Homeownership is an exciting yet daunting prospect, and it’s one of the most significant financial decisions you will make in your entire life. As a first-time homebuyer, there are many things to consider before taking the plunge. This guide will walk you through some of the critical things you need to know beforehand to help make your first home purchase a success.

We’ll cover topics like: 

• Getting your financial health in order
• The different types of mortgages available 
• The loan application process 

Getting Your Finances in Order

1. Start saving for a down payment as soon as possible

The bigger the down payment, the less you’ll have to borrow, and the lower your monthly payments.

Having a larger down payment can help you get better interest rates on your mortgage, saving you money over the life of the loan and giving you more negotiating power when it comes to the home’s purchase price. 

If you don’t have enough money saved, you’ll have to take out a loan for your down payment, which typically ends up costing you more in the long run – on top of the mortgage you’ll also be paying. 

A key part of saving money is spending less money; monitoring and limiting overspending will contribute to your efforts to save for your down payment. Plus, it’s good practice for living within your means once you become a homeowner. 

In short – start saving for your down payment as soon as you can. It will save you money in the long run and make the home-buying process smoother.

2. Check your credit score

When you’re buying a home, one of the big things lenders look at is your credit score. Your credit score is a metric that tells them how likely you are to repay the money you borrow.

A high credit score means you’re a low-risk borrower, which could lead to a lower interest rate on your mortgage. Conversely, a low credit score could lead to a higher interest rate and could even mean you won’t be able to get a mortgage at all.

If your score needs to improve, here are a few things you can do to improve it before you buy a home:

• Check your credit report for errors and dispute them.
• Make sure you’re paying all of your bills on time.
• Keep your credit utilization ratio low (meaning don’t borrow too much money relative to your available credit).
• Wait a bit longer on your purchase while enacting the above points to establish a good borrowing history.

3. Work out a comfortable repayment schedule

Before you buy a home, it’s essential to work out a comfortable repayment plan for your loan. This will help ensure that you can make the regular payments on your mortgage and won’t end up in debt or losing your home.

The most important thing is deciding how much money you can actually afford to pay each month. If you’re not truly comfortable with your monthly payment, you’ll struggle to keep up with it, and the security of your home will be threatened. You’ll also need to think about the terms of your loan (interest rate, length of the loan) and how they impact the overall repayment cost.

Additionally, mortgage lenders will consider your debt-to-income ratio when reviewing your loan application. If your monthly loan payments are high compared to your income, your application may not be approved.

4. Seek pre-approval for a home loan from a lender

If you’re planning to buy a home, it’s important to seek pre-approval for a loan before making any offers. Pre-approval means that a lender has reviewed your financial information and is willing to provide you with a loan up to a certain amount. This will boost your confidence and negotiating power when shopping for a home. 

If you’re not pre-approved for a loan, the seller will be less likely to accept your offer, in favor of someone else who is pre-approved.

Here are some typical basic requirements to get approved for a mortgage loan in Washington:

• Stable employment with the same employer for 1-2+ years.
• Ability to repay with a debt-to-income ratio of 36% or less.
• Cash reserves to pay for closing costs and other expenses.
• Satisfactory credit score. You usually need a credit score of at least 620 to get a mortgage.
• Proof of rent paid on time for the last 12 months (if renting)
• Down payment: The amount you need depends on the mortgage program, and it’s a percentage of the home’s purchase price. Aim for a 20% down payment to avoid expensive private mortgage insurance (PMI).
• Gift letter if you will use a gifted down payment.

5. Meet with various lenders and compare interest rates to find the best deal

The Washington State Housing Finance Commission (WSHFC) has two main mortgage programs: Home Advantage and House Key Opportunity. Both are likely to offer preferred interest rates for first–time home buyers and may come with down payment assistance.

• Home Advantage
• House Key Opportunity (this program doesn’t always have funds available)

The interest rate on your loan will significantly impact your monthly payment amount. A lower interest rate can save you hundreds of dollars each month, so shopping around for the best rate possible is worth it. 

The term of your loan (the number of years you’ll be making payments) is another important consideration. A longer loan term will mean smaller monthly payments, but you’ll end up paying more in interest over the life of the loan. So, as long as you can afford the higher payments, a shorter loan term is often preferable.

Make sure you understand all the charges associated with taking out a mortgage loan so there are no surprises down the road. By doing your research and shopping around, you can save yourself a lot of money in the long run.

First–time home buyer loan options in Washington

Borrowers can often get into a new home with as little as 3% or even 0% down using one of these low–down–payment mortgage programs:

Conventional 97 – From Freddie Mac or Fannie Mae. 3% down payment and 620 minimum FICO score. After a few years, you can usually stop paying mortgage insurance once you reach 20% home equity.

FHA loan – Backed by the Federal Housing Administration. 3.5% down and a 580 minimum credit score. But you’re on the hook for mortgage insurance until you refinance to a different type of mortgage, move home, or pay off your loan.

VA loan –  VA loan is only for veterans and service members. Zero down payment is required. The minimum credit score varies by lender but is often 620. No ongoing mortgage insurance after closing. These are arguably the best mortgages available, so apply if you’re eligible.

USDA loan – For those on low–to–moderate incomes buying in designated rural areas. Zero down payment is required. Credit score requirements vary by lender but are often 640. Low mortgage insurance rates

WSHFC loans – May include competitive interest rates and down payment assistance. More information below

Choosing the Right Home

6. Research different neighborhoods and find one that matches your needs

Choosing the right region, city, and neighborhood is paramount to your happiness and fulfillment in buying your first home. Different areas have different aesthetics, amenities, neighbors, public spaces, and overall vibes.

You want a neighborhood that’s safe and healthy – consider the noise, pollution, crime, and any environmental concerns like waste or nearby industrial activity. If a lender sees that you’re trying to buy a home in a neighborhood that’s not doing well, you might also have trouble getting a mortgage.

Choosing a good neighborhood will bolster your quality of life and help retain your property value into the future – helpful if you want to sell the house someday.

7. Look at properties that are within your budget and meet your needs

If you’re not careful and diligent, you might buy a home that’s not right for you. Once you find a general region or neighborhood you like, it’s time to pick the specific house. If you need a lot of space but settle for a small place, you’ll quickly become frustrated. If you’re looking for a quiet neighborhood but settle for a home in a busy city, you could end up unhappy.

That’s why it’s important to take the time to figure out what your needs and wants are before looking at any homes. 

Work with your real estate agent to find the best place for you to buy a home in Washington based on things that matter to you, like:

• Type of home (townhouse, condo, single-family, multi-family, etc.)
• Schools nearby
• Traffic
• Street noise
• Nearby zoning or construction
• Commute times
• Nearby amenities (parks, shopping, recreation, etc.)
• New construction vs. resale

8. Choose the right real estate agent 

It’s crucial to choose the right real estate agent. A good agent will help you find the right home for your needs and budget by considering all the previously mentioned points. Here are some things to consider when choosing a real estate agent:

Experience: Make sure the agent has experience in the area of interest.

Communication style: Some agents are more aggressive than others. Make sure you’re comfortable with the agent’s communication style.

Availability: Check to see how much available time the agent has to help you find a home.

References: Ask for references from past clients and check them out carefully.

Fee Structure: Make sure you’re working with someone affordable to you.

Once your agent gets to know you, they’ll guide you through every step of the buying process and get you into the best possible house at your current stage in life. If you’re looking to move to Washington – especially to our beautiful Tri-Cities area – reach out and get in touch with me, Edgardo Quiroz. I love putting my local experience and knowledge to work, helping first-time buyers like you find their perfect first home. Don’t wait – contact me today, and let’s get started on finding your dream home.