Posted on | Posted in Mortgage

You’re finally ready to buy your own home. What a milestone! A home purchase provides stability, comfort and the opportunity to create memories in a place you love. But how exactly can you become a homeowner in today’s market?

Read on for resources, tips and encouragement so that you understand what it takes and feel confident in your decision-making throughout your first home buying experience.

What to Expect

Buying your first home typically follows five stages:

  • Getting mentally and financially ready
  • Re-approval and loan selection
  • Finding the right home
  • Making an offer and closing
  • Settling into home ownership

The Emotional Rollercoaster

Ask any homeowner about their first home buying experience and they’ll likely share about plenty of ups and downs. Maybe they felt excited after viewing a home for sale, then quickly got overwhelmed by the need for repairs. Or maybe they felt unsure about the home they just bought and later realized they made the right choice.

Feeling anxious during the home buying process is completely normal. Buying a home is a major life change, and a significant financial investment.

At Meritrust, we know how important mindset and preparation are when purchasing a home. While excitement can be a great motivator, it’s important not to let excitement cloud your judgement. Be sure to review local market data and remember that housing markets vary by location. Preparing ahead of time can help you avoid buyer’s remorse.

Getting Financially Ready

Set your budget and understand your credit

One of the key components of being financially ready for home ownership is ensuring your budget has room for this commitment. It’s important to remember that monthly affordability matters more than the maximum approval amount. At Meritrust, we offer free financial coaching to help members feel confident in their financial readiness. Make an appointment with a financial coach before you start house shopping to ensure maximum preparedness!

Save for upfront costs

Too many people delay buying a home because they’re worried they don’t have sufficient funds for down payment. The good news, though, is that homeownership is more affordable than you think! In fact, today’s first-time homebuyers may be able to put down as little as 10%* compared to 20% or more for repeat buyers.

Closing costs are the other significant expense in this transaction. Note that closing costs typically range from 2-4% of the home’s purchase price, which amounts to thousands of dollars. Talk to your lender about potentially rolling those costs into your mortgage if you feel that’s the best option.

Take charge of your credit score

Your path to homeownership starts with understanding your credit score. This three-digit number helps lenders evaluate how responsibly you manage your finances. A higher score can improve your approval chances and help you secure a better rate, while a lower score may limit your options.

Your FICO score is calculated using the following factors:

  • Payment history: 35%
  • Amount owed: 30%
  • Length of credit history: 15%
  • Credit mix: 10%
  • New credit: 10%

If you want to boost your score before applying for a mortgage, try to:

  • Make on-time payments and bring all accounts current
  • Pay balances in full every month to prevent interest charges
  • Leave old credit cards open, even if you no longer use them
  • Avoid multiple hard inquiries on your credit report by only applying for new credit strategically

Explore different mortgages

We want to help you find the right home loan for your needs and budget.

Choose from:

  • Fixed rate - Enjoy peace of mind knowing that your interest rate will stay the same throughout the life of your loan.
  • Adjustable rate - If you only see yourself living in your first home for a short time, consider asking about an adjustable-rate mortgage, as it may be cheaper before the rate increases.
  • FHA - The Federal Housing Administration (FHA) makes it possible to buy a home with a lower credit score and a smaller down payment.
  • VA - Active military members and veterans are eligible for the VA loan, which includes a funding fee instead of a down payment requirement.

Pro tip: Don’t settle for the first mortgage you’re offered. Find a lender who not only has the lowest rates and fees but also puts you first with exceptional service.

Text Box - What is APR?

The Annual Percentage Rate (APR) is the interest rate plus the additional fees charged by the lender, including origination fees.

Get pre-approved

If you’re serious about buying a home, you’ll need to apply for mortgage pre-approval. The pre-approval process involves a comprehensive review of your financial history, past and present. Your lender will run a credit check to gauge borrowing tendencies and get a feel for how you handle debt.

They will also request the following documentation:

  • Two months’ most recent pay stubs
  • Bank statements
  • Most recent tax return

Keep in mind that pre-approval differs from pre-qualification, which only provides an estimate of your maximum loan amount. A pre-qualification can be a good first step for borrowers, but you’ll still need to get pre-approved to ensure your eventual offer stands out from other buyers. The sooner you get pre-approved, the sooner you can start your home search.

Text Box - Simplify your pre-approval

Partnering with Meritrust strengthens your pre-approval. Our home loan experts have access to first-time homebuyer programs and grants, giving you the confidence you need to get started.

Plan for ongoing and unexpected costs

A home purchase involves more than a down payment and a monthly loan payment. You’ll also be responsible for:

  • Property taxes
  • Homeowners insurance
  • HOA fees (if applicable)
  • Energy costs 
  • Other utilities (water, trash pickup, etc.)
  • Maintenance 
  • Repairs

 

It’s important to be prepared for these expenses when planning your budget. Ask your mortgage lender if your taxes and insurance costs will be included in your monthly payment. This is called an escrow account.

A good rule of thumb is to annually set aside 1% of your home’s purchase price for maintenance costs. You can adjust this amount as time passes, but first-time home buyers who plan ahead in this way often find themselves prepared for home ownership surprises.

Finding the Right Home

Your home buying team typically includes a realtor and a lender – each playing a different role. Your realtor should have your best interest in mind and guide you through the home buying journey, from the initial conversation to closing day. They are there to connect you with the house that is just right for you.

Text Box - Did you know?

The terms “Realtor” and “real estate agent” are often used interchangeably, but they are not the same. A real estate agent is a licensed professional who can help with buying, selling or renting properties. A Realtor, however, is a real estate agent who is also a member of the National Association of Realtors (NAR) and is bound by their strict Code of Ethics. According to Realtor.com, all Realtors are real estate agents, but not all real estate agents are Realtors.

Here are a few tips to consider before starting your search:

  • Create a list of must-haves vs. nice-to-haves
  • Think long-term
  • Research neighborhoods and schools

As you start touring homes, avoid getting distracted by only the aesthetics of a property and focus on the following instead:

  • Major systems, including the plumbing, HVAC and roof
  • The home’s overall condition (if you’re considering a fixer-upper but don’t have the funds for renovations, you should probably move on with your search)
  • Fixtures included in the sale (as a buyer, you should get all the property’s fixtures, including the cabinets, window treatments and appliances)

Your realtor can help you find out which fixtures may or may not be included in the home purchase.

Making the Offer

Let’s say you find a house that checks all the boxes. Your realtor can perform a competitive market analysis to see if the home is priced reasonably. If you discover it’s overpriced or underpriced, there could be a red flag (or several) that keeps you from making an offer.

What happens during negotiations?

  • Initial offer and counteroffer - After you submit an offer, the seller can accept, reject or counter with a lower price or different terms.
  • Inspection follow-up - If the inspector finds an issue with the house, you can request repairs, ask for a price reduction or walk away from the transaction.
  • Contingencies - You can make your offer more attractive by removing contingencies, like an appraisal or the sale of your current home.
  • Closing costs - Your agent and the seller’s agent will negotiate who pays for title fees, taxes and insurance, as well as a closing date.
  • Conclusion - The home is under contract once all parties sign the purchase agreement.

Text Box - What’s a Seller’s Disclosure?

A Seller’s Disclosure includes details about a home’s issues, giving you a better idea of what to expect if you purchase the home. It’s the seller’s responsibility to list any defects and provide them to interested buyers before the closing process.

A Seller’s Disclosure may include:

  • Repairs
  • Major damage (i.e. foundation problems, water damage, radon, asbestos or faulty HVAC systems)
  • Property liens
  • HOA information, if applicable

While making an offer is a critical part of the buying process, you’ll want to keep your budget in mind. A house payment should never be a burden, even after accounting for homeowners’ insurance, HOA fees and property taxes. You should also be able to continue working toward other financial goals, like saving for your retirement or your child’s college tuition.

From accepted offer to closing day

Inside the Loan Process

Once a seller accepts your offer, a few more things occur with your lender. First, your lender will reach out for documentation to verify what you previously submitted for pre-approval and will send that to underwriting. Your lender then schedules an appraisal.

Text Box – What’s an appraisal?

A house appraisal is an unbiased estimate of a property's market value conducted by a licensed appraiser. This process typically involves inspecting the home, reviewing comparable sales in the area, and evaluating factors such as location, condition, and size. Appraisals are commonly required by lenders to ensure that the property's value supports the amount of the mortgage loan.

Text Box – What’s an inspection?

A home inspection is a thorough evaluation of a property's physical condition performed by a professional inspector, often as part of the first mortgage process. During the inspection, the inspector examines key systems and components of the home, such as the foundation, roof, plumbing, electrical, heating and cooling, and overall structural integrity. The goal is to identify any existing or potential issues that could affect the safety, functionality, or value of the property. The findings are presented in a detailed report, giving buyers important information to help them make an informed decision before finalizing their mortgage and purchase.

As soon as underwriting wraps up, look for a Closing Disclosure from your lender. The Closing Disclosure has your final details that you’ll want to know about your loan, including:

  • Interest rate
  • Down payment
  • Monthly payment
  • Closing costs

Text Box - What’s cash to close?

Cash to close is the total amount of money you must bring to your closing. It includes the down payment, initial escrow payments, closing costs and any adjustments. You can pay this amount with a wire transfer, cashier’s check or certified check.

 

The Closing Process

After a long road of crunching numbers, communicating with multiple parties and viewing properties, you made it to closing. Be prepared to sign a bunch of documents, both electronically and in person.

Common closing documents include:

  • Closing Disclosure
  • Promissory Note
  • Deed
  • Deed of Trust
  • Affidavit of Title

You and your agent may want to do one final walkthrough of the home before you get the keys. If anything comes up before the big day, contact your agent or the title company as soon as possible.

Settling Into Homeownership

Homeownership offers meaningful financial benefits, including the opportunity to build equity over time and strengthen your overall financial picture. After move-in, revisit your budget and plan for your first year of ownership expenses. Use our handy home maintenance checklist to stay on top of all your new home responsibilities and reach out to a member of the Financial Well-Being team if you’d like additional support at any point.

The process from pre-approval to closing can take several weeks to a few months, depending on the market and your readiness. Meritrust is here to walk with you every step of the homebuying journey. Reach out to our Real Estate team to start your pre-approval today!

*Subject to approval