What You Need to Know to Become a First Time Home Buyer
Most of us dream of owning our own home someday. Now seems to be the time to buy, especially if you’re a first time home buyer. A strong job market and rental fatigue has helped to drive home sales to first-timers to their highest levels since 2013 , up to 35 percent of all homes sold last year. And first-time home buyers are getting younger, with a majority of those homes sold to people under the age of 35.
However, becoming a first-time home buyer can be the stuff of nightmares if you don’t know all the ins and outs of planning, saving, buying and maintaining a new home. If you’re confused by the whole home-buying process, you’re not alone. We’ll help you understand what to consider, how to plan and the steps to take to get those keys in hand. Together, we can turn that first time home buyer fear into a successful new home owner cheer!
How Do I Know If I’m Ready to Be a First Time Home Buyer?
Before you leap into that new home, ask yourself if you’re truly ready to be a first time home buyer. Are you considering home ownership because everyone you know is buying? Has a friend or family member told you it’s a great investment, or that you’re throwing your money out the window when you rent? Perceptions aside, buying a home is a significant commitment of your resources – both financial and time – so make sure you are ready.
Consider the following:
- What makes better financial sense, renting or owning? Use this calculator to help you determine if now is the best time for you to buy.
- How’s your credit score? A higher credit score typically means you’re more likely to get your mortgage approved, and at a lower interest rate. If your score is low, work on ways to improve it, like paying down credit card debt paying bills on time or working with a credit counselor.
Do I have enough of a down payment for a first time home buyer loan?
As a first time home buyer, knowing how much you need to save for that down payment can be tricky. Most mortgage lenders will require between 10 – 20 percent of the price of your future home.
Easy Steps for Saving a Down Payment:
- Determine the monthly amount you need to save to reach your down payment goal
- Create a separate “new home” savings account
- Use automatic direct deposit or setup transfers from Online Banking
- Refinance higher-rate student or car loans
- Save bonuses, rebates and cash back rewards
How much home mortgage can you afford?
A trusted mortgage lender will help you determine if the home of your dreams is attainable.
By planning first and shopping later, you’ll eliminate much of the stress that comes with being a first time home buyer and be ready to shop for that affordable dream home.
More than a Mortgage: Costs to Consider for a First Time Home Buyer
Knowing how much home you can afford means that you take into consideration all of the extra costs that come before, during and after the first time home buying process, including:
- The mortgage. A mortgage loan officer can help you find the best plan to fit your budget and your short or long-term needs. Greater Alliance offers a wide variety of terms and interest rates, both fixed and adjustable, for your first time home loan. Many reputable financial institutions, including Greater Alliance also offer education and affordable options through first time home buyer programs.
- Earnest money: A small deposit made into an escrow account after you have an accepted offer, as a show of good faith. Most often this deposit will be deducted from the sale of the house but be sure you have the funds to write that check once you have an accepted offer.
- Down payment: Typically, 20 percent of the price of your future home, but you may qualify for one of several special opportunities for first time home buyers.
- Closing Costs: Typical closing costs include things like taxes, appraisals, title insurance and origination fees. Closing costs vary from state to state and from one financial institution to the next. Talk to your mortgage lender up front so you know what your closing costs will be.
- Home inspection: This will be another relatively small expense, but is a critical step to ensuring there are no hidden problems with your dream home.
- Extra expenses: When you move from renter to first time home buyer, you’ll need to budget for all those extras that come with home ownership, including property taxes, homeowner’s insurance, potentially higher utility bills, ongoing maintenance and unexpected repairs.
Moving Expenses for a First Time Home Buyer
As a first time home buyer; don’t get caught off-guard by the cost of moving and new home costs. So many factors go into the actual process of moving into a new home.
Consider the following possible home buying expenses:
- Can you seamlessly move from your rental to the home, or will you need to pay both your rent and your mortgage during the transition period?
- Will you hire a moving company, rent a truck or rely on the generosity of friends and family?
- Do you own a piano that requires a special set of moving skills?
- Have you contacted your insurance agent to transition from renter to homeowner insurance?
- In addition to your time, are there expenses related to transferring your phone, utilities, cable, newspaper, etc.?
Where Does a First Time Home Buyer Begin?
So, you’ve considered all the pros and cons of being a first time home buyer. You know you’d rather own than rent. You have a good down payment and you know you are in relatively solid financial shape to take on the additional expenses of home ownership.
- Make a List: Make a list of needs vs. wants for your home and your neighborhood. Think ahead to where your children might go to school, the distance from work, proximity to shopping or doctors or parks. Decide how many bedrooms you need, how much yard you want and the amount of storage. Prioritize this list so you know which of your wants you can live without.
- Work with professionals. In addition to that trusted mortgage loan officer, choose a reputable real estate agent to find homes that match your budget and wish list, someone who can negotiate on your behalf.
- First time home buyer programs: Attend a first time home buyer program counselling services through GreenPath Financial Wellness to learn about the responsibilities that come with home ownership and creative ways to get you into that first home more quickly.
How Do First Time Home Buyer Programs Work?
Clearly, there’s a lot to think about when buying a home. Millions of people move every year, and many do so successfully with no help. But why chance it? There are many helpful education tools and programs available to first time home buyers, because of the complexity of the process. There are also a number of government programs to help make that first home purchase more affordable.
- Greater Alliance First Time Home Buyer Program: Greater Alliance has created a new program to help you buy your primary residence. If you are first time home buyer or buying a primary residence we can help you save pay you $1,000 credit towards your closing cost. The program is designed to meet diverse income levels and needs. Options include first time home loan down payment assistance, flexible credit criteria and a 15 month savings club program.
- Federal Housing Administration (FHA) Loans: This is the most popular government home loan program for first time home buyers. The program guarantees a portion of the loan, and helps new home owners qualify for lower closing costs and considerably lower down payments, as little as 3.5 percent if eligible.
- HUD’s Dollar Homes: Sounds too good to be true, but these homes are quite literally, one dollar each. They are homes acquired by HUD through foreclosure that are made available to low to moderate income families.
- Good Neighbor Next Door: Good Neighbor Next Door is another HUD initiative which offers a 50 percent discount off eligible properties. The goal of this program is to help revitalize neighborhoods and encourage teachers, law enforcement, firefighters and emergency medical technicians to buy a home in these neighborhoods.
- VA Loans: If you are in the enlisted services, a veteran or a surviving spouse, the U.S. Department of Veterans affairs may be able to help you with a VA loan, including no mortgage insurance or down payment.
- State and local government assistance. Check out this list of additional assistance for first time home buyers in your state.
Call Greater Alliance Federal Credit Union at 800-963-1937 for more information. We can talk with you about all of these options to find the first time home buyer program that will best fit your situation and needs.
The Process of Buying a Home for a First Time Home Buyer
Let’s start shopping for your new home!
Most first time home buyers will agree that the process of searching for a house is fun and exciting, but it’s not as easy as it looks. These four steps will ensure your first home purchase is a successful process.
- Home Screens: Ask your realtor to screen homes, first based on your list of needs and wants within the price range you can readily afford. Attending open houses on your own will give you a sense of what’s on the market, but let your realtor schedule any other home visits. Look at multiple properties and try to withhold judgement until you’ve complete the entire tour. For some, it can be easy to dismiss a house with gold shag carpet or the wrong color paint, but these are easy fixes in a home that might otherwise match all your preferences.
- Make an intelligent offer. Look at the price of comparable homes that have recently sold. With help from your realtor, make a fair offer that you believe that seller will accept or counter. If it’s a sellers’ market, a low-ball offer won’t work, despite the initial allure of getting a great deal. In the end, it’s the house you want, right? The house could have multiple other offers, or the seller could make a counter-offer. Be prepared for all scenarios, including disappointment if your offer is rejected. If that does happen, work with your realtor to find the cause and fix it with the next offer.
- Show them the money. Once you have an accepted offer, you’ll need to make a deposit, in good faith, called earnest money. This amount will be deposited in an independent escrow account, not given directly to the seller, until you close on the sale of the house. Make sure your earnest money offer includes a contingency to get the money back if, for some reason, the sale of the house falls through.
- Schedule a home inspection. Ask friends, your realtor or mortgage loan officer to refer you to an inspector with a solid reputation. This inspector should have a comprehensive inspection checklist, including the structure, electrical, plumbing, roof and more. Whether or not your state requires testing for asbestos, radon or lead, it’s a good idea to request these tests before you finalize the deal. If your inspector is not licensed to complete these tests, he or she should be able to recommend a reliable source. If concerns arise during the inspection, you’ll either want to negotiate to have the repairs made before you close or—if the problem is significant—decide if it’s a deal-breaker.
Work diligently through these steps in the first time home buyer process, and with the right support from qualified experts, you will reduce stress and eliminate costly mistakes. It may sound like a lot of work (and it is), but remember what comes at the end: a successful offer and the keys to that dream home,
Greater Alliance Federal Credit Union offers a number of mortgage and first time home buyer loans, to fit virtually every need. Along with flexible terms and an easy pre-approval process, Greater Alliance mortgage loan officers will offer you assistance and guidance along the path to new home ownership. Visit our website for today’s rates , savings calculators and other helpful first time home buyer assistance.
If you’re not quite ready to buy or are in the process of preparing to buy, we also encourage you to take advantage of the variety of Greater Alliance savings and certificate of deposit accounts. For rates, terms or assistance getting started with any of these savings accounts or first time home buyer programs, visit our website or call 800-963-1937 today.