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What to know about buying your first home

Shopping for your first home is an exciting time, but it can also be stressful if you aren’t prepared for each step in the process. Let’s go over all the basics so you can be ready to turn your first-time buyer nerves into first-time homeowner joy.
 

Preparing your Finances

With prices in today’s market doubling since 2021 and mortgage rates increasing, homeownership can be expensive. That means you’ll need to get your finances in order first before you start touring houses.

The first step is to create a budget that includes your monthly living expenses and leaves room for all the possible expenses of owning a home. This will help you identify a mortgage payment you can comfortably afford. Remember, just because it’s technically within your budget, you may not want to buy at the maximum amount you can afford. It’s wise to leave some wiggle room for surprise expenses and still be able to save for other goals.

Next, you should estimate how much cash you will need for your down payment, as well as closing costs, startup costs (such as repairs, renovations, and furniture) and a rainy-day fund. Once you have a savings goal for each of these items, start regularly putting funds into a savings account that earns interest or even a CD with a term that aligns with when you plan to buy. Gifts from family and other assets may also help pay for these costs. 

Finally, having a good credit score is important because it helps determine whether your mortgage application is approved and what your interest rate will be. Many mortgage lenders require a credit score of at least 620 to approve you for a mortgage, but the higher your score, the more likely it is that you will receive a better rate. Improving your score can take time, but you can impact it by making payments on time, reducing what you owe and lowering the percentage of available credit you use.
 

Receiving a Pre-Approval

Once you have your finances in order, you are ready to get pre-approved for a mortgage. Pre-approval is basically a letter from the lender stating the maximum amount you borrow to buy a home. This shows sellers that you are a serious buyer, and they may be more inclined to accept your offer as a result.

You only need a pre-approval from one lender to start making offers. After your offer is accepted, it’s wise to compare rates between multiple lenders. You are not under any obligation to take out a mortgage with the same lender who preapproved you.
 

Finding an Agent

Next, find a real estate agent. While this step isn’t required, experienced realtors often have insider insight into the buying process and can reach out to the sellers’ agents to find out what would make your offer more competitive.

It’s best to choose an agent who knows the area well and is familiar with the housing stock. Reach out to friends or family members to see if they can put you in contact with any good agents. Find the right agent for you by interviewing more than one. Also, check with your lender as their relationship with a real estate agent may get you a discount. For example, Ardent partners with HomeAdvantage, who connect members with local agents, and offer cash rewards if you end up purchasing a home through that agent.

Don’t forget you can always switch realtors if you aren’t satisfied. Just avoid using the seller’s agent because they may have a conflict of interest.
 

Viewing homes

You’ve got your pre-approval in hand, and you’ve selected your realtor. Now, it’s time to start touring homes you may want to buy. 

Knowing your budget and how much you’re pre-approved to borrow, you’ll need to review the list of needs and wants for your home. Think about the neighborhoods you want to live in, parking, how many bedrooms and bathrooms you need, minimum square footage and outdoor space. Which of those are non-negotiable and which are you willing to compromise on? This will help you determine which houses are good candidates and which may be out of your budget.

Take pictures and notes of the homes you visit so you can remember the different aspects of each. Don’t be afraid to visit a house you like more than once as well. After all, this is a big decision, so it’s okay to double check that it is to your liking. This is typically a good idea if the first visit was on a sunny day. You may want to visit during rainy or snowy weather, if possible, to check for leaks. That said, if there is a lot of competition, you may only get one visit, so be thorough with your photos and notes.
 

Making the Offer

After finding the right home for you, it’s time to make an offer.

It’s important to account for things like the purchase price, closing date, offer expiration date, concessions (costs the seller pays for you) you may want, inclusions (what the seller leaves in the house for you) and other contingencies (conditions that must be met, such as home inspection unless you waive it and financing appraisal).

Make sure to factor all these details into your offer to the seller. And don’t forget about closing costs, which are fees and expenses needed to finalize the home purchase. These often include loan fees, title search, home insurance, appraisal, recording fee and mortgage interest. Closing costs vary but are typically between 3% - 6% of the total loan amount.

Your agent will then present your offer to the seller who will either accept, reject, or counter your offer. Once the offer is accepted, it becomes a binding contract, so make sure you are sending the offer that you feel strongly about.
 

Applying for your Mortgage

After your offer is accepted, you will need to consider how to finance your purchase. The mortgage application process is much more involved than applying for a pre-approval. As mentioned above, feel free to shop around between different lenders to find the best rate and terms for you.

The two main types of mortgages are fixed and adjustable rate. A fixed-rate mortgage offers predictable monthly payments on the loan because your rate is the same for the life of the loan. An adjustable-rate mortgage may offer an initial rate that is lower but will adjust at specific intervals. This could mean your interest rate could go up or down based on what’s happening in the economy.

Mortgage terms can vary from a few months to multiple years, but the two most common terms are 15 years and 30 years.

If that wasn’t enough, there are also different mortgage programs offered by lenders and government agencies that you may qualify for, such as:

As you can see, you’ll need to do some research to see which loan type and program will be best for you. The turnaround time for a mortgage from approval to closing can typically take 30-45 days, so you’ll need to factor that into your timeline.
 

Conclusion
Buying a home is a big commitment with a lot of decisions to make at each step, which is why it’s important to make sure you are well informed. Figuring out your budget, home needs and financing options early can set you up for success on your journey from a first-time home buyer to first-time homeowner. And don’t forget, Ardent’s First Home Concierges are available to answer any questions that arise.