Buying your first home is a big deal! It’s a very exciting time in your life, but it can also be a bit overwhelming when you’re a new homeowner. The team at Members Plus Credit Union wants to congratulate you on this major accomplishment, and also let you know that we are here for you with answers and solutions for first-time homebuyers.
From smart financial tips and mortgage legal terms to common pitfalls to avoid, the team at MPCU can help you understand the responsibilities involved with buying your first home as well as educate you about essentials every homeowner needs to know. Members Plus CU is here to help you every step of the way during your first home purchase and throughout your ownership.
Key Terms Every First-Time Buyer Should Know
- Down Payment – A down payment on the purchase of your home is the percentage of the home’s purchase price that you are required to pay in advance when you close your home loan.
- Adjustable-Rate Mortgage (ARM) – An adjustable-rate mortgage (ARM) starts out with a lower interest rate, which changes as the market rates fluctuate. Homebuyers get the advantage of having a lower initial interest rate than that of a fixed-rate mortgage. However, when the rates change, the loan rate may increase, which will also mean a higher mortgage payment.
- Conventional Mortgage - A conventional mortgage is one that is not guaranteed or insured by the government like those backed by the Federal Housing Administration, Department of Veterans Affairs, or Department of Agriculture loan programs.
- Private Mortgage Insurance (PMI) – This insurance policy is mandatory for homebuyers who purchase a home with a down payment of less than 20% and is designed to protect the lender should the borrower default on the loan.
- Closing Costs – The fees, services, and expenses that are required to finalize a mortgage are called closing costs. These fees apply to both mortgages and refinancing, and typically range from 2 to 6% of the loan.
- Escrow – An escrow account is one where funds are held by a neutral third party on behalf of the participants involved in the homebuying/selling transaction until contract terms and conditions are met. After the purchase and throughout the life of the loan, another type of escrow account is used to hold the homeowner’s money for insurance and property taxes due throughout the year.
Know How Much House You Can Afford
Your lender will determine how much you can afford to spend on your first home when you begin the prequalification process. There are a variety of different factors that are considered by affordability calculators, including the following.
Factors Considered for Home Affordability
- Gross monthly income
- Existing debts and monthly payments
- Credit score
- Down payment amount
- Current mortgage interest rates
- Property taxes and homeowner’s insurance estimates
- Loan term (15-year, 30-year)
- Loan type (conventional, FHA, VA)
Once calculated, your lender will determine how much you can afford each month for the payment. First-time homebuyers may underestimate the monthly payment amount, including the insurance and taxes, and may need to reevaluate affordability based on income, debt, and lifestyle to determine what is really needed versus what is wanted in a home.
Don’t Forget the Hidden Costs of Homeownership
In addition to the monthly mortgage on your first home, there are additional costs to consider. Here are some of the hidden costs that need to be factored into your budget.
Hidden Costs Associated with Owning Your First Home
- Homeowner’s Association Fees – If your community has a Homeowner’s Association (HOA), there is a fee associated. Dues are paid monthly or quarterly and are due as long as you own the home. Fees vary by location and community amenities and range from a few hundred dollars to thousands.
- Emergency Repairs – Your home will need some sort of repairs eventually, that could break the budget if you are not prepared. Having an emergency fund for home repairs is crucial, so unexpected issues don’t put you in a financial bind.
- Insurance and Taxes – If you have chosen not to have your property taxes and homeowner’s insurance paid via escrow with your monthly mortgage payment, you must plan and prepare to pay for these required costs when due annually.
- Maintenance – Do not underestimate the cost of maintaining your first home, as maintenance items do add up and are necessary to protect the value.
- Utilities – Things like water, gas, electricity, internet, etc. are due in addition to the monthly mortgage and should be accounted for in your monthly budget.
Finding the Right Mortgage for You - MPCU's Home Loan Solutions
When it comes to finding the best mortgage for your unique situation, it is important to compare interest rates, terms, and loan types, as all of these factors impact your payment and financial future. Members Plus is here to help you purchase your first home with personalized service and potential savings opportunities for members. MPCU offers a variety of mortgage options for first-time homebuyers, including VA loans, fixed-rate mortgages, and even adjustable-rate mortgages.
Our team of home loan specialists at MPCU will walk you through the home loan process and discuss your options for financing. Get started on your path to homeownership today at Members Plus CU!
Financial Do’s for First-Time Buyers
When considering buying your first home, there are some things first-time buyers should do to prepare financially. Here are some smart habits to consider:
- Pay down debt
- Build your savings
- Get pre-qualified
- Create a budget
- Check your credit report
Financial Don’ts That Can Derail Your Purchase
It is important to mind your finances when preparing to buy your first home and be sure not to make any decisions that might derail your home purchase. Avoid taking on new debt, missing or late payments, co-signing on a loan, and be sure not to underestimate move-in costs, which should be included in your budget.
Are You Ready to Get Prequalified to Buy Your First Home?
Following these tips from our mortgage professionals at MPCU and planning ahead can prepare you for buying your first home and help you avoid common traps. The team at Members Plus is here to help with mortgage solutions for first-time homebuyers. We invite you to apply for a mortgage today and begin your dream of homeownership!