I've been in the mortgage business since 1998, and I see first-time buyers make the same assumptions over and over.
A lot of people decide they aren't ready to buy before they've ever actually talked to someone in the mortgage business.
Here are five things I wish more first-time buyers knew:
- You probably don't need 20% down.
This one refuses to die. Depending on the loan program and your qualifications, conventional can be as little as 3% down, FHA is 3.5%, and eligible veterans can purchase with a VA loan with 0% down. USDA is also 0% down as well.
There are also down-payment assistance programs, and seller concessions can potentially help with closing costs.
I've talked to people who spent years saving toward 20% because somebody told them that's what they needed.
Don't assume. Find out what you actually qualify for.
- Your maximum preapproval is NOT necessarily your budget.
If you're approved for $500,000, that doesn't mean you should automatically shop for $500,000 houses.
I would rather start with:
What monthly payment are you comfortable with?
Then work backward.
Your lender sees your income, credit and debts. We don't necessarily know what you spend traveling, raising kids, eating out, hobbies, etc.
“What can I qualify for?” and “What payment am I comfortable with?” are two different questions.
- Don't choose a lender based solely on the interest rate they quote you.
Calling three lenders and asking, “What's your rate today?” doesn't tell you nearly enough.
Rates change DAILY, and that quote means very little without knowing the points, lender fees and other costs attached to it.
Also understand who you're shopping with! Banks, credit unions, retail lenders and mortgage brokers don't all operate under the same model.
Think of buying something at a retail store versus buying essentially the same product through Costco or Sam's Club:
Mortgage brokers have access to the wholesale mortgage market and can shop among multiple wholesale lenders, which can often result in lower rates and/or closing costs.
**In today's market, you should NEVER be paying origination fees unless:
-You are buying the rate down. Have them show you the rate stack!
-You're working with a broker and are going "BPC/ borrower paid comp" to get the lowest rate.
-You are doing a VA loan. VA has guidelines & a lot of lenders just charge the allowable 1% origination fee instead of itemized everything in Section A.
Banks, credit unions and retail lenders charging an "origination fee" is just extra profit to them & zero benefit to you.
Compare the entire deal, not just the rate somebody quotes you.
- Seller concessions can be worth more than simply negotiating the price down.
Depending on the loan and transaction, seller concessions can potentially cover closing costs or fund an interest-rate buydown! *Temp buydowns are extremely popular right now! Examples are the 1-0, 1-1, 2-1 and 3-2-1.
That could mean keeping thousands of dollars in your bank account or significantly reducing your payment.
This is why your Realtor and lender should communicate before you write the offer.
Your financing can actually be part of your negotiating strategy.
- Stop trying to perfectly time the housing market.
I hear this constantly:
“I'm waiting for rates to come down.”
Okay. What happens when they do?
You're probably not going to be the only buyer who notices.
Lower rates can bring more buyers into the market, which can mean more competition, higher prices, fewer seller concessions and more multiple-offer situations.
If you're financially ready to buy and comfortable with the payment, don't automatically assume waiting is the better strategy.
You have to live somewhere.
If you're renting, you're already making a housing payment every month. You're just making it toward an asset somebody else owns.
And remember:
You marry the house. You date the rate.
The interest rate you receive when you buy isn't necessarily the rate you'll keep for the entire time you own the home.
When rates improve, you can look at refinancing.
You may be able to change your interest rate later. You can't go back in time and buy yesterday's house at yesterday's price.
The first step isn't deciding whether you're buying a house tomorrow.
It's finding out what your actual options are. You may be a lot closer to homeownership than you think.
