Advice For First-Time Homebuyers

By Joe Gorman Posted: 2/22/19

The Story

It was one day after my 30th birthday. My fiancé and I had a showing scheduled for a house that we’d found online. This house was not all that different from the fifteen or so other homes that we had viewed over the course of the previous nine months. It looked great on paper (and in pictures). Most importantly, it checked all of the boxes on our wish list:

The town had plenty to offer
It was within driving distance to both of our jobs
The schools had a good reputation
The house was within our budget

However, based on our experiences at previous showings we knew not to get too excited until we were able to see it in-person.

To our surprise, the showing that night went better than we could’ve expected. On the drive home we talked through the pros and cons of the house. After some deliberation we ultimately decided that none of our hesitations were great enough to outweigh all of the positives. This house was “the one”. We called our realtor and had them submit an offer. Thirty days later we were homeowners.

Now that story really oversimplifies the home-buying process. Anyone who’s ever bought a house knows it’s not necessarily that easy. But, it doesn’t have to be rocket science either, especially when you can learn from others’ experiences (and mistakes).

Here is what we learned from our first time buying a house:

1. Get Good Advice (early on)

As first time homebuyers, we were pretty clueless about where to even begin. The process of actually buying a home was completely foreign to us. So we started where any one who grew up in the internet age would… Google. “How much house can we afford”? “What the heck is PMI”? “What can we expect for maintenance costs”? “Are we crazy for buying a home”? While Google was a great starting point we quickly realized that speaking with a professional was a much more efficient way to get the answers we needed.

We contacted our lender, Mary Lynn Johnson (Spring Green), who after a brief email exchange was able to help us determine how much house we could afford based on our income, down payment, debts, and other obligations. One thing we learned early on was that there is a big difference between how much house you can get a loan for and how much house you can afford. It was important to us that our monthly payment wasn’t a burden that loomed over us every month. As renters we enjoyed the financial flexibility that enabled us to travel and be spontaneous all the while saving for future life goals (children, retirement, etc.) That was important to us in homeownership as well.

Thanks to Mary Lynn we were able to easily walk through multiple scenarios and come up with a price range and monthly payment that we would feel comfortable delivering on every month. Finding that affordability sweet spot also helped us narrow down our search and kept us from the temptation of overreaching on our budget.

PCB Tip: Not quite ready to talk with a lender? Use our mortgage calculators as a jumping off point. They can help you determine if you’re better off renting or buying or even give you an estimate of your expected monthly payment.

2. Down payment is key

It became clear to us that one of the biggest factors in how much house we could afford was how much money we were able to comfortably put down on the house (aka our down payment). That number alone could swing the monthly payment by hundreds of dollars. A great down payment goal to shoot for is 20% of your purchase price.

One of the biggest reasons to strive for that number is that if you put down less than 20% on a traditional mortgage you are required to pay what is called Private Mortgage Insurance (PMI). This protects the lender in the event that you default on your loan and have to sell your house at a loss. PMI typically costs between 0.5% and 1.5% of your loan balance. So if you owe $200,000 on your home you could be paying between $80 and $250 per month just for PMI.

If you’re unable to put 20% down, which admittedly can be challenging, that doesn’t have to keep you from becoming a homeowner. Home Possible and Home One are programs through Freddie Mac that enable qualified buyers to purchase a home with as little as 3% down. If you want to learn more about these two programs contact one of our experienced lenders and they can help you find out if you qualify.

PCB Tip: If you’re unable to put at least 20% down on your home consider making extra payments early on. Once you’ve paid down your mortgage balance to 80% of the home's original appraised value you can ask your lender to remove PMI from your loan, potentially saving you hundreds of dollars each month.

3. Don’t Spread Yourself Too Thin

While you want to shoot for 20% down, make sure that you don’t put everything into your down payment. Home ownership can be expensive. This is especially true if you buy a house that needs updates or has older mechanicals that may need to be replaced in the near future. Items like a new furnace or hot water heater can add up quickly. And that’s before you do any cosmetic work. That’s why it’s important to leave yourself some financial wiggle room.

As a renter you can pick up the phone and call your landlord whenever something goes wrong. That’s certainly one of the biggest perks of renting. But, as a homeowner anything that needs to be fixed or replaced falls on your shoulders. Having some extra cash available for those unexpected maintenance issues is critical (plus it allows you to sleep better at night).

PCB Tip: Use your current monthly rent or mortgage expense as a gauge to determine how much house you can afford. Are you comfortable making that monthly payment? Plug that number into our affordability calculator to estimate the loan amount that you can afford.

4. Don’t Forget It Can Be Fun

Despite all of the challenges that come along with buying and owning a house, I can say that we have absolutely zero regrets. While snow blowing isn’t the first thing I prefer to do on a cold Wisconsin winter morning, it’s a small price to pay for all of the great things that go along with being a homeowner.

Stay tuned for more tips and insights from our Mortgage Team.