Purchasing your first home can be an exhilarating yet daunting journey, filled with opportunities, challenges, and decisions to make. According to Self Financial, first-time home buyers make up roughly 30% of all home buyers each year, a figure that underlines the importance of proper preparation and knowledge as you embark on your own home buying journey.
An Overview of First-Time Home Buyers: The Facts You Should Know
Fascinating trends and patterns emerge when we explore the world of first-time home buyers. In 2021, an upward trend saw first-time home buyers accounting for 34% of all home buyers, up from 31% the year before. The average first-time home buyer, as reported by Bankrate, is around 33 years old.
The desire to own a home is the principal driver for 65% of first-time home buyers. In terms of down payments, the average figure for first-time home buyers from 2018 onwards has been somewhere between 6% and 7%. However, gathering the funds for a down payment is considered the most formidable part of the process by 29% of first-time home buyers.
The use of gifts or loans from family or friends towards down payments was reported by 28% of first-time home buyers in 2021. Student loan debt is a significant obstacle to saving for a home for 49% of younger millennials (ages 23 to 31) and 44% of older millennials (ages 32 to 41). The common sacrifice made by home buyers aged between 23 and 41 to afford a home was to reduce spending on luxury or non-essential items.
The primary reasons for mortgage denial among this age group are an insufficient debt-to-income (DTI) ratio and low credit scores. However, only a small portion (11%) of home buyers aged 23 to 31 and another 11% aged 32 to 41 sought advice from a bank or mortgage lender as their first step. More often, they began their journey by searching for listings online.
What to Know before Embarking on a Mortgage Commitment
The decision to buy a home is a significant one, and it involves a long-term commitment to a mortgage loan. Therefore, before deciding to buy, first-time home buyers should take time to understand what a mortgage involves — from monthly payments, interest rates, to property taxes, and how these elements will affect their finances.
Why Pre Approval is Essential
It's important not to overlook the value of a mortgage pre approval letter. This document, issued by a mortgage lender, outlines how much money you're qualified to borrow based on your credit report, income, and assets. Pre approval puts you in a strong position when making an offer, as it signals to sellers that you're a serious buyer with secure financing.
Taking Care of Your Credit
Your credit score is a crucial component of the home buying process. Mortgage lenders will scrutinize your credit report to assess your reliability as a borrower. Make sure to pay down credit card balances, dispute errors, and avoid opening new credit accounts in the period leading up to your mortgage application.
Building Up Your Down Payment
Creating a substantial down payment is an essential part of the home buying process. A larger down payment can lead to more favorable mortgage terms and a lower monthly payment, so start saving early. While it may seem daunting, remember that there are various down payment assistance programs available to first-time buyers.
Understanding the Different Types of Loans
First-time home buyers should explore all available mortgage options and understand the pros and cons of each. From conventional loans to FHA loans backed by the Federal Housing Administration, VA loans guaranteed by Veterans Affairs, and USDA loans for rural properties, there are various routes to homeownership.
Remembering the Closing Costs
When planning your home purchase budget, don't forget to factor in closing costs. These are additional fees that cover items like home inspections, title searches, and loan origination fees. While these costs can often be negotiated with the seller, it's essential to have funds set aside to cover them.
Defining Your Home Ownership Goals
To ensure your home buying process is smooth and fruitful, clearly list out your needs, non-negotiables, and nice-to-haves. This will help you and your real estate agent filter out unsuitable properties and focus on those that align with your lifestyle and budget.
Choosing the Right Real Estate Agent
Working with an experienced real estate agent can provide invaluable support during your first home purchase. A good real estate agent will guide you through the complex local market, help you make informed decisions, and negotiate on your behalf to secure the best deal.
Making Your Offer with Confidence
Once you find your dream house, be ready to submit a confident offer. Your real estate agent will help you determine a competitive offer based on the home's condition, how long it's been on the market, and other local market trends.
Securing a Home Inspection
After your offer is accepted, it's recommended to hire a professional home inspector to check the property for potential issues. This can save you from unforeseen expenses and help you negotiate repairs or a lower price.
Staying Within Your Budget
Stick to your budget throughout the home buying process. It can be easy to get carried away in a competitive market, but stretching your budget too thin can lead to financial stress down the line. Remember, home ownership involves more than just the mortgage payment, including maintenance costs, homeowner's insurance, and property taxes.
Retaining Physical Documentation
Throughout the process, make sure to keep physical copies of all your paperwork. From your pre approval letter to your closing documents, having a hard copy can provide peace of mind and prove useful for future reference.
Keep On Learning
As a first-time homebuyer, don't stop learning. There are many resources available, from home buying tips on real estate apps to advice from certified financial planners. Knowledge is power, especially in the home buying process.
Exploring National First-Time Home Buyer Programs
Different national programs exist to support first-time home buyers. It's worth researching these programs and understanding if they apply to you. Programs might include conventional mortgages with favorable terms, VA loans for military veterans, FHA loans supported by the Federal Housing Administration, and USDA loans for those looking to purchase in rural areas.
About Monet Berger Group
The Monet Berger Group, a renowned real estate firm, is led by the expert real estate professional, Monet Berger. For anyone considering buying or selling a property, or for those seeking insights into the California real estate market, do not hesitate to contact Monet Berger Group today.
