Buying your first home is a huge step, but breaking it down into smaller steps will make it more manageable. Remember to take a deep breath and take your time. If you prepare and do your homework, then you’ll be ready to make a decision when it feels right and you’ll have your dream home to look forward to! Here are our top tips to help get you there.
Keep an eye on the market to know the best time to buy.
2020 was a competitive time in the housing market with low inventory and rising home prices. Currently, interest rates are expected to remain low through 2021. In fact, Freddie Mac projects a 3% average across the entire year. That’s good news for homebuyers because it translates into a lower house payment and more room in your budget.
Set aside funds and be patient.
Although 20% is the preferred down payment on a home, it’s not an absolute. It does allow you to avoid paying the PMI (Property Mortgage Insurance), which is usually 1% of the total loan amount. You’ll pay that every year until you reach that 20% down payment amount in your loan payments. However, it is far more common to purchase a home with as little as 3% down. That means for a $200,000 home, instead of $40,000, you can put down as little as $6,000.
It’s also a good idea to set aside funds to cover closing costs, which tend to be around 3-4% of the purchase price. Using our $200,000 home as an example, that would be between $6,000 and $8,000 on top of the down payment. On occasion, it is possible to work that into the cost of the loan on the home or the seller may cover the costs.
Above all, you’ll need to be patient. It can take considerable time to save up the funds and the home buying process itself can last several months.
Choose a budget that works for you.
It is recommended that your mortgage payment be no more than 25% of your take-home pay. For example, if your take-home is $60K a year after taxes, then you can afford a $1,250 loan payment. Depending on your down payment, that amount can move up. You can see why saving up your money is such an important part of being ready to buy a home.
Consider all your financing options.
It’s a good idea to determine your credit score as that will help determine what kind of loan you can get approved for. First-time home buyers have more financing options and you’ll want to consider all of them before making a final decision.
Adjustable-Rate Mortgages (ARMs) often start with a low interest rate, but they allow lenders to adjust the rate, which makes them riskier. Fixed-Rate Mortgages give you a set rate over the life of the loan with usually a 15- or 30-year term.
FHA Loans allow you to put as little as 3.5% down, but require you to pay a mortgage insurance premium (similar to a PMI) for the life of the loan. A VA loan allows veterans to buy a home with no down payment, but can carry extra fees and higher interest rates than a fixed-rate/conventional loan.
Consider the community you’d like to live in.
You’ll want to consider all your lifestyle options such as commute time, schools and proximity to shopping and entertainment. Signature Homes has several appealing communities such as the charming Entrada II offering a relaxing lifestyle for commuters, Legacy at Folsom Ranch with gentle hills and hiking and biking trails, or Bristol with its relaxed wine country vibe.
The Acacia community offers that weekend getaway feel in Oakley, Cardiff at River Islands will give you room to spread out with the family and Sycamore in the University District is ideal for its proximity to the Green Music Center and great restaurants.
Choose a home that fits your dream for now, not necessarily forever.
As it is your first home, it’s not likely that this will be your last. Don’t feel pressured to find the perfect home. You’ll likely find several homes with things you prefer about each.
Happy hunting! We’d love to give you a tour of our homes and neighborhoods as you consider your first home.