Congratulations! You are taking the first steps to being a homeowner. You are investing in your financial freedom and providing housing security for you and your family. As a first-time buyer, you have access to state programs, tax breaks, federally backed and many more options to help through this exciting process.

Let’s talk about the benefits of being a homeowner:

  1. Equity you have in your home is a form of a savings account. Instead, of throwing your money away to landlord every month, you are investing into long term stability.
  2. A sense Pride ! Being able to call something your very own can give you a sense a confidence.

5 Steps to guide First Time Home buyers:

  1. Calculate how much you can afford

There are three major elements to consider when calculating how much you can afford: income, debt, and down payment.

Depending on your bank, they will give you an idea of what you can afford monthly based on your income. For example, it’s based on 28% of your income, you make $50,000 a year then you cannot exceed $1,166. In addition, they will consider your monthly payments of your existing debt to create a threshold that you cannot surpass.

Let’s calculate this:

If your monthly debt payments are in excess of $541 per month and your threshold cannot exceed 41%, this brings your total debt of $541 + $1166 = $1708 or 41%.

Look at your savingsMake sure you have an emergency savings account with three to six months of living expenses. Buying a home requires a lot of upfront costs including your down payment and then the closing cost, so make sure you have money set aside for emergencies.

Make sure you are reviewing your spending and being realistic with your calculations of what you spend monthly.

Lastly, the down payment. This can be a big factor for many first time home buyers because this is extremely influential in what you can afford.

  1. Check your credit and compare down payment options

Generally, to qualify for a home loan, you’ll need good credit, a history of paying your bills on time, and a maximum debt-to-income (DTI) ratio of 43%. Lenders require 20% or higher to qualify for a conventional loan (offered or secured by a government entity). Don’t be scared to research different loan options that best fit your needs.

There are more than 2,400 home buyer assistance programs in the United States that offer down payment help in the form of grants, low-interest or deferred loans, forgivable loans, and other programs. Some even assist with closing costs.  However, you should be aware that with a smaller down payment, you’ll likely be required to pay for mortgage insurance, and your loan application will be subject to greater scrutiny.

The goal is to save, save, save! If you’re already looking into a purchasing a home with a strong amount down payment, skip to step 3. If not, below are some options if you have a low down payment.

VA: Eligible veterans and their spouses can qualify for Veterans Administration loans. FHA: The Federal Housing Administration offers 3.5% down payment mortgages through participating lenders. FHA loans are also easier to qualify for and have slightly lower rates than conventional mortgages.

GSE-backed loans: Fannie Mae and Freddie Mac are both currently insuring 97% loan-to-value loans. That enables lenders to offer 3% down payment mortgages to qualified buyers.

USDA: Home buyers in rural and suburban areas may be able to qualify for home loans offered by the U.S. Department of Agriculture. USDA loans offer low rates and 100% financing.

There are online calculators that can help you determine what your down payment amount will be based on the type of loan, the price of your house, your location, and credit rating but if you don’t want to do it alone, reach out to a specialist.

  1. Find the Right Home For you

Now that you know how much you can afford and your down payment, it’s time to get to the fun part! Before going on your quest to home buying, consider these factors:

What type of residential property are you looking for? A traditional single-family home, a duplex, a townhouse, a condo, a co-operative, or a multi-family building with two to four units.

How big is your Family? What neighbors are you willing to consider? Is school a factor? Ideally, you’d find the perfect home, in your neighborhood of choice, at a price you can afford, but realistically, most people will have to make some compromises. Make a list of your deal breakers and must haves; garage, backyard, granite table tops. Decide whether the house or neighborhood is more important to you. Make sure you make these decisions before you search for a new home to avoid feeling overwhelmed. This will also help to eliminate options that are just not a good fit.

  1. Compare Mortgage Lenders

This step is important! The number 1 mistake made by home buyers is NOT shopping around for a mortgage! It takes time and patience but don’t just go with your parents broker or some guy your realtor knows. You will have this mortgage for the next 30 years! It is worth prioritizing.

Don’t assume you can shop a couple in a week. The mortgage market can be unpredictable, so this process will require you to sit down and contact multiple banks at a time. If you do it now, odds are good you can lock in your rate for a while.

Make sure to answer the questions truthfully Mortgage quotes can vary based on your down payment, credit history, income, assets, and debt.

Qualifying for a mortgage loan in order to buy a home can often be a stressful and strenuous process. In the end, the pride, security, comfort, and freedom that comes from owning your own home makes all the effort worthwhile. Just remember the end goal!

  1. Get Pre-Qualified

At this point you are informed on what kind of home you want to live in and how much you can afford, including your down payment which will determine the type of loan you will pursue. Once If you’ve compared a few rates you should request a pre-qualification letter.

In today’s competitive housing market, it is not uncommon for a seller to receive multiple offers on their home. Having a pre-qualification letter in hand could be the difference in your ability to purchase the house you desire. It proves to the seller that you are serious and provides you with bargaining power which could give you an advantage over other buyers.

After you receive a pre-qualification letter, make sure to lock your rates in! Once you have found your new home, if rates have increased, your rate stays the same. Win Win!

The Buying Process

Here are a few simple bullet points to keep you on track during the buying process:

  • Make sure to take advantage of all the available options for finding homes on the market, including using your real estate agent, searching for listings online, and driving around the neighborhoods that interest you in search of for-sale signs.
  • You and your real estate agent will help you decide how much money you want to offer for the house, along with any conditions you want to ask for. Your agent will then present the offer to the seller’s agent; the seller will either accept your offer or issue a counteroffer. Make sure to think ahead and reconsider your budget. This time, factor in closing costs (which can 2% to 5% of the purchase price), commuting costs, and any immediate repairs and mandatory appliances you may need before you can move in.
  • Get an inspection. A lot of home in sections reveal a lot of defects that were not disclosed. Here is your chance to negotiate changes with the seller for a lower cost or rescind your offer.
  • Close it or Keep it moving.

Congratulations! You’re a new homeowner. Now what?

Make sure to keep saving for unexpected expenses. It wouldn’t hurt to have an account set aside just for home repairs and emergencies. This can also fund the regular maintenance of the home! Your home is an asset and the beginning of financial freedom.