, eligible applicants can seek financial assistance to pay the upfront costs of homeownership, such as the down payment, closing costs, and prepaid items required to become homeowners. 

To qualify for the Homebuyer Dream Program, you must:

  • Be a first-time homebuyer
  • Have a total household income that’s at or below 80% of area median income 
  • Make a minimum equity contribution of $1,000 towards the purchase of an eligible property in the FHLBNY District
  • Complete homeownership counseling
  • Sign a 5-year retention document at closing

If you don’t live in New York, you might be able to qualify for similar programs in your own state. For example, there’s the California Mortgage Relief Program, which gives HAF funds to folks who qualify.

9. Energy Efficient Mortgage

Often referred to as a green mortgage, energy-efficient mortgages give you the opportunity to finance and pay for energy-efficient improvements. EEMs are available in conventional, FHA, and VA mortgage formats, which include funds that can be used to make energy-saving improvements to your home. Unfortunately, you can’t use this money to cover past-due mortgage payments.

You can use the energy-efficiency mortgage program to enhance your borrowing power by receiving loans that cover the costs of installing energy-saving features in new or existing homes. Buyers can take advantage of this opportunity by obtaining a government-backed or conventional mortgage to help purchase or refinance a home (e.g., a reverse mortgage).

You can qualify for an EEM by having:

  • A 3% minimum down payment
  • A credit score of 620 or higher
  • A DTI ratio of 45% or lower
  • A steady and reliable income

10. Freddie Mac’s Home Possible

Freddie Mac Home Possible mortgages are designed to help low-income borrowers who might not otherwise be able to qualify for home loans. With a Home Possible loan, you only need a 3% down payment and a 660 credit score to become a homeowner.

The Freddie Mac Home Possible program offers a variety of options to suit the needs of borrowers. The program provides low down payment options and flexible sources of down payment funds for people whose income is 80% or less of the area median income.

Believe it or not, there’s no need to cover the 3% down payment yourself with Home Possible. It may be possible to receive funds from a down payment assistance program or even as a gift from a family member. Though Freddie Mac backs this loan program, it doesn’t lend the money itself.

Private lenders originate Home Possible loans, so borrowers can compare interest rates and mortgage lenders before making a decision.

The qualifications for the Home Possible mortgage are:

  • A credit score of 660 or higher
  • A DTI ratio of 43% or lower
  • A minimum 3% down payment
  • Proof of stable employment and income
  • A combined income for all borrowers of no more than 80% of the area’s median income

11. National Homebuyers Fund

The National Homebuyers Fund was founded in 2002. Under this program, first-time and repeat homebuyers can receive closing costs and/or down payment assistance.

The NHF can provide assistance up to 5% of the amount of your mortgage loan. For example, if you get a $250,000 mortgage, the NHF might give you up to $12,500 as a grant or forgivable loan.

The requirements to secure an NHF loan are flexible, including FICO scores and DTI ratios. You also don’t have to be a first-time homebuyer to qualify. Plus, there are generous income limits, which may be higher than you might expect. To get an NHF loan, you must work with a participating mortgage lender.

12. Good Neighbor Next Door HUD Loan

Individuals working in specific public service jobs can purchase qualified homes at a discount with HUD’s Good Neighbor Next Door (GNND) program. The public service category includes law enforcement officers, teachers, firefighters, and emergency medical technicians (EMTs).

With GNND, you can purchase HUD homes in revitalization areas at a 50% discount. No, this isn’t one of those scams. HUD homes are single-family homes acquired by the HUD after they have been foreclosed on by an FHA lender. In addition to promoting homeownership, GNND strives to strengthen communities.

Here are other qualifications for the program:

  • Prior to bidding on a property in the program, neither you nor your spouse must have purchased a Good Neighbor Next Door home.
  • As a law enforcement officer, teacher, firefighter, or EMT, you must certify that you intend to continue working in the field after purchasing the home.
  • For three years, you must own and live in the home as your sole residence, and you must certify that you do so each year. Each year, HUD mails a certification to the homeowner, who signs and returns it.

13. Native American Direct Loan

Those who wish to purchase, construct, or improve a home on federal trust land can apply for a Native American Direct Loan Program. One caveat: You must live in the home as your primary residence. The program can also be used to refinance an existing Native American Direct Loan.

To qualify for this loan, Native American homebuyers must be:

  • Veterans (including reserve and National Guard members who were called to active duty)
  • Active duty service members
  • Current reserve and guard members (usually after six years of reserve service)

Also, you must be a member of an American Indian tribe or Alaskan Native village, a Pacific Islander, or a member of a Hawaiian tribe. Alternatively, you must be married to someone who meets these requirements.

Additionally, you’ll need to obtain a Certificate of Eligibility (COE). Through the Automated Certificate of Eligibility (ACE) program, you can get one from VA or from a lender.

Which program works best for you?

As you can see, there’s no shortage of homeowner relief programs designed to help people like you achieve the American dream without hardship.

If you’re interested in securing relief or mortgage assistance, expect to go through a lengthy application process. But once you’re approved, that process will be entirely worth it once the money rolls in.

Whatever you decide, here’s to making the best choices as a hopeful homeowner!

1st Time Homebuyer Guides Real Estate

The Definitive First-Time Homebuyers Guide

How to close on your first property and accelerate your journey to financial freedom

So, you’re thinking about buying a home for the first time. That’s great news! From increased financial security and tax benefits to having a permanent roof over your head and being part of a local community, there’s a lot to like about becoming a homeowner.

If you’re looking to achieve long-term financial independence, a home purchase is one of the smartest investments you can make. According to a recent study from the Federal Reserve, U.S. homeowners have a median net worth of $255,000. Renters, on the other hand, have a median net worth of just $6,300 — a difference of 40x!

While the benefits of being a homeowner speak for themselves, the process of buying your first home isn’t exactly a walk in the park. Truth be told, the experience can be downright crazy and filled with emotional ups and downs.

To make your journey easier, we’ve put together this comprehensive guide that outlines everything you need to know about becoming a first-time homebuyer, including:

  • How to think about financing your first home
  • The pros and cons of working with a real estate agent
  • What to look for in a property
  • Tips on negotiating a deal
  • What to expect after an offer is accepted
  • Hidden homeowner costs to consider
  • Unforeseen challenges you might encounter
  • First-time homebuyer mistakes to avoid
  • Additional resources that can help you throughout the process

Buying your first home: The home loan financial component

There are two main types of loan programs available when it comes to mortgages, and you’ll want to determine your eligibility. First, conventional loans are the most common type of loan, and are not backed by the government. Then there are non-conventional loans which are backed by the government. Much more details on the differences between the two a bit later on.

Whether you’re buying a house for $2 million or $400,000, you should aim to have at least 20% of the purchase price upfront for a down payment. The remaining balance of the home price is the loan amount you are requesting. Having at least that 20% up front will enable you to avoid paying for private mortgage insurance (PMI), which most mortgage lenders require when buyers put down less than 20%.

While it’s possible to procure a home with as little as 3% down payment via the 97% loan-to-value mortgage program or 3.5% down payment by taking out a loan from the Federal Housing Authority (FHA), doing so is unadvisable, since PMI can cost as much as 2.5% of your total mortgage.

Of course, it never hurts to put down more than 20% if you have the money. The more money you put down, the lower your monthly loan payments will be.

For example, if you put down 20% on a $500,000 house and obtain a 30-year fixed mortgage at 4%, your monthly payment would be $1,910 (excluding property taxes and insurance). If you buy that same house with the same mortgage rate but only put down 10%, the payment increases to $2,148 per month (again, excluding property taxes and insurance). Plus, you’ll also be on the hook for PMI!

If you were to put down 30% in this same situation, however, your monthly payment would decrease to $1,671. You get the gist.

Tips for saving for a down payment on your first home

Saving up for a down payment can be a massive undertaking for first-time homebuyers. Here are some tips to make the process easier.

Set a goal

First things first: Know your price range. You need to figure out how much you need to save up to begin with. Again, the smart play is to have enough cash that you can put 20% down towards your home loan, while still being able to afford closing costs and living costs after that. Study your finances, create a budget, determine what your ultimate goal is, and develop a plan that helps you get there.

Cut unnecessary spending

Once you’ve figured out how much you need to save, it’s time to trim the fat off your budget. Do you really need subscriptions to Hulu, Netflix, and AppleTV? Or might you be able to get rid of one of them? Instead of going out for dinner, you might want to plan on cooking more meals at home. And instead of splurging on new clothes, maybe you can ride your wardrobe for another year. Wherever you can cut unnecessary spending, strongly consider doing so.

Optimize your savings

If your money is going to be parked away in an account while you save for a house, you might as well get the biggest return on it. Rather than putting your money in a regular savings account that generates paltry interest, consider a high-yield savings account (HYSA) instead where you’ll earn a lot more.

Set up automatic deposits

Planning to save for a down payment is one thing. Actually doing it is quite another. If you’re serious about saving for a down payment for your first house, consider creating a new bank account (or HYSA account!) and automatically routing something like 5% or 10% of each paycheck there. That way, you get the peace of mind that comes with knowing you’re building up your down payment without having to manually move money.

Pocket any windfalls

Win the lottery? Inherit some money? Win your fantasy football league? Get a huge bonus at work? Any money you receive from windfalls like these should automatically be routed to the account you’re stockpiling your down payment in.

Popular mortgage options for first-time homebuyers

Assuming you don’t have enough money to buy your first home with cash, you’re going to need to secure a mortgage. As you begin exploring your options, you will likely come across a number of government-backed loans, including VA loans, which help active duty military and veterans secure properties; and USDA loans, which help buyers in more rural areas. If you’re like most first-time homebuyers, however, you will probably seek financing in one of two ways: securing an FHA loan or choosing a conventional mortgage.

Whichever route you decide, you then have to choose loan terms, which are generally 15, 20, or 30 years, with 30-year mortgages being the most popular option.

Federal Housing Administration (FHA) loans

If you’re a first-time homebuyer who has a debt-to-income ratio of 50% or less and a credit score of at least 580, you may be able to afford a home by putting down just 3.5%; if you’re able to put down 10%, your credit score can be as low as 500. For cash-strapped borrowers and folks with suboptimal credit scores, FHA loans are much easier to secure and can provide a path toward homeownership.

But if you go this route, you’ll have to pay PMI. Plus, the FHA won’t let you borrow a large amount of money, which could cause you to miss out on pricey properties you really like. And in today’s hyper-competitive housing market, sellers may be less receptive to the idea of working with someone who’s financing the deal with 96.5% debt compared to someone who’s putting down 50% cash.

Conventional mortgages

If you find yourself on solid financial ground, a conventional mortgage may be a better option — particularly if you’re able to put 20% down and have a credit score that is higher than 740, which puts you in a position to get the best terms possible. This is something that simply can’t be overlooked in our era of rising interest rates.

Of course, meeting this high bar is a challenge, and you may still qualify for a conventional mortgage as long as your credit score is at least 620 and you can put down at least 10%.

What is the difference between a fixed and variable rate mortgage?

In addition to choosing the lender you’re going to work with, you’ll also need to choose what type of mortgage you want. For most buyers, this will mean choosing between a fixed rate or variable rate mortgage.

What is a fixed-rate mortgage?

A fixed-rate mortgage is a mortgage that has the same interest rate throughout the life of the loan. For example, if you lock in at 4% for 30 years, your interest rate will be the same until you ultimately pay off your mortgage three decades from now (or sooner!). Though interest is front-loaded on these loans and the amount you pay toward principal and interest varies month to month, total payment remains the same. Due to the predictable nature of these loans, many first-time homebuyers prefer them.

What is a variable-rate mortgage?

A variable-rate mortgage, also known as an adjustable-rate mortgage (ARM), is a mortgage with interest rates that are fixed for the first few years but change over time based on how specific benchmarks like the LIBOR index perform over time. In many cases, lenders entice borrowers by offering ARMs at lower rates than fixed mortgages for a specific period of time. Once that period ends, however, rates could move higher or lower depending on the market.

Popular examples of ARM mortgages include 2/28, where the borrower has a fixed rate for the first two years and then a floating rate for the remaining 28 years, and 5/1, where the borrower has a fixed rate for five years and a rate that resets every year thereafter.

As interest rates continue to rise, more and more borrowers are rolling the dice on ARMs. If you’re planning on living at a property for just a couple of years — and can stomach increased interest rates if your plans fall through — a 5/1 ARM could be a good option; maybe you’ll be out in three years. On the other hand, if you’re looking for a home you plan to live in for many years, you may want to go with a fixed mortgage instead.

How can I get the best mortgage rate possible?

To get the best mortgage rate, you need to be able to put down at least 20% on your home, have a low debt-to-income ratio, and have a strong record of employment or success as a small business owner. On top of that, you need to have a solid credit score. Typically, the most favorable mortgages are given to buyers who have a credit score of at least 740.

Credit scores explained

Your credit score is a fluid measure that represents your creditworthiness, i.e., how likely you are to repay your debts. This score is determined by five categories:1. Payment history (35% of your score), which represents how likely you are to repay debts on time.

2. Amount owed (30%), also known as credit card utilization rate, which reflects how much of your credit is currently in use; if you have a $20,000 credit line and have spent $2,000 against it, your utilization rate is 10%. Best practices suggest keeping your utilization rate as low as you can; below 10% but higher than 0% is ideal.

3. Credit history (15%), which measures the average age of all your credit accounts. The longer your credit history, the better (keep your oldest accounts open!).

4. Credit mix (10%), which represents the different types of credit accounts you have. Most first-time homebuyers might have a mix of credit cards, student loans, and auto loans, for example.

5. Credit inquiries (10%), which reflects how often you’ve opened a new credit line in recent years. When you open a new credit card, for example, the issuer conducts a hard inquiry on your credit, which stays there for two years. Mortgage lenders might raise an eyebrow if they see you’ve applied for several new credit accounts in a short period of time, which will adversely impact your credit score.

How to increase your credit score

No matter what it looks like right now, the good news is that you can take proactive steps to improve your credit score over time. Here are some tips to keep in mind that can help you bring your score to where it needs to be when you buy your first house.

Pay off credit cards on time and don’t carry a balance

Together, your payment history and credit card utilization rate make up nearly two-thirds of your credit score. By paying your debts on time and in full, you can improve your credit score steadily over time. Whatever you do, never make the minimum payment when you’re in the market for your first home. If you can’t afford to pay your credit card bills, it’s probably not the best time to buy a house.

Stop applying for new credit (except your mortgage!)

Since hard inquiries have an adverse impact on your credit score, don’t apply for new credit unless you absolutely have to.

Keep older credit cards open

Oftentimes, people close out old credit cards they never use for convenience. Resist the temptation. If you want to improve your credit score, your oldest credit cards are your friend. Keep them open, even if you just use them to buy a can of soda once a year.

What is the mortgage process like?

In today’s competitive housing market, homebuyers need to be ready to pounce on a property the moment they make up their minds. The easiest way to do that is by getting pre-approved for a mortgage instead of trying to secure financing at the last minute.

As you begin the pre-approval process, you first need to determine how much money you can afford to spend on your house and what type of mortgage makes the most sense for your unique circumstances. Once you’ve done that, get ready to collect a lot of documentation and send it over to your broker. This includes W2 forms, 1099s, profit and loss statements (if you own a small business), bank statements, investment account statements, what your cash outflows are, and how much debt you have, among other things. During this stage, the broker will also look at your credit reports to determine your creditworthiness. By securing a mortgage pre-approval, you demonstrate that you’re a serious buyer who’s ready to make a deal.

After you’ve been pre-approved and have had an offer accepted, it’s time to put down what’s called “earnest money,” which is typically 1% or 2% of the purchase price — a token that you are legitimately interested in buying the home. Once the earnest money has changed hands, your deal is pending, and it’s time to secure your actual mortgage — and also run a title search, conduct an inspection, and get the house appraised.

At this point, you should certainly talk with the lender that pre-approved you. But you should also check in with one or two other brokers to see if you can get a better deal.

If you buy a home for $500,000, put 20% down, and secure a 30-year fixed mortgage at 4%, you will pay $687,478 over the life of your loan (plus insurance and property tax). That same deal with a 3.75% interest rate lowers your total payment to $666,886 — a savings of more than $20,000 over the life of the loan.

In other words, when it comes to mortgage rates, every decimal counts.

After approaching a few lenders and passing over your information, you will receive loan estimates, which you can then compare to figure out which lender is giving you the best deal. During this process, you may be on the hook for credit report fees, which hover somewhere near $30 per lender. Unfortunately, loan estimates don’t last forever. If you don’t act quickly, your lender may have to adjust the terms as market conditions change. To avoid that, consider securing a rate lock, which gives you the peace of mind that comes with knowing your interest rate won’t change over a determined period of time — 30, 45, or 60 days, and even longer.

Once you’ve figured out which lender you want to work with, the underwriting process begins. Generally, underwriters will require borrowers to conduct an appraisal to ensure the home is worth enough to justify the size of the mortgage loan. (Of course, you’ll be responsible for the appraisal fee; that’s another $300 to $800, depending where you’re buying.)

Hopefully the odds are on your side, and the underwriters agree to approve your mortgage. Should that happen, your interest rate will be locked in from that point forward, and you’ll be that much closer to landing the home of your dreams.

Don’t forget about tax credits

As a first-time homebuyer, you may qualify for a tax credit when you close on a new home. In 2008, for example, first-time homebuyers who took the credit received a tax refund of up to $7,500. In 2021, members of Congress introduced the First-Time Homebuyer Act of 2021, which would revive a similar tax credit. At the time of this writing, that bill still hasn’t become law. This is all just to say that first-time homebuyers need to keep their eyes peeled for potential tax credits from both their state and federal governments.

Closing costs: The first-time homebuyer’s often-overlooked financial enemy

You’ve made an offer, it’s been accepted, and now you’re finally ready to close on the property. Get ready to be hit by a deluge of additional closing costs you might not even be aware exist, including:

  • Loan application fees, which some lenders charge to handle your mortgage application.
  • Attorney fees, which lawyers charge to create contracts and analyze transaction-related documentation.
  • Closing fees, which are paid to the entity that facilitates the closing (e.g., a title company or an attorney).
  • Courier fees, which can be levied if the deal is being done with paper documents.
  • Escrow deposits, including prepaying property taxes, which are often required.
  • Homeowners insurance, which generally needs to be paid up front for the first year.
  • Mortgage broker fees, which can range from 0.5% to 2.75% of the home’s purchase price.
  • Title insurance, which protects buyers in the event a previously undiscovered lien or ownership dispute arises.
  • Origination fees, which cover the lender’s administrative costs and can hover near 1% of your mortgage.
  • Real estate commissions, which can be as high as 6% of the final sale price; luckily, the seller is on the hook for these costs (though they often factor into the sale price).
  • Recording fees, which hover near $125 and may be charged by a town clerk’s office to process the public land records.
  • Title search fees, which range between $200 and $400 and cover the costs associated with ensuring no liens or disputes impact the property you’re buying.

Depending on your unique situation, you might get hit with even more fees than this (e.g., private mortgage insurance)! Very broadly, closing costs range between 2% and 5% of your mortgage. So, if you’re taking out a $500,000 loan, you might be on the hook for an additional $25,000 in closing costs.

This is all to say that, just when you think you’ve wrapped your head around how much your first house will cost, more fees will almost certainly come your way. Be ready.

Right now, I can’t get a mortgage. Am I out of luck?

When your mortgage application is rejected, it’s easy to feel dejected. But all hope isn’t lost. Maybe now just isn’t the right time for you, and that’s perfectly okay. In actuality, being unable to get a mortgage can be a blessing in disguise, particularly if interest rates plummet by the time you’re ultimately ready to afford your first home.

If you’re unable to get a mortgage, it could be because you have a poor credit score or haven’t saved up enough for a down payment. If that’s the case, it might be time to start working on stockpiling money away and improving your credit score (or hiring a company to help you do the same; but that’ll hurt your saving-up-for-a-down-payment plan). While you’re at it, you may want to look into debt consolidation services that can help you refinance your debt and pay it off faster.

Additionally, you also might want to take a look at rent-to-own programs, which give you a path to home ownership even if you can’t get a mortgage right now. Under these initiatives, you can rent a property as a tenant and have the option to buy it when your lease ends. This can be a great way to determine if you actually like living somewhere before making one of the biggest decisions of your life. For those with less-than-optimal credit, this is also a great way to help get your credit back on track while pursuing homeownership at the same time.

Real estate agents: Pros and cons

According to the National Association of Realtors®, 87% of recent homebuyers enlisted the services of a real estate agent or broker during their latest transaction. But not every first-time homebuyer needs to hire an agent. With that in mind, let’s examine some of the top advantages of working with a realtor — and some of the reasons you might prefer to go it on your own.

Advantages of working with a realtor

Faster process

By now, you should have an idea of how complicated the home-buying process is. When you work with an agent, you get to leverage the experience of someone who lives and breathes the process day in and day out. Not only does this help you make a better purchasing decision, it also saves a considerable amount of time.

Market knowledge

In today’s booming real estate market, how can you tell that a property is priced properly? The right real estate agent will know the local market inside and out and can help you identify reasonably priced properties and those that are way above-market. This information can help you avoid making a deal you ultimately regret.

Negotiation skills

Are you ready to negotiate with another real estate agent? Because if you don’t hire an agent of your own, that’s what you’re going to need to do. By joining forces with the right agent, they will negotiate the deal on your behalf. This can help you get a better price or get the seller to include more items in the deal — like that nifty wine fridge or the area rug that really ties the room together.


Hire an agent, and chances are they will know the agent on the other side of the deal. These personal connections can help deals close smoother. Plus, agents can recommend all sorts of folks you might need to hire during the process — like home inspectors, well inspectors, septic tank companies, real estate attorneys, and more.

Disadvantages of working with a realtor


One of the biggest downsides of hiring a realtor is paying their commission. Generally speaking, realtors get between 5% and 6% of the deal as a commission, which is split evenly between the buying and selling agent (or pocketed by one agent if they’re working both sides of the deal).

If you go through the process on your own, half of that commission is wiped off the books — or all of it, if you’re buying a for-sale-by-owner (FSBO) property. So, choosing not to hire an agent could help you save a good chunk of money.


When you work with an agent, they communicate on your behalf to the agent representing the seller (or the sellers themselves, in a FSBO scenario). As a result, you’re incapable of directly communicating with the people on the other side of the deal. This could slow the process down considerably. It can also cause a lot of stress as you anxiously wait for an update.

Multiple clients

Unfortunately, when you hire a realtor, you’re not their only client. As such, you might have to get used to waiting. In some circumstances, you might even miss out on a deal because your agent is focused on helping someone else. Who knows? Your agent might even represent a different client in a deal you were interested in. That’s just the way it is.


Not every real estate agent is the same. Unfortunately, some homebuyers learn this lesson the hard way. According to the National Association of Realtors, 73% of buyers only interview one agent before hiring them. If you end up with the wrong agent, they may end up leading you down a path where you end up with a bad deal (e.g., because they care more about their commission than helping you find your dream home).

You can avoid this issue by interviewing a couple agents before deciding who to go with. Keep in mind that, once you sign an exclusivity contract with a realtor, you are bound to only use that agent until you formally cancel the contract. If you enlist another agent before doing so, you may end up in legal jeopardy. Keep in mind you can (and should) try to negotiate down the length of these contracts just in case you aren’t happy with your agent’s representation.

Are you interested in getting free advice from expert real estate agents while earning rewards as you explore buying your first property? HomeApproach has you covered.

What to think about when buying your first home

When you’re buying your first home, you’re obviously going to be interested in the house itself, the property, and what other amenities might exist in the deal (e.g., an in-ground swimming pool or an outdoor sauna). Beyond that, here are some other considerations to keep in mind:

  • Neighborhood. You’re buying more than just a house and the property itself. You’re also buying the neighborhood. Is your ideal home within walking distance of restaurants and bars? Or would you prefer to live near open space so you can hike and enjoy the outdoors? Spend some time studying the neighborhood and make sure it’s somewhere you can imagine living. Also, as a general rule, avoid buying the most expensive house in the neighborhood; it could hurt you down the road.
  • Schools. If you have kids or are planning to, you’ll definitely want to do some research on the local school district to make sure you’re happy with the caliber of education. Even if you don’t have kids, education is highly correlated with property values. According to the National Bureau of Economic Research, property values increase $20 per every $1 spent on education. That being the case, you might want to buy your first home in a community that invests in education.
  • Property taxes. Before you sign any contract, you need to wrap your mind around local property taxes and get a sense of how your potential new town’s taxes have changed over time. In addition to taxes on your home, you may also be on the hook for taxes on motor vehicles and boats you own.
  • Location. Are you happy living out in the sticks or would you prefer living closer to public transportation? Does the local pizza place deliver to the address you’re considering? Is your property close enough to the highway? Only you know the answer to these questions.
  • Town politics. If you’re moving to a new area, spend some time researching the town’s politics and finances. The last thing you want is to move to an area undergoing local scandals or involved in high-ticketed lawsuits that may impact your property taxes moving forward.
  • Starter home. You’re buying your first home. Do you plan on living there for as long as possible? Or might you want to flip your house in a couple years and move into your forever home from there? If you’re buying a starter home, don’t sweat it: You can defer capital gains when you buy your next home by using a 1031 exchange.

My offer was accepted! That means the process is done, right?

Not at all. Once your initial offer is accepted, the fun is just beginning

At this point in the process, you hire a home inspector who will thoroughly examine the property to determine the condition of the nuts and bolts, including the HVAC system, furnace, structural components, electrical systems, plumbing, roof, and chimney, among other things. Inspections cost anywhere between $300 and $1,000 on average, depending where the property is located (hey, look, another hidden cost!).

Once you’ve got the home inspector’s report, it’s time to go back to the seller and ask for additional concessions — or keep the deal as-is, if you don’t mind what the report surfaces.

Keep in mind that the inspector may find something that is a dealbreaker (e.g., the house requires a brand-new foundation and septic tank). Should this happen, you still need to pay the inspector — and, if you continue house hunting, you’ll need to pay the next inspector, too.

Real estate negotiation tips for homebuyers

In most cases, you’re probably best off letting a real estate agent negotiate on your behalf. But if you decide to go it alone, here are a few tips to keep in mind:

  • We’re currently in a seller’s market, so be ready to spend top dollar to close a deal.
  • Even so, you may be able to get a better deal by getting a little creative. For example, using an odd number can make your offer stand out (e.g., $450,000 vs. $451,199), forcing the would-be seller to spend more time thinking about your proposal.
  • Remember, there are two rounds of negotiating: before the initial offer is accepted and after the inspection happens. Once you get a seller to accept the original offer, they’ll become emotionally invested in the deal. If a lot of items come up during the inspection, you may be able to get some significant concessions.
  • Real estate negotiation isn’t just about dollars and cents. You can also ask the seller to add physical items to the deal — like gym equipment, a hot tub, or furniture.

Additional hidden homeowner costs to consider

Suffice it to say that being a homeowner is not an inexpensive endeavor. Here are some other hidden costs to consider:

  • Additional taxes. Your new town or city might levy taxes besides property taxes, like fire district taxes. Make sure you understand the totality of your potential transaction’s tax implications.
  • Homeowners insurance. You’ll need to carry homeowners insurance as long as you have a mortgage. On average, a policy with $250,000 in coverage will set you back $1,383 each year.
  • Utility bills. If you’re moving into a larger space, think about how your utility costs might change. As a best practice, make sure to ask the seller for the previous year’s worth of utility bills (e.g., heating oil, electricity, and water). That way, you can wrap your mind around your future costs.
  • Inevitable repairs. Ask any homeowner and they’ll tell you the same thing: It’s only a matter of time before something major goes wrong at your home. Maybe the AC, furnace, or water treatment system fails, for example. As a new homeowner, you’ll have to cover these costs out of pocket; there’s no landlord to help. To protect against this, you might want to consider a home warranty that will help offset costs and cover gaps in homeowners insurance.
  • Moving costs. Unless you’re planning on hauling all of your belongings from your old place to your new one in your sedan, you’re either going to need to rent a U-Haul or hire professional movers to get you settled in. According to one recent report, movers cost anywhere between $800 and $5,700 depending on how long your move is. Add it to the tab!
  • Time off of work. This might be the most hidden cost of them all. You can’t work when you’re moving. If you’re an employee, that means you’ll need to take vacation days off during the move. If you’re self-employed or a 1099 contractor, you’ll likely have to take several days and miss out on generating income.

Unforeseen challenges for first-time homebuyers

Since it’s your first time through the homebuying process, it’s easy to be blindsided by situations you would never expect to encounter. But over the years, first-time homebuyers across the country have seen it all. Here are some of the unforeseen challenges you might encounter along the way.

Falling in love with a property too soon

First-time homebuyers have a tendency to fall in love with a home way too early. You might see a house you think is awesome, decide to make an offer right then and there, and start thinking about your new life and how you’re going to set up your new space. All of a sudden, your agent calls you to tell you the seller accepted another offer. Just like that, your dream evaporates. Avoid dealing with this emotional rollercoaster by only truly falling in love with a property once you’re living in it.

The seller backs out unexpectedly

Your offer has been accepted, you’ve passed the inspection, and your closing date is getting closer and closer. Then the seller has a change of heart and decides to pull out of the deal, and you’re back to square one. A scenario like this isn’t out of the realm of possibility, so be prepared for it.

Something comes up during the home inspection

One of the most common ways deals fall apart occurs when the home inspection reveals some major problems. You might fall in love with a house only to learn it has a rotten roof, mold in the basement, and a structurally unsound chimney. In some instances, you may be able to work through these serious issues with the seller. In many cases, however, major issues are a dealbreaker because sellers don’t want to budge.

Something comes up after the home inspection

Just because you’ve made it past the inspection doesn’t mean your deal is done. For example, your lawyer may uncover serious issues when doing their due diligence — like a seller who’s trying to hide the fact the property used to have an underground oil tank that leaked and caused environmental damage that needs to be mitigated. Upon learning this information, the attorney would likely recommend you pull out of the deal. How could you not take their advice?

Something crazy happens outside your control

If we’ve learned anything over the last two years, it’s that the world can change drastically overnight. A completely unpredictable event — like the pandemic — can always throw a wrench into your plans. If dividend income represents the lion’s share of your salary, a lender might decide to deny your mortgage application when the market takes a significant turn for the worse. Just remember anything can happen at any time, and there might not be anything you can do about it.

First-time homebuyer mistakes to avoid

Since they’ve never navigated the process before, it comes as no surprise that first-time homebuyers make mistakes. Learn about these common mistakes so you don’t suffer the same fate.

Finding a house before securing a mortgage

Without a mortgage pre-approval letter, it’s impossible to act as fast as possible on a deal. In today’s incredibly competitive real estate market, failing to secure financing before shopping for homes probably means you won’t be first to act — which could cause you to miss out on your dream property.

Not shopping mortgage brokers

Since it’s convenient, many first-time homebuyers choose to do business with the first broker they talk to. But by shopping brokers, you may be able to get a better rate. Over the life of a 30-year loan, a fraction of a percent can really make a huge difference. Be sure to engage at least a couple of brokers before signing a contract with a lender.

Not doing an inspection

There’s a tendency among first-time homebuyers to willingly bypass a home inspection. They’ve fallen in love with the property and think it looks in good enough shape to their untrained eye. A few months after the deal is done, they learn the hard way why inspections are necessary when they need to replace their central air system. While inspections can be pricey, they are always necessary. Skip an inspection at your own risk.

Spending more than you should

Saving up for a down payment and closing costs is one thing. Being able to live comfortably on the other side of your first real estate transaction is quite another. Be smart about your finances, and don’t take on a bigger property than you can truly afford. Always be sure to calculate what your monthly mortgage payment would be to determine your affordability. Here is a free online mortgage calculator you can use to help easily figure it out.

Furthermore, be sure to research what assistance programs might be available to you. First time home buyers can often apply for down payment assistance on the local level through state or city programs. Usually the U.S. Department of Housing and Urban Development (HUD) website is a good place to start (link below in resource section). Grants or no-interest loans are two examples of offerings which may be available to help with down payments and closing costs.

Making decisions based on emotion

It’s all but impossible to go through a real estate transaction without emotion. Unfortunately, many first-time homebuyers let emotion guide their decision-making. This is one area where working with a trusted real estate agent can make a big difference. The right agent can walk you through the process and speak to you through an experienced, knowledgeable, and objective lens.

Additional resources for first-time homebuyers

Since you’ve made it this far, you’re no doubt interested in learning as much as you can about buying your first home. Here are some additional resources you may want to check | Help Buying a New | The 28% (Monthly Income) Rule
Bankrate | 5 First-time Homebuyer Loans and Programs
Nerdwallet | First-Time Home Buyer Programs by State
Freddie Mac | Three Pro Tips for First-Time Homebuyers
U.S. Department of Housing and Urban Development (HUD) Housing Assistance

Get advice from a real estate expert today!

At Home Approach, we’re all about helping people like you find free advice from experts on how to navigate the first-time home buying process. While this might be your first time through the process, our experts have helped countless people like you end up in the home of their dreams.

Book an appointment with a qualified mortgage lender today to accelerate your path to homeownership. You may qualify for up to $1,000* or more on a home purchase.

1st Time Homebuyer Guides Real Estate

Beginners Guide To Home Inspection

After you’ve made an offer on a house and the seller accepts it, it’s time to enlist the help of home inspection services to make sure the property is in good shape. While some people skip the home inspection process — particularly first-time home buyers — that is not advisable. Not paying for a home inspection before buying a property can be very costly. You might end up with a property full of asbestos, with a radon problem, or a faulty HVAC system or sprinkler system that needs to be updated.

As the name implies, a home inspection is a professional’s visual examination of a home after a seller accepts an offer but before the deal closes. By hiring a home inspection company that has years of experience to examine the property you’re considering, you get access to a comprehensive report you can use to determine whether to finalize the real estate transaction.

For people trying to sell their homes, preparing for a home inspection is a very crucial step. The home inspection results determine whether the property will be acceptable to the buyer. Hence, most homeowners who sell properties try to make sure everything is in complete order and working condition before an inspection so they have peace of mind. Some homeowners even opt to conduct a pre-listing inspection on their own properties to make sure everything checks out before putting their house on the market.

The better the condition of the home during the inspection, the more reasonable the selling price sounds to the buyer. After all, when a home is in tip-top shape, buyers won’t have to fix things like fireplaces or rebuild dilapidated porches.

During residential inspections, the professional checks various things around the property. These include the building’s interior, exterior, and facilities present. The home inspector’s job is to see if everything is in good condition while conducting mold testing, radon testing, and well testing to make sure everything is in decent shape.

What is a home inspection?

A home inspection is a visual examination of a structure by a professional to evaluate the general condition and facilities present on the property and ensure it is high-quality. The professional home inspector does a walkthrough and looks around the property, from the foundation of the building to its roof. Once they finish, they produce a comprehensive report about their findings in the home.

During the property inspection, the home inspector pays more attention to things that might need repairs or replacement. The inspector will also identify areas that might pose a potential safety hazard during the inspection process. The better the condition of the home, the more positive the result of the inspection will be.

The inspector documents all their findings and submits a well-written report about the property to the party that hires them. While inspection results do not necessarily determine property value, they assure buyers that what they are purchasing is in good condition — much to the delight of real estate agents. However, most home inspections involve only a visual examination and not in-depth structural testing.

When an inspector submits a home inspection report that highlights significant issues, the client and the owner can discuss how to solve the problem before the transaction closes. In most cases, both parties will negotiate through their realtors to see what the seller is willing to fix.

Home inspection contingencies

Many individuals make use of home inspection contingencies, which means that the purchase of the property will be dependent on the home inspection result. If the inspectors finds any problems, the buyer can decide to reconsider the purchase or talk about potential repairs with the seller.

Individuals that choose to go with such a contingency have a specific time frame in which they must carry out the inspection process. This period is usually around two weeks. After this period, the inspection process should be over. That means all examinations that require a specialist — such as electrical systems, thermal imaging, or wind mitigation — need to be completed within the given time frame.

Home inspection contingencies are very helpful in preventing costly surprises later on after the purchase. If any problems are found, they can be settled earlier by the seller or the interested party can decide to pull out of the deal. The quicker the home inspection, the faster the value comes through.

How the home inspection process works

During the inspection process, core parts of the house are examined, including the grading near the foundation, railings, and decks. Inspectors also look for signs of insect damage on wood, roof components, and chimneys.

Additionally, inspectors check other things like the home’s insulation, cooling and heating system, electrical system, windows, toilets, and water pressure. Compared to new construction, older homes tend to have more problems that need fixing or replacement due to wear and tear over the years.

That said, problems can be identified from inspections — even at new properties. Sometimes builders make mistakes that might turn up on inspection results. People who take advantage of home inspection contingencies can only back out of deals if there is significant damage to the property. Insignificant damage that can be easily fixed, like broken doors, usually doesn’t count as a reason to back out on the purchase.

Once an inspection is completed, a buyer can discuss repair matters with the seller of the property. However, if the seller refuses to comply with the repair process, the buyer is free to back out of the deal. In this light, home inspections are very useful for people looking to purchase properties as they help them avoid extra spending on repairs.

Home inspections are not too expensive. Their cost usually depends on the location, size, and age of the property. You may be on the hook for some extra fees for things like water tests and termite inspections. On average, a home inspection costs around $400 but can rise as high as $1,500 or even more. Either way, this is a good use of money.

During a home inspection, the inspector will check some significant areas of the building.

1. Foundation

The foundation of a home is one of its most vital parts. As such, it’s a significant area for inspection. Building inspectors pay a lot of attention to the foundation of homes during the process. They check for signs of damage and wear and tear around the foundation.

Most of a building’s foundation is not visible above ground. Hence, the inspection is usually just a surface check. Some signs signify damage to the foundation that professional building instructors will discover. If the inspector finds any problems, they will document them.

2. Building structure

After checking the foundation, the inspector examines the whole structure of the building. At this point, the building inspector checks through the entire building to see if any parts might need repair or pose potential safety threats. The inspector notes any findings in the home inspection report.

The building inspector will also examine the weight-bearing capacity and structural integrity of the building to see if the property is still structurally sound and fit for habitation. If anything is unclear, the situation may require a specialist for clarification.

3. Interior and exterior

The inspector will also inspect the exterior and interior of the home. For the exterior, they will check things like mold and cracks on the wall. They’ll also look at wooden components to see any signs of termite infestation. The inspector will also examine the paint condition, both internally and externally.

During this process, the inspector checks areas like windows and the roof for signs of damage. They also examine roof components and ceiling parts for leaks or breakage. Additionally, the inspector looks at staircases and railings inside and outside the house see if they’re safe for use or need repair.

The internal condition of the house, including the floorboards, kitchen, and bathrooms, are also examined by the building inspector. If any problems are found, they will be recorded and presented in the inspection report that will be submitted to the client or potential buyer.

4. Electrical system

The electrical system of the house also goes through inspection. Specialists invited by the building inspector usually carry out this aspect of the home inspection process. The specialist examines all the electrical connections and the condition of the wires existing in the home.

The inspector marks and records damaged and exposed electrical components in their report. While an electrical evaluation might cost a little bit extra, homebuyers will want to know the condition of the electrical system in the home before purchasing it to avoid unexpected expenses.

5. Plumbing system

A home inspector checks the water pressure and plumbing system during a home inspection. During the process, the inspector will ensure that water flows at the correct pressure from all the faucets in the home — both in the kitchen area and toilets and bathrooms.

The inspector will also test the drains to see if water flows out correctly or if there’s a clog. If the inspector finds broken pipes or faulty parts, they will record them in the inspection report. The inspector will also look at the water temperature as well as leaks and rusted parts.

Home inspection reports include detailed explanations regarding any structural damage or areas of the home that need repairs. The building inspector makes known all the aspects that need maintenance or repair, whether internally or externally. The home inspector’s job is complete after submitting the report. Anything that happens next depends on negotiation between the buyer and seller.


The home inspection process is a helpful method to evaluate a building’s condition before purchasing a property. The inspector’s job is to examine various aspects of the home to see if any areas require maintenance or repairs. Any issues the inspector detects are piut in an inspection report, which homebuyers can use to figure out their next steps.

As you begin searching for a home inspection company, you may want to contact the American Society of Home Inspectors (ASHI), a group that can help you find experienced inspectors if you’re having a hard time. Since inspectors won’t find every problem with every house, first-time homebuyers should strongly consider buying a home warranty. This can help cover some expenses if issues surface after a deal closes. Regardless, buyers need to strongly consider springing for home inspections before buying a home. Failure to do so can have catastrophic consequences down the line. And as a first-time homebuyer, that’s something you simply can’t afford.