Buying your first home is an exhilarating milestone, signaling a significant investment and the fulfillment of a lifelong dream. It's a place to call your own, a sanctuary where memories are made. However, amidst the excitement, the homebuying process can become overwhelming, leaving you juggling multiple tasks and making crucial financial decisions. Even with the support of experienced friends and family, there are often hidden aspects that catch you off guard.

Have no fear. We’re here to shed light on those untold secrets and provide you with invaluable insights. Armed with this knowledge, you'll be better equipped to navigate the journey of purchasing your first home, ensuring a smoother, less stressful experience that ends with you proudly clutching the keys to your dream abode. Let’s dive in!

#1: What I Qualified for Was Not the Same as What I Could Afford

Getting pre-approved is certainly step number one. How much loan you can afford is based on things like your credit history and scores, income and assets, and current liabilities. When all these factors are taken into consideration, you’ll get a number that you’re qualified for borrowing. This is the maximum mortgage loan you can qualify for.

It’s important to understand that qualifying for a mortgage loan does not mean you can afford it.

Before you start house hunting, it’s important to figure out what you can realistically afford as a house payment (principal and interest AND taxes and insurance combined).  If you purchase a home at the top of what you’re approved for, you might have a mortgage payment you can barely afford.  By setting a budget that aligns with your financial situation, you can avoid overextending yourself and find a home that is truly affordable.

#2 Staying Organized is Key | Mortgage Application Checklist

The homebuying process involves a significant amount of paperwork, and it's easy to underestimate the importance of being organized. From financial documents to inspection reports, having everything readily available can save you time and frustration. Creating a dedicated folder or digital storage system for all the necessary paperwork will help you stay on top of the process and provide easy access when needed.

First, to streamline your mortgage application process and ensure you don't miss any crucial documents, it's beneficial to utilize a mortgage application checklist. Our Mortgage Application Checklist can help you compile all the necessary paperwork, such as income verification, bank statements, tax returns, and employment history. Having a comprehensive checklist at hand will make the application process much more efficient and increase your chances of a smooth approval. It’s a great way to start the process; be sure to download it here.

Mortgage Application Checklist - Download Now

#3: You Don't Need a Large Down Payment

One common misconception when buying a home is that a large down payment was a requirement. While a substantial down payment can reduce your mortgage amount and potentially lower your interest rate, it is not always necessary. In fact, the average down payment for first-time homebuyers in 2021 was just 6% of the purchase price.

Fortunately, there are various mortgage options available that require a lower down payment, such as FHA loans or conventional loans with private mortgage insurance (PMI). Understanding your options can help you navigate the down payment requirements more effectively. Check out our First-Time Homebuyer Resources and Mortgage Programs here.

We understand that saving up for a 20% down payment can be a lengthy process, particularly in today's economy. However, by seizing the opportunity to buy a home sooner rather than later, you can put an end to renting and start building equity in your own property. Remember, time is of the essence when it comes to securing your financial future through homeownership.

#4 Mortgage Insurance Was a Help – Not a Hindrance

Mortgage Insurance is often viewed as an additional expense and a burden. However, it serves as a helpful tool.  Mortgage insurance protects the lender in case you default on your loan, but it can also benefit you as a buyer. With mortgage insurance, lenders may be more willing to approve your loan with a smaller down payment or a lower credit score. This allows you to enter the housing market sooner and potentially secure a better interest rate. It's important to weigh the costs and benefits of mortgage insurance and understand how it can work to your advantage.

#5 Your First Home Doesn’t Need To Be Your Last Home

Did you know that the average homeowner stays in their first house for approximately 5 years? When embarking on the journey of purchasing your first home, it's common for first-time buyers to have a more modest budget, leading to compromises during the buying process. This often means opting for a starter home rather than your dream home right from the start.

But fear not, because this steppingstone serves a greater purpose. A starter home presents a fantastic opportunity to build equity, laying the foundation for future endeavors. It allows you to establish a solid financial base so that when the time is right, you can transition to your forever home—the one that perfectly aligns with your dreams and aspirations. Embrace the concept of a starter home as a valuable investment in your future, propelling you towards the realization of your ultimate homeownership goals.

#6 Marry the House, Date the Rate

We often say, “Marry the house. Date the rate.” This ultimately means, don’t let interest rates deter you because you can always refinance when the time is right. If you find the perfect house, don’t wait! The rate may not be what you hoped for, but again there will be opportunities to refinance in the future.

Committing to a home you love doesn’t mean you have to commit to the financing available now forever. You can always change your financing to more favorable terms later should better rates become available. Think of it this way. If rates continue to get higher, you’ll be glad you married the house when you did!  

#7 There is a Fee Associated with Almost Everything

It’s important to understand that other than your down payment on a house, there are other fees associated with the transaction. These small fees add up, that’s why it’s always good to be overprepared than underprepared.

Tip: Budget 1-2% of the house value to cover fees such as:

  • Homeowner Association Fees (HOA); if applicable

  • Appraisal Fee

  • Credit Check Fee

  • Title Inspection

  • Closing Costs

  • Private Mortgage Insurance (PMI)

  • Homeowners Insurance

  • Property Taxes

  • Home Inspection Fee

The bottom line: buying a house requires upfront and ongoing fees.

#8: Home Appraisal and Inspection: Safeguarding Your Investment

In the quest to expedite the homebuying process, you may come across advice suggesting that skipping the home inspection is a viable option. However, this approach falls short of ideal. Both the home appraisal and home inspection play critical roles in the homebuying journey.

Let’s begin with the home appraisal, which determines the value of the property.  An appraiser will observe the property, analyze the data, and report their findings to their client. For the typical home purchase transaction, the lender usually orders the appraisal to assist in the lender’s decision to provide funds for a mortgage. In today’s sellers’ market having an appraisal is extremely important especially when low inventory is driving an increase in bidding wars which can increase home prices. When sellers are in a strong position like this, they tend to believe they can set whatever price they want for their house under the assumption that competing buyers will be willing to pay more. Lenders will only allow the buyer to borrow based on the value of the home. All in all, this is what helps keep home prices fair. If there’s every any discrepancy between the appraisal and the sale price of the home, your Real Estate Agent can help you navigate any additional negotiations.

Conducted by a professional inspector, this crucial step helps determine the current condition and safety of the property before finalizing the sale. From assessing the age of the roof to examining the HVAC system and other essential components, the inspection sheds light on any potential issues or necessary repairs. Armed with the inspection report, you as the buyer can discuss and negotiate with the seller, addressing any concerns before committing to the transaction. Your experienced Real Estate Agent will be invaluable in guiding you through this process, ensuring your interests are protected.

To delve deeper into the intricacies of a home inspection, we invite you to explore our recent blog post titled "What Should You Expect From a Home Inspection." Inside, you'll find expert advice on selecting an inspector, understanding the inspection process, and gaining insight into the areas that inspectors meticulously review.

Remember, when it comes to safeguarding your investment, both the appraisal and inspection are indispensable. By entrusting professionals and relying on the expertise of your Real Estate Agent, you can confidently navigate these critical steps, ensuring peace of mind and securing a sound investment for your future.

Bottom Line:

Buying a home for the first time is an exciting but complex process. Understanding the difference between what you qualify for and what you can afford, staying organized with paperwork, utilizing a mortgage application checklist, realizing that a large down payment is not always necessary, and recognizing the value of mortgage insurance can all contribute to a smoother homebuying journey. By arming yourself with knowledge and taking the time to research and prepare, you can make informed decisions and find the perfect home that fits your budget and lifestyle.

We are here to help you every step of the way. Here are some helpful resources to get you started:

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