Buy Your First Home With a Clear Strategy
First time home buyers have a lot to think about when choosing the right loan. I’ll help you understand what you can afford, how much cash you may need, and which mortgage options make sense before you start shopping.
Your First Home Starts With the Numbers
Before you start looking at homes, understand what the monthly payment looks like, how much cash you may need, and what price range comfortably fits your life.
1.
Monthly Payment
Start with the payment that comfortably fits your budget, not just the maximum you may qualify for.
2.
Cash to Close
Understand your down payment, closing costs, and how much cash you want left after closing.
3.
Buying Power
Know your comfortable price range before you start touring homes and making offers.
Before you start looking at homes, understand what the monthly payment looks like, how much cash you may need, and what price range comfortably fits your life.
What First Time Home Buyers Should Know Before Applying
YOU MAY NOT NEED 20% DOWN
Many first time home buyers assume they need 20% down before they can buy a home. Depending on the loan program and your qualifications, there may be options with significantly less down.
Conventional
5% down can be a strong starting point for many buyers while keeping more cash available for closing costs and reserves.
FHA
As little as 3.5% down with more flexible credit and qualification guidelines.
VA
Eligible veterans and service members may qualify for 0% down with no monthly mortgage insurance.
Your Mortgage Payment Is More Than Principal & Interest
Your total monthly housing payment can include several costs. Understanding the full payment before you shop helps you set a more comfortable budget.
1.
Principal & Interest
The amount going toward your loan balance and the cost of borrowing.
2.
Property Taxes
Property taxes vary by location and can have a meaningful impact on your monthly payment.
3.
Homeowners Insurance
Insurance protects your home and is often included in your monthly escrow payment.
4.
Mortgage Insurance
Depending on your loan and down payment, mortgage insurance may be part of your monthly payment.
Your Down Payment Isn’t the Only Cash You’ll Need
In addition to your down payment, buying a home can include closing costs and prepaid expenses. Planning for the full amount ahead of time helps prevent surprises before closing.
1.
Down Payment
The portion of the purchase price you pay upfront. The right amount depends on your loan, available cash, and overall financial strategy.
2.
Closing Costs & Prepaids
These can include lender and title fees, appraisal costs, prepaid taxes, homeowners insurance, and other costs associated with closing.
3.
Seller Credits
Depending on the transaction and loan program, seller credits may help reduce the amount of cash you need at closing.
Seller Credits: It’s Not Just How Much You Get
Seller credits can be a powerful negotiating tool, but the amount and how the credit can be used matter. Credits may help cover eligible closing costs, prepaid expenses, or certain interest rate buydowns depending on the loan program and transaction.
1.
Closing Costs
Seller credits may be used toward eligible closing costs, helping reduce the amount of cash you need at closing.
2.
Interest Rate Buydown
Seller credits may also help fund an eligible interest rate buydown, but the amount required depends on the specific loan and buydown strategy.
3.
Structure the Offer First
Before negotiating a seller credit, know what you want the credit to accomplish. A credit that helps with closing costs may not be enough to execute the rate strategy you planned.
DAN’S STRATEGY
Know what you want the seller credit to accomplish before you make the offer. We can calculate how much credit you may need for closing costs, an interest rate buydown, or a combination of both.
PMI Isn’t Always a Reason to Wait
Putting 20% down can eliminate private mortgage insurance on a conventional loan, but that doesn’t automatically make it the best financial strategy. Sometimes keeping more cash available can be more valuable than eliminating PMI.
20% Down
No monthly PMI
A larger down payment can reduce your loan amount and eliminate PMI on a conventional loan.
Tradeoff:
More of your cash is tied up in the home on day one.
5% Down
Keep More Cash Available
A smaller down payment can preserve cash for closing costs, reserves, improvements, or other financial priorities.
Tradeoff:
Your payment will generally be higher and conventional PMI will typically apply.
DAN’S STRATEGY
Don’t make the decision based on PMI alone. We’ll compare the payment, PMI, cash remaining after closing, and your longer-term goals to determine which strategy makes sense. First time home buyers may qualify for several different loan programs depending on credit, income, down payment, and property type.
What Is an Escrow Account?
An escrow account allows your mortgage servicer to collect money for property taxes and homeowners insurance as part of your monthly mortgage payment. It can make budgeting easier, but it can also affect how much cash you need at closing and how your payment changes over time.
With Escrow
Simpler Monthly Planning
Your servicer collects money for property taxes and homeowners insurance and pays those bills when they come due.
✓ Easier to budget monthly
✓ You don’t have to remember large tax or insurance bills
✓ May require funding an initial escrow account at closing
✓ Your payment can change as taxes, insurance, and escrow estimates change
Without Escrow
More Control Over Your Cash
Depending on your loan program and eligibility, you may be able to waive escrow and pay property taxes and homeowners insurance yourself.
✓May reduce the amount of cash needed at closing for initial escrow funding
✓ You control when the money is set aside
✓ Your mortgage payment does not include monthly tax and insurance escrow collections
✓ You are responsible for budgeting and paying those bills when due
DAN’S STRATEGY
Escrow is really a choice between convenience and control when your loan allows the choice. Some buyers prefer one predictable place to send the money each month. Others prefer to manage their taxes and insurance themselves. We’ll look at your loan, cash flow, and how you prefer to budget before deciding.
When Should You Get Pre-Approved?
Ideally, before you start seriously shopping for homes. A pre-approval helps you understand your buying power, estimated payment, cash needed at closing, and which financing strategy fits your goals.
1.
Before You Tour Homes
Know your comfortable price range before you fall in love with a home.
2.
Before You Make an Offer
Understand your financing, payment, and cash needed so you can structure the offer with confidence.
3.
Before the Market Forces the Decision
Planning early gives us time to review options instead of making financial decisions under pressure.
What Happens After You’re Pre-Approved?
Pre-approval gives you a starting point. From there, we’ll keep working on the financing while you search for the right home.
1.
Shop With a Clear Budget
Tour homes knowing the payment and price range you’re comfortable with.
2.
Run the Numbers Before You Offer
Before you make an offer, we can compare the payment, cash to close, seller credits, and financing options.
3.
Structure the Financing
Once you’re under contract, we’ll finalize the loan strategy and move through underwriting.
4.
Get Ready to Close
We’ll keep you updated on what’s needed and prepare you for the final numbers before closing.
Ready to Buy Your First Home With a Plan?
Buying your first home doesn’t have to start with looking at houses. Let’s understand your numbers, build your financing strategy, and make sure you’re prepared before you make an offer.