Becoming a Homeowner: What You Need to Know

Are you ready to become a homeowner? Many people ask themselves this question, and rightly so. It is a significant responsibility.

The dream of homeownership is still alive and well, although it’s much more challenging for borrowers now that prices are sky-high and interest rates have doubled.

First-time home buyers must be more vigilant than ever in following sound mortgage tips.

Only a few years ago, buying a home from a mortgage payment standpoint was cheaper than renting.

With interest rates increasing, the playing field has been leveled to a degree.

From being in the mortgage industry for many years, it is crucial to understand what it takes to become a homeowner. I will be sharing some of my best advice to make the transition into homeownership easier.

By following these tips, you’ll be in a much better position when buying your first home. I will walk you through all of the steps to buying a house.

Let’s start by covering the most vital part of owning a home – your finances.

Essential Facts and Figures

1. One of the first steps is saving up for a down payment, typically a percentage of the property’s purchase price.
2. Homebuyers often need to secure a mortgage loan from a bank or financial institution to help finance the purchase.
3. Research and understand different types of mortgages, such as fixed-rate or adjustable-rate mortgages, to choose the best option.
4. The process also involves finding the right property, completing a home inspection, and finalizing all necessary paperwork before becoming the proud owner of a home.
5. Over 80% of first-time homebuyers in the United States use mortgage loans to finance purchases.
6. Research has shown that investing in energy-efficient features can reduce annual utility costs by up to 30%, making it an attractive option for prospective homeowners.

Financial Side of Home Ownership

Complete Costs of Owning a House

While it is true that savvy buyers are finding mortgage deals with monthly payments that are either near or lower than their rent, that is not the total cost of owning a piece of property.

Along with the principal and interest payments, the homeowner is also responsible for the property taxes due each year. Homeowners must also purchase home insurance to cover damages due to storms, theft, fire, or other unfortunate circumstances.

Getting the right home insurance policy is essential for protecting your new investment. I always recommend buyers start with their car insurance provider. You will get a discount for bundling your home insurance.

Then, there is the matter of basic home upkeep. Things like replacing a roof, fixing a plumbing issue, and maintaining the yard all fall on the homeowner’s shoulders. Some consumer financial experts suggest yearly maintenance will amount to about 1.5% of the home’s market value.

That would mean that for a $250,000 home, the owners should anticipate spending around $3,750 on various items.

What are you Willing to Pay?

Buying a home is similar to financial investments. Some people are very conservative with their financial choices and only put their money in traditionally safe places such as certificates of deposits. Other people are willing to take on more risk and will pick the latest stock of the day, hoping to make a significant profit.

When buying a home, some people want to stretch their income as far as possible and get the most home they can for payment. Others are more content to get a home that fits their needs, leaving them more money for investing, traveling, and other pleasures.

There is no right or wrong answer to this question. You decide how much you are willing to pay monthly for a home. Just be sure you don’t put yourself in a financial hole you can’t dig yourself out of.

I recommend using an affordability calculator before meeting with a mortgage lender to understand what you can realistically afford.

Making a Down Payment

Some loans, like the VA mortgage and the USDA loan, will allow borrowers to purchase a home without a down payment requirement. Other loans, like FHA and the similar HomeReady loan from Fannie Mae, will ask for at least 3% to 3.5% of the home’s selling price to be paid as a down payment.

Depending on credit scores, loan programs, and other factors, some borrowers could be asked to pay as much as a 20% down payment to secure financing.

Remember that the down payment money should be separate from other savings. It is never a good idea to use all of your money towards the down payment and have no reserves after the house is purchased.

Bad situations always happen, and it is wise to put some money aside in a “rainy day fund.” Plus, saving money for a down payment doesn’t have to be overwhelming. A simple money-saving plan can add up quickly.

I always recommend that my clients research down payment assistance programs in your area to see if they qualify for financial help. If there is, you could save a decent amount of money.

Explore First-Time Home Buyer Programs

The path to homeownership can be daunting, especially for first-time buyers. Fortunately, numerous first-time homebuyer programs offer valuable assistance, from down payment aid to favorable loan terms.

These programs are designed to make homeownership more accessible. They provide financial support and educational resources to help you make informed decisions.

By exploring these financing options, you can identify programs that align with your financial situation and goals. They could potentially save you thousands of dollars.

Speak to multiple lenders to ensure you get the best terms. You’ll want to get the most competitive mortgage rates, as they can make a significant difference for as long as you have the loan.

Checking Your Credit and Getting Preapproved

Before looking at homes, buyers should review their credit scores and get preapproved by a local mortgage lender.

Your credit history is crucial to lenders.

Reviewing your credit report will allow you to work on any errors.

First-time buyers should know that regularly reviewing their credit reports is crucial to ensure there are no errors that could impact their mortgage application.

For example, if you have a common name like John Smith, there may be an account showing on your report that belongs to someone else. It also gives you an idea of what to expect when the lender looks at your credit rating.

After you know the report is correct, talk to a lender about your options.

Getting preapproved for a loan gives you a clear idea of what you can afford and strengthens your position as a buyer. You will not be taken seriously without having a preapproval letter.

Explain your budget and future plans to the lender so that the mortgage loan officer can put together the best lending options for your needs.

Paying the Closing Costs

While a home seller can pay closing costs on the transaction, this is not always the case. Furthermore, it would help if you did not plan on this.

It is entirely possible that you will be asked to pay a portion or all of the closing costs for your home purchase.

The total amount will vary based on a few factors. Your mortgage lender can provide you with an estimate of the closing costs and explain each item to you.

A budget for closing costs is essential. They can significantly add to your upfront expenses when buying a home.

Keeping your Financing on Track

While getting your mortgage, you also need to pay more attention to your finances. Above all else, you must ensure you don’t do anything that will cause your mortgage approval to be removed. These are a few of the mistakes that you could make whereby a lender could refuse to give you a loan:

• Applying for new loans
• Changing jobs
• Making large deposits, you are not able to document
• Not paying your credit card
• Making a large purchase such as a new car
• Falling behind on your rent

These are apparent mortgage mistakes to avoid. When you don’t make these blunders, you can be confident your mortgage commitment will come soon.

You Need a Real Estate Agent

Why Hire a Real Estate Agent?

One of the best first-time home buyer tips is to hire an exceptional real estate agent! With the various advantages offered through the internet, it would seem that most anybody could find the home they want and place an offer to purchase it.

However, it is still a great idea to use the services of a licensed buyer’s agent. They will be working in your best interests as a fiduciary.

Listed below are the top benefits of working with a real estate agent.

Searching For Property

Once you have decided on the details of the home you want, a real estate agent can prepare a search for you. The search will eliminate homes that don’t meet your criteria and homes located in areas you do not wish to live in.

Price Research

A real estate agent can access information on homes sold in the past few years. This allows an agent to determine if a potential home is priced too high or even too low for you.

Understanding local property values is essential. Being educated will help you make a competitive offer on a home.

Access to Homes

Real estate agents can arrange a showing of a home on your behalf. You tell the agent the dates and times that you are available.

The agent will then call or email the listing agent to set up the appointment. Setting up a showing can be a bit more challenging without your own agent.

Negotiating Contracts and Inspections

There is a reason why real estate agents have a license to sell homes. They have studied various agreements and understand the slight differences.

The agent can help protect your interests by ensuring the contract is not unfair to your needs and allows you some flexibility if unforeseen circumstances prevent you from buying the home.

Filling You in on Important Details

A buyer’s agent wears many hats, including keeping you informed on various issues that can arise when buying a home.

Maybe you are buying an older home and need an education on purchasing with lead paint. It could also be as simple as reviewing appropriate time frames in the offer to purchase.

Remember that an exceptional buyer’s agent does a lot to keep the sale moving smoothly for you.

It really cannot be overstated enough: A real estate agent you hire will work only for you, not the seller. This means the agent is focused on making sure you get the property that fits your needs, in the right location, at a price that fits your budget.

Finding the Right Home

It would help if you found a home after deciding on the financial aspects of buying a home and choosing a real estate agent.

Each person and family will have different needs and desires, so there is no “one size fits all” formula for determining what you need. However, some guidelines will indicate you have found a place that works.

Here are the top questions to ask yourself about a home to see if it is right for you.

Do you feel excited about telling your family and friends about this home?

The majority of your friends and relatives will be excited for you at the idea of buying a home. But if you find yourself genuinely excited about a home to the point that you want to tell everyone, the odds are good that you have located the right place.

Can you mentally picture your belongings in the home?

Regardless of your age or current status in life, we all have stuff. Most of us have essential things that make our place feel like home. Where do you see those vital items when you look around the potential new house? The furniture will either fit or won’t, but the subtle details that make the place feel like yours are the defining traits of a home.

Do you feel possessive about the house?

An outstanding real estate agent will focus heavily on a house’s features but also remind you of any imperfections. If the mention of a stain in the tub or a crack in a window makes you feel protective of the place, that is a sign that you have mentally bought the home already.

Are your basic needs met?

Some families have four kids and need lots of bedrooms and a large backyard. Other folks are newly married with a cat and have no plans to have children in the foreseeable future. Make sure that the property’s shape and function fit your essential needs before considering the home.

You will likely live at this home for at least a few years. It makes sense to find a place that you like so that you can enjoy home ownership rather than feel like it is a burden.

Picking a Neighborhood

Besides the home’s features, the home’s location is the next essential item to consider. Knowing how to pick a neighborhood when buying a house will help you eliminate some future headaches and make purchasing the home more enjoyable.

Neighborhood Profile

First, determine what you need in a neighborhood. The following list should help you make some notes about what you need.

• Do you currently have children? If so, are you looking for similar-aged kids who can spend time with your children?
• Are you looking for a brand-new home or something vintage?
• How do you want to travel to the grocery store, school, and other important places? If you drive, what are the traffic conditions? If you prefer to walk or ride a bike, are there ample places along the roads?
• If you work outside the home, what is your maximum distance for commuting? More importantly, based on traffic, how LONG are you willing to travel to get to work?

These questions should stimulate your mind and help you isolate the right qualities in a neighborhood for your specific needs.

Choose an Area

If you are familiar with the area, you will likely know which location or locations match your needs. If you find yourself moving to a new town or state, you must do some research. Once again, this is where a real estate agent can be a valuable resource.

They can access information about locations such as school zones, crime rates, property values, and other things to help you determine the best fit for your needs.

Remember to include hobbies and other interests in your research. If you enjoy dining out once or twice a week at excellent restaurants, it is a bad idea to move somewhere with one local diner within a 10-mile drive.

If your family likes museums, picking a rural area with nothing but trees and cows will probably not satisfy their curiosity.

Do Some In-Person Visits

After narrowing down the search, it is time to visit some neighborhoods. Take photos and take notes, and if you are not bashful, talk to some potential neighbors. Let them know that you are contemplating buying a home and want to find out the good and bad of the area. A talkative neighbor can likely give more information than any internet search would ever yield.

Making some trips through the neighborhoods that match your routine is also a good idea. For example, if you have a job that requires you to work from 3 pm to 11 pm, ride by the potential home around 2 o’clock.

Take some time and observe what is going on. How is the traffic? Are people at home? Likewise, do the same thing after work one night. These in-person visits at different times can give you a great insight into the area.

The Importance of a Home Inspection

A home inspection is a pivotal step in the home-buying process. It protects you against pitfalls you may not notice when buying a house.

This critical evaluation can find issues ranging from minor repairs to major structural problems. It allows you to renegotiate the purchase price or request repairs before finalizing the sale.

In addition, understanding the condition of the property can help you budget for future maintenance needs. It ensures that you’re fully prepared for the responsibilities of homeownership. Skipping can lead to devastating financial consequences.

You could have several unexpected expenses that might strain your finances and affect your ability to maintain the home in the long run.

I always recommend hiring an excellent local home inspector. You can ask your buyer’s agent for a good recommendation.

Understanding The Closing Process

Once you have found your dream home and gone through the home inspection and mortgage process, your closing awaits. The method of closing a house is straightforward.

Several crucial steps are involved, focusing on finalizing your financial commitments, ensuring the property is in the expected condition, and legally transferring ownership.

Let’s examine each of the steps:

Going Over The Closing Statement

As required by law, you’ll receive a Closing Disclosure at least three business days before closing. This document details your loan’s terms, estimated monthly payments, closing costs, and the total amount you must bring to closing. It’s essential to compare this with your loan estimate to identify discrepancies.

Doing The Final Walkthrough

This verifies that the property’s condition is agreed upon in the purchase contract. It usually happens the day before closing. It ensures any agreed-upon repairs have been made and the property is ready for you. Having a closing checklist can be beneficial to ensure nothing is missed during the walkthrough.​

Karen Highland of eXp Realty provided excellent advice on a final walk-through.

“As buyer’s agents, we are looking for three major categories when we lead buyers through the final walk-through:
Using the contract as your reference, make sure that everything that should be conveyed with the sale of the property is in the home. I recall a particular experience where the sellers removed the washer and dryer and took them out of state.

Make sure there is no damage from the move, or that there are no undisclosed damages that the move has revealed. For example, when the rug was removed from the living room in a particular home, the beautiful Brazilian Cherry floors underneath were sun-bleached. Our buyer requested an escrow amount to refinish the flooring.

Make sure the home is “broom clean and in substantially the same condition as when you contracted”, our contract reads. It should be clean and clear of debris and personal belongings.

One instance comes to mind that was particularly egregious. Our buyer found an entire barn full of everything from old car parts and engine blocks to old farm equipment. We had to get thousands of dollars in escrow to get three dumpsters full of trash off the property post-closing.

There may be additional items that warrant attention in various jurisdictions. For instance, in the county south of us, the buyer must record the final electric meter reading and bring that to the settlement proceedings to ensure the proper amount is prorated.

Homebuyers need to read the contract to make sure all conditions are met. If anything is amiss, having an experienced buyer’s agent on your side will be well worth it. Last-minute negotiations are crucial in these unfortunate events.”

Moving From Your Current Home

While not directly part of the closing process, moving from your current residence is essential to homeownership. This involves planning your move, hiring movers (if necessary), and ensuring your belongings are packed and ready.

You won’t be able to move your belongings into the house until the deed has been recorded.

Attending The Closing

At the closing meeting, you’ll sign all the necessary paperwork to complete the purchase, including all your loan documents.

This final step often involves meeting with various parties, including your real estate agent, a closing agent, and possibly an attorney.

You’ll need to bring a government-issued photo ID, proof of homeowners insurance, and a cashier’s check or proof of wire transfer for your down payment and closing costs.

You can expect the closing to last around an hour or so. Now, the real excitement begins. You are being a homeowner!

Summing Up How To Become A Homeowner

Buying a home should be a financial move in a positive direction. It should be a sign that you have advanced in life and can handle life’s various challenges.

Researching your finances, working with a real estate agent, and studying potential neighborhoods will all require effort and time.

However, doing this necessary work before plunging into home ownership will significantly help you in the long run as you learn how to become a homeowner.

About the author: This article on How to Become a Homeowner was written by Luke Skar of Inlanta Mortgage – Madison, which serves Wisconsin, Illinois, Minnesota, and Florida. Since 1993, Inlanta Mortgage has provided award-winning customer service to clients who need to purchase a home or refinance an existing mortgage.

Luke serves as the Social Media Strategist for Inlanta Mortgage. His role is to provide original content for all of their social media profiles as well as generate new leads from his website, www.MadisonMortgageGuys.com NMLS ID #1016

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How to Become a Homeowner: Tips and Advice

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See how to become a homeowner with this first time home buyer guide. Great first time home buyer tips to make sound decisions.

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Bill Gassett

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Maximum Real Estate Exposure

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