Buying Your First Home: What to Expect
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Contents
Buying your first home is both exciting and intimidating. It's likely the largest amount of money you've ever spent, and you want to ensure you know exactly what to expect. Understanding the process and having the right team to assist you will help you embark on this journey with confidence.
Determine What You Can Afford
When determining your budget for a new home, consider the following:
- Monthly Income: Aim to spend no more than 28% of your pre-tax monthly income on mortgage payments, which include principal, interest, taxes, and insurance. There are free calculators available online to help you determine what’s right for you.
- Gross Income: Your total earnings before taxes.
- Monthly Spending: Use a budget worksheet, like this one from Freddie Mac, to track your expenses.
- Credit Card Debt: Factor in your outstanding debts.
- Savings: Consider how much you have saved for a down payment and emergency funds.
- Credit Rating: Your credit score will impact your mortgage rates. You can get a free annual credit report from Equifax, Experian and TransUnion.
- Mortgage Rates: Research current rates from reliable sources.
Down Payments and PMI
Down payments typically range from 3.5-20%, but it can be as low as 0%, depending on your financing. If you put down less than 20%, you’ll need Private Mortgage Insurance (PMI), which protects the lender if you can’t make your payments. PMI usually costs between $30-$70 per $100,000 borrowed. In 2023, the median down payment for first-time buyers was 8% according to the National Association of Realtors.
Many state, county, and city governments offer financial assistance for qualified buyers including grants, second mortgage loans and tax credits.
Put Together Your Team
It's important to surround yourself with the right people when making such an important decision.
- Housing Counselor: Provides financial guidance, educates you on the process, down payment options, and types of mortgages. You can find free services through the Freddie Mac Borrower Help Network or Fannie Mae Housing Counselor.
- Real Estate Agent: Helps you find a home that fits your needs and budget, provides information on areas of interest, and negotiates with sellers.
- Lender: Assists in securing the best financing, explains rates and loan terms, and helps you understand all costs. You can work with banks, credit unions, mortgage brokers, and non-bank lenders.
Find Your Dream Home
Pre-Approval: Before you start looking, get pre-approved for a mortgage. This shows sellers you’re a serious buyer and gives you a clear idea of your budget. Pre-approval letters usually expire within 30-90 days, so time your search accordingly.
Loan Application: You’ll need to fill out a loan application and provide documentation such as W-2s, credit reports, tax returns, bank and investment statements, and proof of any supplemental income.
Make an Offer
Your real estate agent will help you determine a fair offer based on recent sales, the condition of the house, and what you can afford. The offer includes the price, target closing date, fees, and contingencies. It’s common for sellers to counter your offer, so be prepared to negotiate.
Inspection and Appraisal
After your offer is accepted, you’ll need a professional home inspection to uncover any potential issues. A home inspection contingency should be part of your offer.
Your lender will also order an appraisal to ensure the home’s value matches the loan amount. If the appraisal is lower than expected, you might need to renegotiate the price or cover the difference yourself.
Closing
The closing process, or settlement, typically takes 30-45 days. During this time, your lender will outline your portion of the closing costs, which usually range from 2-5% of the purchase price.
Closings often take place at a title company and will involve various fees, including the application fee (if applicable), credit report, loan origination, government recording, appraisal fee, title insurance, survey, attorney fees (if required), and home inspection (unless paid at the time of service).
You’ll also need to pay the first year of homeowner’s insurance and initial escrow payments for property taxes and insurance.
Once all paperwork is signed, you’ll receive the keys to your new home. Congratulations—it's time to start making memories!
Buying your first home can be a complex process, but with the right preparation and support, you can navigate it successfully. Happy house hunting!
Loans subject to credit approval
About the Author
![Julie Whitmire, Residential Lender, NMLS #803388](https://www.crews.bank/hubfs/Whitmire%2c%20Julie-1.jpg)
Julie Whitmire, Residential Lender, NMLS #803388
Julie is a lifelong resident of Lake Placid who started her banking career with the Bank in 1989. She relishes her role as a Residential Lender in her community because she “loves helping make dreams come true and being part of life’s most important decisions.”
Loans subject to approval, NMLS#406389