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A First-Time Home Buyer's Guide

a couple celebrates the purchase of their new home

Purchasing your first home may be the largest purchase you make in life. We've assembled a hero's guide to help you along the journey to your home sweet home.

Establish a Budget

First, set a budget that allows you to comfortably afford your monthly mortgage payment. How do you know what you can afford? Begin by adding up your total income. Next, subtract your total expenses and debts from your total income to obtain your remaining balance. Your monthly mortgage payment must be covered in your remaining balance with extra to spare.

Unsure how much home you can afford? Decide how much money (or as we call it, principle) you can use towards a down payment. You can also use a tool, like a mortgage calculator, to determine your ideal price range. 

As you establish your budget, contact your preferred lender to begin the process. Your lender can help you determine:

  • Your goals
  • Housing affordability and budget
  • Home loan options
  • Any potential down payment
  • Your ideal monthly payment

Note that the Tennessee Housing Development Agency (THDA) offers first-time home buyer programs you may like to consider in partnership with your lender.

Prepare Your Credit

Your credit score determines your loan approval and the rates you're offered. Request a free credit report before you apply to see exactly where you stand. 

Because you're planning to buy a home, speak to your lender before making any major moves to improve your credit. Your lender can offer you sound advice on how best to use your funds on a case-by-case basis. 

For example, paying off the entire balance of a credit card may seem like a good idea to reduce debt. However, the move could leave you with less money for a down payment and only a nominal improvement to your credit. 

Learn the Lingo 

You’re buying a home - now it’s time to learn the lingo. Here's a quick breakdown of terms and phrases you'll likely come across in the home-buying process: 

  • The annual percentage rate (APR) includes the interest rate and certain fees rolled into one handy figure, so it shows the true cost of borrowing
  • You may get to choose between a fixed-rate or adjustable-rate mortgage (ARM)
  • A fixed rate means your rate stays the same through the life of your loan so your monthly principal and interest payment will stay the same too
  • An adjustable rate means you get a lower, fixed rate for the initial period of your loan then your rate adjusts with the market, typically on an annual schedule
  • Your mortgage payment is made up of four main parts, known as PITI: Principal, Interest, Taxes, and Insurance
  • If your down payment is under 20%, you may need to pay private mortgage insurance (PMI), which protects your lender in case of default

Get Pre-Qualified

After your research, now is the time to get pre-qualified for a home loan. Prequalification will strengthen your offer to homebuyers because you already have the financing taken care of.

During pre-qualification, you gain a firm idea of your budget. You will learn more about:

  • Your eligibility for a home loan
  • Your purchasing power and ideal price range
  • Your loan product options
  • What rate you'll likely receive
  • Your likely monthly payment range is based on current rates

An experienced home loan officer can guide you through the loan process so you feel confident throughout the journey. 

Enlist a Realtor

Once you know your pre-qualified purchasing power, you won't have any trouble securing the services of a qualified real estate agent. You'll spend a lot of time with your Realtor, so you may want to meet and greet several in your area before you choose the best fit for you.

Make sure you like and trust your Realtor as they will be representing you as you buy your first home. They'll show you around potential homes and guide you through the highs and lows of competing in a tight housing market.

Note that agents are paid out of the seller’s proceeds from the sale of the home. Outside of rare circumstances negotiated ahead of time, you don't pay any realtor commissions. That is, as the buyer, it won't cost you anything to obtain the service of a Realtor.

Make Your First Offer

As a first-time home buyer, making an offer might be the most nerve-racking part of buying your home. You may even find yourself in a situation where multiple buyers make an offer on a single home. 

Your Realtor will help you assess the details of your offer beyond just the offer price. For example, you may ask the seller to contribute toward closing costs or negotiate the timeline of your offer. Your Realtor may also suggest creative strategies to strengthen your offer like writing a personal letter to the seller about why you love the home.

Upon reviewing your offer, the seller may accept, decline, or make a counter-offer.  

Process and Underwrite the Loan

Once you’ve entered an agreement to purchase a home, be prepared to be very engaged during this part of your home buying journey. Your loan officer will compile and review all of your documentation.

You may need to supply more information and documents, or you might need to clarify certain points. At this stage, your loan application and supporting documentation will be submitted to an underwriter for review and approval of your mortgage.

Close the Deal – Buy Your Home 

The final part of buying your first home is largely handled by other people, including the real estate agents on both sides of the deal, the lenders, and closing attorneys if needed. 

Here's what you can expect during the closing process:

  • The closing process typically takes 25 to 45 days from the time your offer is accepted until your loan is closed
  • You’ll need to be available to provide and review documentation during this time
  • At the beginning of your loan process, you'll get a loan estimate including fees
  • Before closing, you'll receive a closing disclosure with finalized fees
  • You'll likely have an escrow account established as part of your mortgage for property taxes and insurance. Third-party fees not associated with the lender may include transfer taxes, deed preparation, and attorney fees
  • Some fees may be paid upfront or rolled into your loan
  • You might be offered a mortgage rate lock to secure your APR offer ahead of closing

Your potential home will almost certainly be appraised during the closing process, and you can choose to have it inspected, too. 

Get a Home Appraisal   

Your lender will order your home appraisal for you. The purpose of the appraisal is to confirm the price of the home is fair and comparable with other homes in the area. Most lenders will provide financing up to the appraised value only. 

Many real estate contracts cover the various outcomes of the appraisal with an appraisal gap clause. If the contract is contingent (or dependent) on the home appraising at or above the purchase price, then you'll get options about what to do if the appraisal value is below the purchase price. Options may include renegotiating with the seller, walking away from the home (terminating the contract), or paying the difference if required to secure the mortgage loan. 

Get a Home Inspection

Offers often include details regarding a professional home inspection. Home inspections aren't required, but they are strongly recommended. A thorough home inspection can rule out any structural problems or issues with your home's foundation, roof, or plumbing.

After the inspection, you'll get a detailed report of its findings and a deeper understanding of your home. You may choose to negotiate with the seller and have them take care of certain issues ahead of the sale, or you can choose to take the property as-is.

If applicable, some home loans may require a separate well and septic inspection.

Conclusion: Choosing the Right Mortgage Is Key When Buying Your First Home 

You may still feel nervous as a first-time home buyer, but you can relax knowing we can help you choose the best mortgage for your needs. 

Different home loans cater to all budgets and situations, with a range of down payment options and criteria to help you stay comfortable financially. Find out which mortgage is right for you!