Buyer’s market? Seller’s market? FHA, VA, Conventional?

The language of home mortgages is just your first learning curve when it comes to buying a house. And although buying your first home is exciting, it also can be a daunting process regardless of whether it’s a buyer’s market or not. It’s an investment that requires a lot of emotional and financial commitment. Your dream home is more than a destination; it’s a chapter in your life waiting to be written.

first-time homebuyer tips

We’re here to help you start this next chapter on the right note. 

In this guide, we’ll show you the process from start to close with expert advice, essential tips, and a user-friendly mortgage calculator

What You Might Know–and Might Not–as a First Time Home Buyer

Several factors influence today’s real estate landscape, including economic conditions, government policies, demographics, and personal finances. Contrary to what we might expect, the average age of first time home buyers has the average age of first time home buyers has the average age of first time home buyers has risen to 36, which signifies a departure from the idea that people in their 20s are the ones making this big decision. This change reflects shifts in norms, economic conditions, and evolving lifestyles that influence when people decide to become homeowners. 

While the age of first time home buyers is increasing, there are still many challenges to consider. The median income for these buyers is $50,479, which highlights the realities they face–owning a home often requires a six-figure salary, well above the median income level. And while the median U.S. income has not increased, housing prices have steadily gone up. A mortgage calculator is a handy tool that can show you what amount you can afford. 

This gap between personal earnings and rising home prices underscores the competitiveness of the housing market. When rising prices and strict lending criteria make it difficult for aspiring homeowners to achieve homeownership goals, it’s important to have the right mortgage lending team on your side so that you understand the costs, terms, and fluctuations of obtaining a mortgage and buying your first home.

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When to Buy Your First Home

Rent or Buy?

As a renter, there comes a point when buying a home makes more fiscal sense than continuing to pay increasing rental rates. In the past ten years, rent increases have surpassed current inflation rent increases have surpassed current inflation by 40.7%. At the same time, rents increase year over year. The average annual rent increase since 2012 annual rent increase since 2012 is 3.18%.

A Growing Family

A growing family needs more space. If your current living space no longer meets your family’s requirements, it might be a good time to explore homeownership.

A Long-Term Investment

The desire to establish roots and commit to a community also can drive the decision to buy a home. Even if you have short-term plans for your starter house, having the option to turn it into a rental eventually is a savvy investment option. This approach not only provides you with your first home but also gives you a potential source of income in the future. 

The Right Rates

In short, no one can predict the future. 

Although interest rates have increased from the historically low rates of 2020 and 2021, delaying the decision to buy now could result in heightened competition in the housing market if rates eventually decrease. In truth, rates may not ever return to the rock bottom rates we saw a few years ago. 

Determining when to buy your home requires a balance between financial prudence, your family’s needs, and long-term planning. By evaluating the affordability of homeownership in comparison to rising costs, recognizing the requirement for space as your family expands, and strategically leveraging the potential of your property as a future rental asset, you can make an informed choice that aligns with both your immediate and future goals. 

Check our first-time home buyer checklist to ensure you cover all the important steps. 

Benefits of Homeownership for a First Time Home Buyer

Build Wealth

The advantages of owning a home go beyond simply having a place to live. Owning a home is widely recognized as a strategic way to build wealth in America. As the value of the home appreciates, it increases your net worth. In addition, homeowners make you eligible for mortgage interest deduction and other tax benefits. Unlike renting, where monthly payments benefit the landlord, homeownership benefits you. 

The Stability of a Fixed Monthly Payment

Apart from building wealth, owning a home offers a sense of control and stability that renting often lacks. As rent prices continue to rise, owning a home is not just a lifestyle preference but a smart financial decision. 

Owning a home provides you with a predictable monthly payment. While rent is likely to increase over time, homeownership shields you from this volatility. That stability is a crucial aspect for a first time home buyer. The mortgage calculator can show you how the amount of your down payment, the house price, and the interest rate impact your monthly payments. 

Over the last few years, rent prices have consistently gone up because of:

  • Inflation
  • A lack of rental inventory
  • Expired rent freezes and discounts
  • An increasing demand to live alone
  • The increase in remote work 

While the average annual rent increase since 2012 is 3.18%, there are massive fluctuations. For example, between Q1 2021 and Q1 2022, the rental rate increased by 18%

The Pride of Homeownership

For many, owning a home produces a great sense of pride and achievement. In addition, the freedom to customize and make your living space unique connects you to your home. Face it, owning a home is an emotional investment, as well as a financial one.  

When people own their home they not only get a place to live but an investment in their financial future. Your home is a stable haven in a dynamic economy.

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The First Time Home Buyer Process

Becoming a first time home buyer is a journey that requires thought, strategic planning, and the right partners. Here is a breakdown of some of the key steps of the process. 

Getting Your Finances in Order

The first step is to assess your readiness to buy. A mortgage calculator determines what you can afford, and to see if you’re ready for the financial responsibilities of owning a home. The mortgage calculator reveals how adjusting the down payment or loan term can impact your monthly payments. Keep in mind that property taxes, homeowners’ association dues, and other factors can also impact your monthly payment.

A mortgage calculator may reveal that you may not be ready to buy a home. Saving for a down payment, reducing your debt-to-income ratio, and improving your credit score are all important steps that take time, but pay off in the long run. By preparing your finances you’ll get the best interest rate and the right mortgage for you.

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Which Mortgage Works for Your Budget?

Once you’ve saved for your down payment, reduced your debt-to-income ratio, and improved your credit score, the next vital step is choosing the right mortgage option. The most common mortgage for first time buyers is an FHA loan. They only require a 3.5% down payment and are backed by the Federal Housing Administration. In addition, they have a lower threshold for your credit score. If you are working to improve your credit, this may be a good option for you. 

 A conventional mortgage requires a 3-5% down payment, stable employment history, verifiable income, a credit score above 620, and enough assets to cover closing costs. 

Veterans and certain service members may also explore VA loans. VA loans offer great credit terms, low interest rates, and low or even no down payment. If you are a Veteran, this may be the right choice for you. 

Property Taxes and Escrow

In addition to your monthly mortgage amount that goes to your lender, it’s important that you understand your property taxes and an escrow account. The property taxes on a home are based on the current valuation of the property. This valuation may change – and change dramatically – based on the purchase price of the property. Most buyers choose to pay their property taxes from an escrow account, which means that the tax payment is broken down into monthly payments that are included in your mortgage payment. It’s based on the prior year’s valuation. When and if this valuation increases, your escrow amount – and your monthly payment – will increase. As a homeowner, you can dispute an increase in your property value. You may only have 30 days to do so once you’ve received your notice from your property value administrator, so watch for this notice and be prepared to act accordingly. 

Find The Right Mortgage Lender

Picking the right mortgage lender as your partner is imperative. It’s crucial to explore options and build a relationship with a lender who can navigate the complexities of the mortgage world. The best mortgage lenders prioritize building relationships with their clients, answering questions, easing the burdens of the process, and avoiding any pressure tactics. 

What’s Next? Get Pre-Approved

Your first step in obtaining a mortgage and beginning the search for your first home is getting pre-approved. This not only helps you secure the offer available but also streamlines your home-buying journey. Your mortgage lender should provide an approval guarantee to ensure a path to becoming a homeowner. 

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Create a List of Must Haves and Nice to Haves

Once your financing is pre-approved, it’s crucial to outline your priorities for a home. 

Take into account factors such as home size, school districts, commute times, and any specific features that are non-negotiable for you. This list will guide your Realtor and enable them to narrow down options to present you with homes that align closely with your preferences. When putting together this list it’s important to distinguish between what you require – say, three bedrooms, and what you desire – like a screened-in porch or a fenced yard.

Find the Best Realtor For You

The next step after you establish your preferences is to find a real estate agent who knows the area. Realtors often have access to not only what’s on the market now, but what may be coming soon. Their understanding of the market can prove instrumental in finding properties that meet your criteria.

An exceptional realtor will diligently search for homes that align with both your must-haves and desirable extras while staying within your budget. They act as advocates during the home buying process and advise you with negotiations, understanding market conditions, and making decisions. The relationship between you and your realtor is built on trust, effective communication, and a mutual commitment to finding the home for you.

When you’re ready to make an offer, your Realtor will present your terms to the seller’s agent. You may want to negotiate specifics like the close date, items that may or may not come with the house, and needed repairs. The seller may also have requests. Once both parties agree, the seller accepts the buyer’s offer. At this stage, your lender will begin the process of turning your pre-approval into an approved mortgage. 

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What Happens Between the Offer and Closing? 

A Home Inspection

While the mortgage is being finalized, there are still several steps to owning your home. A home inspection must be completed to show that the home meets your standards, as the buyer, and the bank’s standards for issuing the loan. This step is essential for evaluating the property’s condition and identifying any issues that may need attention. Often, a buyer may have a clause where they can back out of their offer if the home doesn’t meet their expectations. At this point, a seller may also have the opportunity to change their mind about selling. 

Insurance and PMI

Lenders require homeowner’s insurance coverage to protect their investment. As the buyer, you’ll want to compare insurance rates and coverage options to ensure that you have the best protection for your home at the best rate. In addition, when the down payment is less than 20%, most lenders require Private Mortgage Insurance (PMI), an additional monthly cost that ensures the buyer won’t default on the loan. 

A Final Walk-Through

Before closing on your home, a final walk-through is typically conducted. It gives you an opportunity to verify that any negotiated repairs have been addressed and that the property is in the agreed-upon condition. 

Congratulations! You Made it to Closing!

During this meeting, called the close, you will usually meet with your Realtor, the seller, their Realtor, and possibly representatives for the bank securing your mortgage. You’ll sign all documents, transfer funds, and officially take ownership of the property. It’s a moment that marks both the end of your home-buying journey and the beginning of a new chapter in your life. 

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After the Close

Once you’ve successfully closed, relax and enjoy your new home! In addition, it’s time to reassess your budget when your official mortgage payment begins. Take into account the costs associated with homeownership. Your property taxes and homeowners insurance will be a part of your mortgage payment. You may also have a monthly HOA fee, and most likely, your utility costs will be higher for a home than they were for an apartment. 

It’s also critical that you set aside funds for home maintenance. Like most physical assets, houses require regular upkeep to maintain their value. When using a mortgage calculator, allocate an extra 1-2% of the cost of your home annually for maintenance to cover repairs, maintenance, and unexpected issues that can and will arise. Broken hot water heaters, faulty thermostats, and a busted garage door opening all seem to happen as soon as you move in. By budgeting for maintenance expenses, you can avoid the stress of these unexpected costs and keep your home in top condition.

As a homeowner, you might have ideas for renovations. Whether it’s upgrading your kitchen or working on landscaping projects, it’s wise to plan ahead. Creating a savings account for home improvements allows you to work toward these goals without overextending your finances.

Although you’re now paying homeowners’ insurance and property taxes, homeownership often results in other tax advantages. Familiarize yourself with tax deductions such as those for mortgage interest and property taxes. If you don’t already, consider consulting a tax professional for your first year of homeownership to take advantage of the benefits that owning your home offers.

If you’re ready to get started, get a customized quote for a mortgage today based on your location, the type of property you’re interested in, and the best mortgage for you. We’re here to help first time home buyers start the process, and can be your partner in navigating the road to home ownership.

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