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Home Buying 101

Becoming a homeowner is one of the biggest decisions, and investments, you can make. Looking for a house, knowing if you’re ready to buy, and even the steps to take when buying a house can be very overwhelming. A first time homebuyer guide can help you turn your dream of buying your first house into a reality.

This first time homebuyers guide will help walk you through the process of:

  1. Getting your finances in order 
  2. Identifying wants vs needs 
  3. Applying for a loan
  4. Shopping for a house within your budget 
  5. Making an offer

Family in front of a house

Preparing for your first-time home purchase

The pre-work you do before buying a house can really make your home work for you later. Home ownership is a huge investment that can tank your budget if you let it. Doing your research first can help you combat common homebuying myths building a stronger foundation for your future.

Financial health

It’s time for a financial checkup! From getting your credit score in shape to trimming down your budget, flex that financial muscle in preparation for this big investment.

If you don’t already have a budget, use Numerica’s Budget Workbook to set one up. This is a great way to be able to figure out how much you could afford for your new home.

You can also use Numerica’s Budget Manager to track a budget or identify spending categories. Along the way, if you find potential savings, putting them into a Numerica Bonus Saver account could be a smart way make your money work for you!

Not sure what your credit score is? You can pull your credit reports once a year for free from the top three credit reporting agencies. While some free sites will show you a credit score, it could be 30-40 points off. That is a huge difference! The only way to get an accurate credit score is to have a hard pull.

If your score is on the low side, follow some of these steps to get your credit score in check. Credit score looking good? Keep up the good work! Avoid the urge to apply for a Lowe’s credit card or buy an SUV if buying a home is in your near future.

What happens if you have “bad credit”? While having bad credit doesn’t mean you’d necessarily be denied a loan, it could mean a higher interest rate and have you paying a lot more per month.

Before getting hung up on your credit score, remember, some financial institutions, like Numerica are committed to serving people, not credit scores. Don’t hesitate to reach out to your favorite branch to ask for guidance. We want to help you fulfill your dreams of being a homeowner.

Make a list of your new home’s “must haves”

You’ll probably end up looking at a number of homes during the home buying process. Do yourself a favor before you start looking at houses and make a list. Why? Buying a house is very personal experience.

Knowing your deal breakers and dealmakers can keep you focused through the process.

  • How many bedrooms and bathrooms do you need?
  • Does the kitchen need a remodel (this can get expensive)?
  • How much closet space and storage space do you need?
  • Do you want to be in a particular school district?

What other dealmakers or deal breakers can you add to this list?

Find out how much home you can afford

Figure out how much you should pay for a mortgage. While, the golden rule is to never spend more than 28% of your pre-taxed income, you can also take your annual salary and multiple it by 2.5 or 3 to get your house price range.

If you’re currently paying rent, multiplying it by 200 can give you a good estimate on the total price of a house. Even if you can technically afford the payment, if you feel like you’re spending too much, you probably are.

Instead of figuring out how much you could afford for a house, figure out how much you should be spending. This is a more realistic number based on your budget and should include extras like property tax, insurance, utilities, etc.

Your total monthly debt expenses shouldn’t be more than about 36% of your income. One of our Home Loan Center team members can help you determine the right price range for your budget.

Keys in a front door

Don’t forget the additional expenses

Type of mortgage. The mortgage you choose will affect your monthly mortgage payment. Finding the best mortgage for your budget is the job of your lender with input from you. Numerica offers several types of loans to fit your needs.

Private Mortgage Insurance (PMI). Many first-time homebuyers believe they have to put down 20% on their new home. This is not always the case. A large down payment helps lower your monthly payment and can help you avoid paying Private Mortgage Insurance or PMI. PMI typically costs between 0.5% to 1% of the entire loan amount on an annual basis.

Closing costs. Fees and taxes associated with the purchase of a new home include:

  • Loan origination fees
  • Discount points
  • Appraisal fees
  • Title searches
  • Title insurance
  • Land surveys
  • Taxes
  • Deed-recording fees
  • Escrow fees
  • Home inspection
  • Credit report charges

These can be about 3-6% of your new home’s purchase price. Look at Homebuying myth #5 - to get a little more familiar with closing costs. Closing costs include an Earnest Money deposit (usually 1% of purchase price).

Homeowners insurance. Can cover damages or losses to your home as well liability for injuries or accidents that might occur on your property. According to Zillow, you can “expect to pay about $35 per month for every $100,000 of home value...”

Homeowners Association dues. If you’re thinking of buying a new home, make sure your budget includes a line item for a HOA, or Homeowners Association.

Many housing developments put HOAs in place to help share collective costs like maintenance or snow plowing. Costs can vary drastically from a couple hundred of dollars to thousands each year, depending on where you live and the neighborhood amenities.

Applying for a loan

Before you get ready to start your house hunt, apply to see if you get prequalified for a loan. Knowing how much you’d be approved for is a simple way to start narrowing down your home search.

Pre-qualifying also helps you know the types of home loans you might be eligible for and gives you a price range to shop in. Don’t confuse prequalification with pre-approval. Pre-qualifying is a ballpark figure, pre-approval accompanies the mortgage application for the specific home you want. 

You can plan ahead and use the First-Time Homebuyer Guide’s Mortgage Loan Application Checklist to make sure you aren’t hunting for documents at the last minute.

How do you prequalify to buy a house?

Give us a call at 800.433.1837 or visit your branch. If you’re not a Numerica member, come in and get to know us.

What is the prequalification process?

The pre-qualification process helps to determine your possible loan amount and starts with you providing your income, debt, and assets to your lender. Your lender, like Numerica, then comes back with the approximate amount you could qualify for. Keep in mind this is not in-depth look at your finances and doesn’t consider your credit score.

Does pre-qualifying affect my credit?

Nope! Pre-qualifying is what is known as a soft pull and will not affect your credit score.

Front view of a house

Start your house hunt

Armed with your budget, pre-qualification, and deal makers/breakers - you’re finally ready to begin your house hunting! This tends to be the most exciting part of the process. So, hit the street, internet, and open houses to see your options.

Should you use a realtor?

As a first time homebuyer, a realtor can be a tremendous resource. A real estate agent helps to find a house within your criteria, walk you through the purchase process, and negotiate on your behalf.

This is the perfect time to turn to family, friends and colleagues. Get referrals to realtors they have used and ask them about the process.

When is the best time to buy a house?

The best time for a first-time homebuyer to purchase a house is when they’re financially ready. In general, most homebuyers purchase houses in the spring and summer. While there might be less competition in late summer or fall, there is also typically less inventory. No one likes to move in the winter.

Making an offer

Purchasing your first home is highly emotional. Don’t fall into the trap of becoming “house poor.” When it’s a “seller’s market” (low housing inventory), homes often sell for more than fair market value. It can be very tempting to over bid on your “dream home”. Remind yourself of your budget and refer back to your deal makers versus breakers. You’ve got this!

Making an offer goes something like this:

  • Your offer is submitted to the seller
  • The seller either accepts, declines, or counters
  • You negotiate or walk away
  • Your offer is accepted
  • You sign a purchase agreement

What happens between making an offer and closing?

Home inspection. Home inspectors examine the home from top to bottom looking for structural issues, mold, asbestos, roof life, electrical, plumbing, etc. Inspections should take 2-4 hours so plan to be there. A good home inspection costs between $300-$500 and is typically required to close on a home.

Home appraisal. Appraisers look at total square footage, renovations, location, etc., and determine the value of the house as collateral for your lender.

Most lenders will not give a loan for much more than the house is appraised at. If a house appraisal is less than what it is being sold for, you might have to come up with the difference. Appraisals typically cost an average of $650-$750.

Two chairs sitting lakeside

Welcome home

Closing on your first house is a very exciting time. While most of the closing consists of sitting around a table and signing a mountain of documents, nothing feels better than grabbing your keys and knowing the house is yours.  

Congratulations! With the first time homebuyer guide you’ve mastered:

  1. Preparing for the home buying process
  2. Determining how much you can afford to buy a house
  3. House hunting basics
  4. Getting through the home buying steps

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