As home ownership continues to be a significant life goal for many, the journey toward buying a first home can often be intimidating. This guide seeks to demystify the process by supplying insightful tips and highlighting the variety of programs, loans, and grants available to first-time home buyers, who make up roughly 30% of all home buyers each year.
The Beginner's Quick Overview: First-Time Home Buyers' Realities
In the year 2021, a small rise in first-time home buyers was observed, rising from 31% in 2020 to 34%. The average first-time homebuyer is around 33 years old. A majority, 65%, are motivated mainly by the desire to own their property.
The average down payment put forward by first-time home buyers between 2018 and the present has remained fairly steady, between 6 and 7% of the home's purchase price. For 29 percent of these buyers, amassing this down payment presented the most considerable challenge in their home-buying process. In fact, to cover this amount, 28% of first-time home buyers in 2021 resorted to applying for a gift or loan from their friends or family.
For younger and older millennials, aged 23 to 31 and 32 to 41, respectively, approximately half reported that student loan debt hindered their ability to save for a home. Among these groups, the most common sacrifice made to purchase a home was reducing expenditure on luxury or non-essential items.
Additionally, it was observed that the most common reason for mortgage denial for homebuyers aged 23 to 41 was an insufficient debt-to-income (DTI) ratio, followed by a low credit score. However, only 11% from each age group reported that their first step in the home-buying process was to contact a bank or mortgage lender. More commonly, the first step was to search for online listings.
Despite the complexity of the home buying process, only 8% of homebuyers aged between 23 and 31 and another 8% aged between 32 and 41 considered 'securing a mortgage' as the most challenging step. A considerable number of unmarried younger millennials (21%) also joined the ranks of homebuyers. Lastly, over half of the older millennials had at least one minor child living with them.
Insightful Tips for New Home Buyers
Making Sure You're Prepared for a Mortgage Commitment
Committing to a mortgage is a significant financial decision that needs careful consideration. Being ready to take on a home loan means ensuring stability in your financial situation and being able to handle the responsibility of mortgage payments.
The Importance of Preapproval
Getting a mortgage preapproval before house hunting is a critical step. A preapproval letter from a mortgage lender gives you an idea of how much you can borrow and can show sellers that you're a serious buyer.
Maintaining Good Credit Health
Your credit score plays a vital role in your ability to secure a mortgage. Keeping your credit card balances low, paying your bills on time, and not opening new credit accounts can help maintain or improve your credit score.
Saving Towards Your Down Payment
Starting to save for a down payment early can ease the home-buying process. While first-time homebuyer programs can help, having a larger down payment can potentially lower your mortgage payments and interest rates.
Understanding the Different Loan Options Available
There are various loan options available for first-time home buyers, including conventional loans, FHA loans, VA loans, and USDA loans. Each comes with its own set of eligibility criteria and benefits. More details on that are below!
Don't Overlook Closing Costs
Apart from the down payment, closing costs are an additional expense to consider. They typically range from 2% to 5% of the loan amount and include fees for home inspection, mortgage insurance, and more.
Prioritize Your Housing Needs and Wants
List out what you need from your future home, what you can't compromise on, and what would be nice to have. Having a clear list can make the home searching process more focused and efficient.
Working with a Good Real Estate Agent
An experienced real estate agent like Tina Richards can provide valuable advice and guide you through the complex home-buying process, making it easier and less stressful.
Being Bold When Making an Offer
Confidence is key when submitting an offer. A solid preapproval, a competitive market analysis, and guidance from a real estate agent can strengthen your position.
The Necessity of a Home Inspection
Before finalizing your home purchase, hire a professional for a home inspection. This step can reveal potential issues that may need repair or affect the house's value.
Staying within Your Budget
It's essential to stick to your budget, even in a competitive market. Overextending your budget can lead to financial difficulties down the road.
Keeping a Physical Record of Your Documents
Save all your paperwork from the home-buying process. These documents can come in handy for tax purposes or when selling your home in the future.
Continuous Learning is Key
Even after buying your first home, don't stop learning. Stay updated with the real estate market and home ownership responsibilities.
National First-Time Home Buyer Programs
Conventional Loans
Conventional loans, not backed by the government, are popular among first-time home buyers due to their flexible terms and conditions.
Veterans Affairs Loans
VA loans, guaranteed by the Department of Veterans Affairs, offer significant benefits for eligible military members, veterans, and their families.
Federal Housing Administration Loans
FHA loans, insured by the Federal Housing Administration, are a popular choice for first-time home buyers due to their lenient credit requirements and low down payment.
United States Department of Agriculture Loans
USDA loans, backed by the U.S. Department of Agriculture, offer 100% financing to eligible rural and suburban home buyers.
About Tina Richards
Tina Richards is a dedicated resident of Boise, Idaho, cherishing the local community she calls home. If you're looking to buy or sell a home or have any questions about the Idaho real estate market, contact Tina Richards, your trusted Idaho real estate specialist, today.
*Header photo courtesy of Tina Richards
