Top 10 First-Time Home Buyer Questions Answered

The biggest mistake first-time home buyers make isn't bad credit or not enough savings — it's not getting pre-approved. This video walks through the top 10 questions every first-time buyer needs answered before stepping into the process, from understanding what a mortgage actually is to navigating closing costs, PMI, credit scores, and choosing the right loan.

Watch on YouTube

The number one mistake first-time buyers make isn't bad credit or a lack of savings. It's not getting pre-approved. This resource answers the 10 most common questions every first-time buyer asks — so you walk into the process prepared, not overwhelmed.

1. What's the #1 Mistake First-Time Home Buyers Make?

Not getting pre-approved before starting your home search.

Without pre-approval, you risk:

Wasting time looking at homes outside your budget
Losing out to other buyers who are already approved
Overextending your finances without realizing it

Tip: Get pre-approved early. It sets clear budget expectations and signals to sellers that you're a serious, qualified buyer.

2. What Is a Mortgage and How Does It Work?

Think of a mortgage like a subscription plan for your home. You pay a monthly fee to have the home be yours — a portion of which goes toward what you owe (principal), and a portion that covers the cost of borrowing (interest).

Start with a payment you're comfortable making — not just the maximum a lender will approve you for. Lender approval and financial comfort are not the same thing.

3. How Much Money Do I Need for a Down Payment?

It varies more than most buyers expect:

Zero down — VA loans, USDA loans, and some lender grant programs
3–5% down — FHA loans, conventional first-time buyer programs
20% down — eliminates PMI; not required for most buyers

Tip: Look into grant programs and low-down-payment options before assuming you need 20%. Most buyers qualify for more than they think.

4. What Is a Pre-Approval and Why Is It Important?

A pre-approval is your VIP pass to the home buying process. It shows sellers, agents, and the market that you're ready and qualified to buy.

To get pre-approved, gather financial documents in advance:

Last 2 years of tax returns and W-2s
Recent pay stubs
Bank statements
Photo ID

Pre-approval also screens you across all available loan programs simultaneously — so you don't have to choose a loan type before you find a home.

5. How Does My Credit Score Impact My Mortgage?

Your credit score affects two things: whether you get approved and what interest rate you receive.

Higher score = better rate = lower monthly payment
Lower score = higher rate or limited program options

Free resource: Check your credit for free at annualcreditreport.com.

Another benefit of getting pre-approved early: your lender can identify and help you correct errors on your credit report before they cost you.

6. What Are Interest Rates and Why Do They Matter?

Think of interest rates as the price tag on borrowing money. The rate you lock in on closing day is your rate — unless you refinance later.

If rates fall after you buy, refinancing lets you capture a lower rate and reduce your monthly payment. Your initial rate is not permanent.

7. What's Included in My Monthly Payment?

Your monthly mortgage payment is broken into four parts — often called PITI:

| Component | What It Is | |---|---| | Principal | The portion reducing your loan balance | | Interest | The cost of borrowing | | Taxes | Property taxes collected through escrow | | Insurance | Homeowners insurance collected through escrow |

Some loans also include PMI (mortgage insurance) in this payment.

8. What Are Closing Costs and How Much Should I Budget?

Closing costs typically range from 2–5% of the home's purchase price.

They include:

Lender underwriting fees
Title and escrow fees
Appraisal
Prepaid homeowners insurance and property taxes

Pro tip: Negotiate for the seller to cover closing costs in your offer. This preserves your cash for the down payment and can even allow you to buy down your interest rate.

8. What Is PMI and Do I Need It?

PMI (Private Mortgage Insurance) is required when your down payment is less than 20% of the home's value. It protects the lender — not you — in case of default.

Key facts about PMI:

It has its own rate, which varies based on credit score and down payment amount
It can be paid monthly, upfront, or rolled into a slightly higher interest rate
It is not permanent — it typically falls off once you reach 20% equity

10. How Do I Choose the Right Mortgage?

You don't have to decide on a loan program before you find a home. When you get pre-approved, you're screened for all of them simultaneously:

Grant programs
FHA loans
Conventional loans
Fixed-rate (30-year, 15-year)
Adjustable-rate (ARM)

Once you're under contract on a specific home, you can zero in on the best program for that purchase — your price, your down payment, your goals.

Next Steps

Take the Homeownership Readiness Quiz — get a personalized roadmap
Explore Zero Down Programs — you may qualify for more than you think
Learn the 25 Key Home Buying Terms — know the language before the first conversation
Ask a Question — our AI can answer any follow-up from this resource

People Also Ask

▶ Show Full Transcript

RYAN: What's the biggest mistake first-time home buyers make? It's not adequate savings or bad credit — it has everything to do with not getting pre-approved. In this class we're going to talk about that mistake along with nine other key questions that you're going to need answers to before buying a home. So here are the top 10 frequently asked questions that every first-time home buyer asks. Number one: What's the number one first-time home buyer mistake? It's not getting pre-approved. And why is this even important? Without getting pre-approved, you risk wasting your time, losing out on competitive offers, or overextending your budget. Get pre-approved early so that you can have clear expectations for your budget and boost your credibility with the sellers. Number two: What is a mortgage and how does it work? Think of a mortgage as a subscription plan for your home. With a subscription, you're paying a monthly fee every month to have that home be yours. Start with something that you're comfortably paying — not necessarily what a lender can approve you for. Number three: How much money do I need for a down payment? The answer to that is it varies. It can be as low as zero down, to 3 to 5% down, to 20% down. One tip is to look into grant programs and other low down payment options. If you want to learn more about that, I have separate videos on those subjects. Number four: What is a pre-approval and why is it important? A pre-approval is like a VIP pass — it shows everybody that you're ready to buy. One thing you can do is gather up financial documents ahead of time to make this process go smoother. Number five: How does my credit score impact my mortgage? Your credit score affects your ability to get approved and it also affects what interest rate you can get. You can check your credit for free online at annualcreditreport.com. The other benefit of getting pre-approved is we can check your credit and fix any errors that you have now so that you're good when you do buy. Number six: What are interest rates and why do they matter? Think of interest rates as the price tag on borrowing money. When you buy a home, that interest rate is locked in. But the nice thing is, if interest rates ever fall, we can always refinance that rate — thus making your monthly subscription fee cheaper. Number seven: What's included in that monthly payment? The answer is Principal, Interest, Taxes, and Insurance — PITI. Principal is the portion of your payment that is paying down the balance that you owe. Interest is essentially like rent. Taxes are property taxes on the home's value. And insurance is insurance in case your house burns down or some other disaster. Number eight: What are closing costs and how much should I budget for them? Closing costs are going to range from 2 to 5% of the home's value depending on how big of a home you're looking at. One pro tip: negotiate on your offer to have the sellers pay those closing costs for you — thus preserving more money for your down payment and also giving you the ability to get a lower interest rate. Number nine: What is mortgage insurance — PMI — and do I need it? Mortgage insurance or private mortgage insurance (PMI) is for anybody that puts less than 20% down on the value of the home. If your down payment is less than 20%, you will have PMI on the loan. What most people don't know is PMI has its own rate, and that's again dependent on your credit score and the amount that you're putting down. Number ten: How do I choose the right mortgage? There are many different options for a home loan, ranging from grant programs, FHA, conventional, fixed rate, variable rate, 30-year fixed, 15-year fixed. When you get pre-approved, you are getting pre-approved for all of these different programs — you don't have to pick which loan program you want right away. This is something that can be determined once you find the home and you're officially under contract. Again, the benefit of getting pre-approved early is you know what your options are, and then when you find that home you can zero in on the best option for you. If you have any questions on these top 10 things, reach out to me or my team for more information. If you're ready to get started on a home, go ahead and apply now so that we can get you pre-approved.

Topics Covered

pre-approvalfirst-time home buyer mistakesmortgage basicsdown payment optionscredit score and mortgageinterest ratesPITI monthly paymentclosing costsprivate mortgage insurancePMIchoosing the right mortgageFHA loansconventional loansgrant programsseller concessionsfixed rate mortgageadjustable rate mortgagehome buying processbuyer readinessmortgage pre-qualification vs pre-approvalfirst time home buyer questionsbiggest home buying mistakewhat is a pre-approvalhow much down payment do I needwhat is PMIwhat are closing costshow does credit score affect mortgagewhat is PITIhow to choose a mortgagefirst time buyer tips Utahtop 10 home buying questionswhat do I need to buy a homehome buying FAQmortgage basics for beginnershow to get pre-approved for a home loando I need 20 percent downwhat is included in mortgage paymenthow much are closing costscan seller pay closing costsfirst home buyer checklist

Ask the Archive about this topic

Have a specific question about first-time buyer? Ask our AI assistant — it knows this resource.