First-Time Home Buyer? Here's What Conventional Loan Officers Wish You Knew

I’ve worked with hundreds of first-time home buyers over the years, and I’ve noticed the same misconceptions come up over and over again.

So let’s clear the air. Here’s what loan officers actually wish first-time buyers knew before they started the home buying process.

You Don’t Need Perfect Credit

First-time buyers often think they need an 800 credit score to get approved. Not even close.

For conventional loans, 620 is the minimum, and you’ll get competitive rates starting around 680-700. Yes, a 750+ score gets you better terms, but don’t let a 690 score stop you from applying.

What matters more than a perfect score is a clean credit history: no recent late payments, no collections, manageable debt levels, and a mix of credit types (installment loans, revolving credit).

If your score is in the mid-600s, you’re probably more ready than you think. The bigger challenge for most first-time buyers isn’t credit—it’s saving for down payment and closing costs.

3% Down Is Real (And It’s Not a Scam)

I can’t tell you how many times I’ve heard, “That sounds too good to be true.”

It’s not. Fannie Mae and Freddie Mac offer conventional loan programs specifically designed for first-time buyers with as little as 3% down. These aren’t subprime loans or risky gimmicks—they’re legitimate, mainstream mortgage products.

The catch? You’ll pay PMI until you reach 20% equity. But for many buyers, that’s a worthwhile trade-off to get into a home sooner rather than spending years saving 20% while prices and rents keep climbing.

Don’t dismiss low-down-payment options just because they sound too easy. Run the numbers and see if the monthly payment (including PMI) fits your budget. If it does, why wait?

Pre-Qualification vs. Pre-Approval Matters

Here’s a distinction that trips up a lot of buyers:

Pre-qualification is a rough estimate based on information you provide. It doesn’t involve a credit check or document verification. It’s a starting point, not proof you can actually get a loan.

Pre-approval involves a credit pull, income verification, and a thorough review of your financial situation. It’s a commitment from a lender that they’ll give you a loan up to a certain amount, assuming nothing major changes.

In competitive markets, sellers won’t take you seriously without a pre-approval letter. Some won’t even let you view the property. Get pre-approved before you start house hunting—not after you fall in love with a home you might not qualify for.

Your Debt-to-Income Ratio Is a Bigger Deal Than You Think

Lenders look at your debt-to-income ratio (DTI) to determine how much mortgage you can afford. This is your total monthly debt payments divided by your gross monthly income.

For conventional loans, most lenders want to see DTI under 43%, though some will go up to 50% with strong credit and reserves.

Here’s an example:
Monthly gross income: $6,000
Existing debts: $400 car payment + $200 student loans + $100 minimum credit card payments = $700
Available for housing: $2,580 (43% of $6,000) - $700 = $1,880

That $1,880 has to cover your mortgage principal, interest, property taxes, homeowners insurance, HOA fees, and PMI. It adds up fast.

If your DTI is too high, you have two options: increase your income or pay down debt before applying. Sometimes paying off a car loan or consolidating credit card debt can dramatically improve your DTI and increase your buying power.

Down Payment Gifts Are Allowed (With Rules)

A lot of first-time buyers don’t realize they can use gift money from family members for their down payment and closing costs.

Conventional loans allow gifted down payments, but there are rules:

• The gift must come from a family member (parents, grandparents, siblings, etc.)
• You’ll need a gift letter stating the money is a gift, not a loan
• You’ll need to document the transfer (bank statements showing the deposit)
• The donor might need to provide proof of funds showing where the money came from

If your parents or grandparents are willing to help, don’t be shy about accepting. This is one of the few times in life when help is not only allowed but encouraged by lenders.

Closing Costs Are Real and Significant

I see this all the time: buyers save up their down payment, get excited about being ready to buy, and then get blindsided by closing costs.

Closing costs typically run 2-5% of the purchase price. On a $350,000 home, that’s $7,000 to $17,500 on top of your down payment.

What’s included in closing costs?

• Loan origination fees
• Appraisal and inspection fees
• Title insurance and escrow fees
• Prepaid property taxes and homeowners insurance
• HOA transfer fees (if applicable)
• Recording fees and government taxes

Some buyers roll closing costs into the loan or negotiate seller credits to cover part of them. But you need to know these costs exist before you make an offer, not after.

Your Job History Matters More Than You Think

Lenders want to see stable employment history—typically two years in the same field or with the same employer.

If you’ve job-hopped frequently or have gaps in employment, you’ll need to explain them. And if you just started a new job, you might need to wait until you’ve been there for at least 30 days (sometimes longer) before applying.

Self-employed buyers face even stricter scrutiny. You’ll need two years of tax returns showing consistent income, and lenders will average your earnings. If your income has been declining, that’s a red flag.

Planning a career change? Try to do it after you buy the home, not right before. Switching industries or starting a business mid-application can kill your loan approval.

Rate Locks Aren’t Forever

When you lock your interest rate, you’re protected against rate increases for a set period—usually 30, 45, or 60 days.

If your closing gets delayed beyond the lock period, you might have to extend the lock (for a fee) or take the current market rate—which could be higher.

This is why it’s critical to work with a loan officer who communicates clearly and keeps the process moving. Delays cost money, and sometimes they cost you the deal entirely.

On the flip side, if rates drop significantly after you lock, you’re stuck with the higher rate (unless your lender offers a float-down option). Rate locks cut both ways.

Not All Loan Officers Are Created Equal

Some loan officers are salaried employees at big banks. Others are independent and work with multiple lenders. Some specialize in first-time buyers; others focus on jumbo loans or investment properties.

You want someone who:

• Responds quickly to emails and calls
• Explains things in plain English without jargon
• Proactively keeps you updated on your loan status
• Offers competitive rates and doesn’t load up on junk fees
• Has experience with first-time buyers and low-down-payment programs

Don’t just go with the first loan officer you talk to. Interview at least two or three and compare not just rates, but also their communication style and expertise.

Need help finding verified loan officers who specialize in first-time buyers? Visit Browse Lenders to compare options and connect with professionals who prioritize education and transparency.

Appraisal Gaps Can Kill Your Deal

You make an offer on a home for $400,000. Your offer is accepted. You’re excited.

Then the appraisal comes back at $385,000.

Now what?

If you’re putting down 5%, your lender will only lend 95% of the appraised value ($365,750), not the purchase price. That leaves a $34,250 gap you’ll need to cover with cash or by negotiating with the seller.

Appraisal gaps are common in hot markets where buyers overbid. To protect yourself, include an appraisal contingency in your offer or make sure you have extra cash reserves to cover a potential gap.

Your First Home Doesn’t Have to Be Your Forever Home

A lot of first-time buyers paralyze themselves trying to find the “perfect” home. They want the ideal neighborhood, the right school district, the perfect layout, and room to grow into.

Here’s the reality: your first home is a stepping stone. It’s rarely your forever home.

Most people move within 7-10 years—sometimes sooner. You might outgrow the space, change jobs, or decide you want a different location. That’s normal.

Stop waiting for perfection. Find a home that meets your needs for the next 5-7 years, fits your budget, and gets you out of the rent cycle. You can always upgrade later once you’ve built equity and increased your income.

The Final Checklist

Before you start house hunting, make sure you’ve done these things:

✅ Pulled your credit report and fixed any errors
✅ Saved at least 3-5% for down payment plus 2-3% for closing costs
✅ Paid down high-interest debt to improve your DTI
✅ Gathered financial documents (pay stubs, tax returns, bank statements)
✅ Gotten pre-approved (not just pre-qualified) with a lender
✅ Interviewed at least two loan officers and compared rates
✅ Built an emergency fund so you’re not house-poor after closing

If you’ve checked most of these boxes, you’re more ready than 80% of first-time buyers. Don’t overthink it—take the next step and start looking at homes.

And remember: buying your first home is exciting, stressful, and sometimes overwhelming. That’s normal. Work with professionals you trust, ask questions when you don’t understand something, and take it one step at a time.

You’ve got this.