First-Time Homebuyer’s Guide

Find up to $15,000 towards a home 🏠

Compare local down payment assistance and find a mortgage, fast.

Where do you want to buy?
    Search by ZIP code, address, city, county, or neighborhood

    Wanting to buy a home is such a pervasive feeling; everybody wants it. It just seems like the next step we all take into adulthood and defining the future we see for ourselves.

    Perhaps you’re just looking at what it takes to become a homeowner. Maybe you’re ready to put in offers. You could be a few years out before you’re ready to make any sort of commitment to a location.

    Whatever the reason: Welcome! Let’s prep you for your future home.

    Buy your first home sooner with down payment assistance

    You might qualify for thousands, or even tens of thousands of dollars of down payment assistance to help you buy your first home.

    Find up to $15,000 towards a home 🏠

    Compare local down payment assistance and find a mortgage, fast.

    Where do you want to buy?
      Search by ZIP code, address, city, county, or neighborhood

      Disclaimer: This article is for informational purposes only and should not be considered as legal or financial advice. Please consult an attorney, mortgage lender, or CPA for guidance on your specific situation.

      Realities of Buying Your First Home Today

      Let’s start with some facts to set the tone. 

      1. Yes, it is harder to own a home today than it has been. This is caused by several factors, but primarily, home prices have been steadily increasing at rates outpacing incomes. You have to make more money, to afford less in today’s market.
      2. No, you do not need to have 20% down to buy a home. While down payments are required to a certain degree, depending on the loan you qualify for, will dictate what % you’ll need to put down for the home.
      3. Yes, there are programs available across the US to help make home-buying more affordable. Each of them has specific criteria, and it differs from state to state, but if you’re willing to take a bit more time, and have it to spare, it can help set you up for greater equity in your home from the time you close.

      With Stairs, you can easily find all of the down payment assistance programs you qualify for, compare your options in one place, and connect to a trusted lender familiar with your chosen program.

      Learn more about your down payment assistance options.

      Benefits of Being a First-Time Homebuyer

      If you’re like the majority of modern-day home buyers, the down payment is the largest hurdle on the road to homeownership. As discussed above, gone are the days of required 20% down payments, but with house prices steadily increasing at rates outpacing our incomes, even the 3% minimum down payment for some loans can be incredibly daunting.

      Then, there’s the very real issue of being able to qualify based on your credit, income, debt ratio, and a host of other factors.

      Sometimes it almost feels intentionally stacked against you.

      But, it doesn’t have to be. Down payment assistance programs exist and new programs are brought about often based on needs and interest.

      In fact, in a landmark policy change, Fannie Mae and Freddie Mac (two of the largest mortgage companies), now allow for on-time rent payments to be considered during pre-qualification and underwriting for home purchases. This boasts a 17% boost in creditworthy applicants.

      So, if you’ve been holding your breath as you begin your home ownership journey, take a deep breath and relax. Don’t let this disappoint or dissuade you from trying. Homeownership is possible. We will walk you through it step-by-step.

      A Brief History of Mortgages

      You might be interested to know that homeownership looked very different early on. In fact, in the 1800s, you couldn’t actually buy a home using a mortgage, you had to pay for it outright. Now obviously, prices were drastically different than today, but banks wouldn’t even lend money to most people. Mortgages only got their start in the 1860s. And even then, the loan period would be significantly shorter and require a hefty down payment. As you can imagine this caused a large barrier to entry for home ownership.

      It’s important to note that, at this time, when available and offered, mortgages were exclusively provided by private institutions; there was no government involvement. These organizations were most commonly Savings & Loans Institutions, among other entities.

      To remedy this barrier, we fast forward 70 years when the housing crisis was at an all-time high: The Great Depression. In response to the Great Depression, several government organizations were created, including Fannie Mae, and its regulator, the Federal Housing Administration.

      While you’ve certainly heard of them, what you should understand about the business of lending is that it needs enough money to lend continuously. Providing long-term mortgages makes money through interest & fees, but doesn’t make enough to continually do so (ie, deposit-based vs bond-based institutions). Essentially, they’d be maxed out on what they could offer, which limited opportunities for people like you, to get a mortgage to buy a home.

      Once Fannie Mae rolled around, suddenly the primary mortgage market (the people who actually provide you with a mortgage loan) was gifted new-found liquidity (more cash to offer customers), and come the 1950s & 60s, Fannie Mae was gifted a charter with the US government that offered a golden parachute for them, IN ADDITION to being a for-profit, privately held corporation.

      Though under slightly different circumstances, Freddie Mac was also created with good intent, and provided a government charter and eventually both entities, Freddie and Fannie, achieved the status of a duopoly in the mortgage sphere. The 2008 crash occurred as a result of poor regulation around these entities, and they were bailed out as a product of the existing charters created and improperly amended years previously. (Not to mention the severe economic impact that would have occurred had they fallen.)

      Today, these are referred to as GSEs or Government Secured/Sponsored Enterprises/Entities. They still perform the original intent from their inception: provide liquidity within the secondary mortgage market, among other credit and lending functions.

      A Brief History of Real Estate Professionals

      Real Estate agents emerged as a profession in 1916, but the job was buoyed after WW2 and the GI Bill and Veterans Affairs Office was created, not only to bolster the housing economy in a still struggling Depression-plagued America but also as a thank you to those who served.

      VA loans are still widely popular and very favorable for those who qualify as Armed Services.

      The new opportunities for Veterans created a demand for homeownership and the revered American Dream, which simultaneously impacted the need for people to connect buyers with homes for sale. Originally a real estate agent’s job was just intended to sell a house, acting as a word-of-mouth MLS (multiple listing service: where all houses on the market get publicly listed in the state they occupy). The homeowners would actually handle the negotiations and purchase (a practice still alive and well today, For Sale By Owner, or FSBO).

      Over time, this process morphed to allow agents to connect buyers and sellers, and now, the tech-friendly world that we occupy provides for robust services offered across state lines with simplicity and ease. Most agents will dictate the contract process, taking control of negotiations, and overall making it more simplistic and streamlined.

      Your Living Situation Before Your First Home

      Everyone has their own journey to home ownership. Your living situation prior to purchase can have a big impact on your ability to make the first step into home ownership.

      Living with Friends and/or Family

      You can live with your parents or friends and other family members. The highlight here is usually free or grossly reduced living expenses. Zero complaints on that front, right? However, you may long for more space and freedom. Perhaps, you’re feeling guilt or shame over the circumstances that led you to this juncture. 

      Whatever the reasoning, there are a lot of pros in this scenario as it lends itself to the journey of buying a home: You have reduced expenses, and with reduced expenses comes the wonderful world of increased savings. 

      Renting

      Renting is another very common option. A majority use this as the natural progression post that blessed “I’m an adult” birthday. We run out the door and into the realm of housing responsibility. You can do this solo, or with other people.

      Pros of Renting:

      1. Landlord Responsibility: When it comes to renting a home, you aren’t the responsible party. Well, you still have renters insurance and obviously you don’t want to wreck the place, but ultimately, the responsibility of the mortgage and the home, reflects back on the landlord. If (and very often WHEN) something breaks, you aren’t liable to fix it. That saves maintenance costs that would otherwise go towards a home.
      2. Cost: You don’t have to save up significant amounts of money for a down payment. There’s the deposit for the rental, the first & last months’ rent typically, and that can be a fairly large sum, but the amounts are substantially smaller than with buying a home.
      3. Flexible: You have a lease, but when that lease is up, you’re no longer responsible for that home. Do you want to move across the country? Easy, pack up and go. Maybe pay an unfortunate lease-break fee if you’re in the middle of the contract, but otherwise, you are free to uproot at any time.
      4. Liquid Savings: Renting is traditionally cheaper than a home mortgage due to maintenance, down payment, and other fees and responsibilities. This makes any money you save in a rental, free to be used towards whatever you see fit. Perhaps you’d rather invest the money, save up for a vacation, or put it towards another large life event such as a wedding. There aren’t as many factors pulling at your purse strings.

      Cons to Renting:

      1. Variable Costs: Leases have clauses built into them that add fees in addition to your monthly rent. There are lease break fees, maintenance fees, pet fees, move-out cleaning fees, annual % increases, and month-to-month fees, to name a few. The number you pay monthly will increase with time, and market rates.
      2. Restrictions on Lease: You can’t paint the walls, or hang more than 5 pictures without having to fix or pay for it yourself upon move out. If you have pets you have to ensure they fit within the property’s restrictions.
      3. No Tax Benefits: When you buy a house, the interest on your mortgage is deductible. There’s no such incentive for renting.

      Why So Many People Own Homes

      In our field, we’re advocates for homeownership for a lot of reasons. But none more so than the fact that if you’re going to be paying anyone rent long-term, we believe it should be going into your own home equity, instead of a landlord’s.

      Reasons to Consider Owning Your First Home

      Stable Cost

      When you sign a mortgage, the lease terms that you agree to are fixed within the contract. For traditional, 30-year mortgages, this means a stable, consistent payment for the duration of your loan. Interest is front-loaded, and it’s not until the end of your loan terms that the majority of your money goes toward the principal.

      This changes for loans with variable interest rates & repayment periods, where it can be dependent on market conditions. However, the vast majority of loans are fixed-rate, 30-year mortgages. But, you aren’t limited to that as your only option. We’ll discuss different types of mortgages in Section 7.

      Minimal Restrictions

      When you own a home, that house is yours. You can paint it, break down a wall, hang whatever you want, build a shed, have a garden, own all the pets, and do (within reason) whatever you want because the space is yours.

      While there is substantially more freedom with owning than renting, we do acknowledge that HOAs have CC&Rs that place restrictions on homeowners.

      Long-term Community

      Neighborhoods are great places to find new friendships, develop family bonds, find comfort and solace among peers, and establish a village if you embark on the adventure of parenthood.

      Stability for Children is another benefit that can be achieved through living in the same place no matter what your living circumstances are but is more readily maintained when you own a home. They’ll attend the same schools consistently, live among the same peers, and have consistency and a room to call their own and grow and develop within the same walls for the majority of their childhood.

      Build Equity & Wealth

      When you pay a mortgage, that money is kept in the home. You’re paying off the building that you own, but that building is an asset that maintains value and can be resold later. So while you pay a premium (in the form of interest) to live in the home, before you can officially own it outright, you still share in the value of the home over time.

      Appreciation

      Home Price Appreciation occurs when the house you live in increases in value from the amount you paid for it. Appreciation acts as another vehicle towards growing equity in the home and eventual wealth.

      Tax Benefits

      When you buy a home, the interest you pay is an available deduction.

      Costs and hesitancies of homeownership

      The Actual Cost

      It’s not surprising that homeownership comes at a steep initial entry cost. The down payment coupled with the myriad of fees at closing is enough to make anyone’s head spin. Programs exist that bolster your initial down payment or aid in closing costs, but it’s not guaranteed that they’ll cover the full amount.

      Mortgage Qualification

      There are stringent rules associated with mortgage qualification that you have to fulfill or surpass to be eligible. This may not always be immediately accessible and require hard work and dedication to achieve.

      Responsibility

      If you’re living in someone else’s home when something breaks, you have a number to call. When it’s your house that breaks, you are the number, and sometimes the service technician. This can be a harsh reality of homeownership.

      There’s no way to avoid this. Houses are expensive assets that require routine maintenance and upkeep as much as cars and your own body. Avoiding problems doesn’t make them disappear and can sometimes exacerbate the situation. This is why surveying your property consistently, getting a good home inspection before buying, and home warranties are invaluable. We’ll go into these in more detail later.

      Conformity

      Another hesitancy towards homeownership, and perhaps the hardest to quantify, is the expectations of conformity; the leap that feels necessary to take, when you may not want to deal with the pressure and stress of commitment. It would be simpler if home ownership was an unalienable right that placed everyone on a level playing field.

      Ultimately, buying a home is always going to be your choice. Nobody should decide for you, regardless of how they try to influence you. If you get through this guide and still don’t want to buy a home or feel comfortable with making such a large purchase—DON’T!

      But at the very least, you’ll understand if/when that’ll be a good choice for you to make and you’ll be prepared to pull the trigger if/when the time comes.

      Does it make sense for you to buy a home?

      Questions to ask yourself before you embark on buying your first home:

      • Is this a needs-based purchase that suits your current and desired lifestyle and adds to your future aspirations?
      • Will it improve or impair your state of life?
      • Is this purchase a risk that you feel comfortable taking?
      • Is buying a home now compatible with your existing responsibilities and goals?

      If you answered yes to these questions, you might be ready to buy a home.

      If you answered no to some or all of them, don’t worry, this guide will help you assess your readiness. As you go through this guide, you must be honest with your situation and yourself to determine if buying a home is the right decision for you.

      DISCLAIMER: We want to help you plan to buy a home, but it may not be the best time or available for you yet. This is going to be determined by a myriad of factors. Keep in mind that just because it may not be now, doesn’t mean it won’t ever be.

      Top 10 Reasons to Buy Your First Home

      Motivations for buying a home can vary. These are the top 10 reasons people buy homes or want to buy homes.

      1. Grow Wealth/Build Equity

      We touch on this benefit often throughout the guide and it cannot be overstated. Homeownership is one of the primary ways people can build wealth in America.

      2. Freedom

      This freedom is in juxtaposition with restrictions placed on rental properties. You are free to do as you see fit, in a place you call your own.

      3. Throwing Away Money

      It’s an unfortunate visual, but it’s aptly described. Any money you pay to a landlord for rent goes to great use in putting a roof over your head. However, the money ends there; it no longer benefits you once that monthly payment is made.

      4. Space

      Owning a home allows you the flexibility to choose layouts and locations based on available inventory. Sometimes this comes with more actual space.

      5. Make Upgrades

      As outlined in the freedom section, you can make upgrades in a home you own. That’s not always the case within a rental.

      6. Pets

      Love dogs? Almost half of the U.S. also owns dogs but rental properties don’t allow for every type and breed. When you own a home, those restrictions aren’t imposed on you any longer.

      7. Proximity to Neighbors

      There are some circumstances where owning a home, certainly doesn’t change the shared walls you may have with neighbors, but it can, especially should you choose a more rural location with lots of acreage between you and your nearest neighbor.

      8. Landlords

      Dealing with landlords can be a headache depending on the landlord. When you own a home, you become the landlord.

      9. Hobbies

      Perhaps you love woodworking and want a shed or outdoor space to be able to work freely on Saturdays. Buying a home could afford you that space to cater to your hobby which would be contingent on approval from a landlord.

      10. The American Dream

      Almost 100 years of this pervasive, collective, dream and its tenants of opportunity are still felt and aspired towards.

      If you’d like help understanding which down payment assistance programs you qualify for, connect with us at Stairs. We can help you find all of the down payment assistance programs in your area, compare your options for you, and connect you to a trusted lender familiar with your chosen program.

      Get started now

      Top 10 Regrets of Home Ownership and How to Avoid Them

      This list comes from home buyers like you on the regrets they experienced after buying a home. For each regret, we explain what you can do to avoid this regret befalling you. 

      1. Neighborhood

      You can pick your house, but you don’t get to pick your neighbors. If you didn’t do substantial research into your surroundings before buying your home, you may be disappointed by the constant street parking, or perhaps the noise at odd hours of the day and night.

      How to avoid: Visit the property you want to buy at different times of day over time. Understand the rhythm of the neighborhood and if it’s suitable for your lifestyle. If you feel so inclined, you could also introduce yourself to neighbors and ask how they enjoy living there and if there’s anything that bothers them.

      2. Settling

      There are two ways this can occur. Number one, you were rushed into the decision and made a hasty choice without sufficient information, and once that information became clear it was too late. Number two, you couldn’t get everything you wanted, and you had to make concessions. While this is sometimes unavoidable, especially if you live in an HCOL area (high cost of living like a populous city, NY, Chicago, San Fransisco, Seattle, etc), it does become a regret.

      Know which of the two ways this can occur. If the first, ensure you aren’t being forced into a decision. Take your time and explore the options. If the second, better-established expectations during the home search could help avoid this regret. If you understand the landscape and still want to continue your pursuit in that area, you have to be okay with the trade-offs.

      3. Unexpected Maintenance

      We mentioned it in the previous section, but a house needs maintenance and upkeep. Like us, some people need more doctor visits than others. Some homes need more work than others.

      Good inspections can mitigate this if you are keenly aware of the needs of the home, but oftentimes maintenance is unavoidable and comes without you being able to be better prepared. Routinely saving 1-3% of the value of your home annually can help offset these costs from being as surprising.

      4. Can’t Afford a Mortgage

      If you’re buying at the far end of your budget, it’s likely that any significant change to your day-to-day could cause the mortgage, that was payable, to become a true financial burden. Maybe you had unexpected life circumstances arise that now inhibit your cash flow. Whatever the reason, it’s hard to escape when this becomes your reality.

      Ways to avoid: (1) Nothing in life is certain. Don’t stretch your budget to the maximum if you aren’t prepared to weather a too-expensive house payment as a possibility. (2) As made popular by COVID times, you can reach out to your lender and discuss forbearance (a temporary agreement to halt payments or make smaller ones). (3) Sell your home and downsize to reduce your mortgage costs. This comes with a host of other fees like closing and commissions you’ll need to pay out. When all is said and done, it may not be that much better depending on what you’re after. (4) Find a way to make more money.

      5. House Is Too Big

      It can be challenging to forecast needs when buying a house. Maybe you expected more family to visit, but then a pandemic hit and now nobody is traveling. Perhaps you wanted to have children but other circumstances are preventing that.

      Whatever the cause, proper forecasting can help you live in what you need. A good rule of thumb is to think about pants. If they’re too tight, you can’t breathe. If they’re too loose, they fall off. Like pants, you’ll want to buy a house that has a little stretch.

      6. House Is Too Small

      Just like above, forecasting is hard. You never know what’s going to get thrown your way. Did a relative need to come live with you? Were you planning for one child and ended up with triplets? Maybe you just made a mistake and realized it too late.

      Map out the next 5 years of what you want your life to look like and how that might impact your housing. Be sure to give yourself some stretch as we talked about, and make sure the houses you’re looking at fit within that.

      7. No Savings

      Right after you buy a house, you’re often feeling the weight of such a large purchase. You have greatly reduced savings, or maybe it’s completely gone. Now you’re shrouded in fear of the what-ifs. What if I lose my job? What if something big breaks?

      Your money likely went towards the down payment for your house. While it seems like you’ve traded your money for a tangible asset (and you did) your home is also holding that value and money for you as equity and appreciation. Now that won’t necessarily help you with day-to-day expenses, but it is accessible in other ways such as HELOCs, Second Mortgages, or Equity loans (we’ll discuss these in module 3)

      8. Long Commute

      You never want to change too many things at once, so maybe you had to move farther away but still kept your same job, and now the commute and ensuing traffic are wearing on you. Maybe you thought it wouldn’t be as big of a factor as it is and now you’re stuck.

      Our world is increasingly remote, consider seeing if remote work from home is even an option in your field of expertise. If not, you have 3 choices: (1) sell your home and move closer. (2) Get a new job. (3) Try to make the best of the situation. Maybe use ride-sharing or public transportation so you have your hands free and can reclaim that time doing more for your life than traveling.

      9. Overpaid

      When you bought your house, you were trying to beat out the competition so you gave them a competitive offer over and above the asking price. But the appraisal came back and you waived the right to back out of the home because you just saw your future in that house. Now, you’re living there and realizing that you’re technically upside down, meaning, your house’s value is less than what you owe on it.

      Selling won’t remedy this, because you won’t get the money back that you’ve lost, and markets shift so it’s uncertain if someone else would offer over your asking price to compensate for the appraisal disparity. You can pay down the mortgage faster with increased principal payments to help equalize what you owe with the home value. Or you can wait it out and hope that home appreciation will eventually lead your home to catch up in value to your outstanding mortgage. You can do both.

      To avoid this: Don’t waive appraisal numbers. They’re in your purchase contract for a reason and are intended to safeguard you and your assets from situations like this.

      10. Undesirable layout

      Buying a house is sure to come with things you don’t like. Unless you are fabulously wealthy, it’s unlikely you will be able to find a home that fits every single box you want. That’s okay, we all make trade-offs and they’re a normal part of the home-buying process. But maybe your trade-off was much more structural and you realized after living in it that it bothered you.

      Unfortunately, there’s not a lot to remedy this situation. You can move, or you can remodel. Remodels are costly and challenging to live in while it’s occurring. Layouts are far more structural and tend to require a contractor and professional help to ensure home stability. (Read: load-bearing walls.) If you love everything else about the home, perhaps it would be beneficial to start saving for a remodel. If you are already slightly disenfranchised with the house and its character, the longer you stay in a home, the better for your investment (usually). You can consider moving, but also consider how long you could live with the current circumstances if it allowed you to afford a different home in 5-10 years for cheaper than remodeling would.

      The Burdens of First-Time Home Ownership

      Make no mistake, buying a home is a huge life decision. It’s so common that you might be taken aback by the hesitancy and stress that plagues this decision, but there’s a lot that goes into it.

      Is this really where I want to end up?

      Now obviously, buying a home isn’t a permanent sentence, and theoretically, you could sell your home at any time. However, you’re putting down roots somewhere and we want to make sure those roots make sense. You’re sacrificing the freedom of flexibility for the security of a stable home environment. One that will remain unchanged unless you want it to change. Similar to a marriage, while technically changeable, there’s longevity to the choice that, if it’s not right, catches in your throat when you think about committing.

      If your family has been in the same place since you were a kid and you’re slated to make the same choices, pause and make sure it’s what you want. Don’t feel weighed down by pressures from any external sources. Know that when it’s right, it will feel right.

      Ways to overcome your hesitancy

      Make a pro and con list: You can explore your wants and needs In a list and allow yourself the freedom to write every thought that comes to mind. If one reason feels particularly weightier, signify that.

      Talk with trusted family and friends: Maybe you live in a close-knit community already, but there aren’t a lot of options for home ownership in your area. Perhaps you’re priced out of the market, or there’s just nothing close by to where you want to be and to your other commitments. A trusted confidant should help assuage any concerns and support your decisions because they’re yours to make.

      Choose a course of action and pursue: Sometimes the only way to know if you’re making a good choice is to make a choice and see how you feel about it. If you start down the path of home ownership and you aren’t overwhelmed with a sense of mistake and dread, we’d assume that indicates a good choice that you should continue pursuing.

      The Home Search Burden

      The path to homeownership comes with a new set of challenges. Some might equate it to taking on a full-time job. You spend your nights and weekends searching for new availabilities and going to open houses. The average person sees 8 houses before they find the one they want, and depending on your geography and search radius, on average, that amounted to 8 weeks for buyers last year. Granted, this additional responsibility doesn’t last forever, but it’s certainly not a negligible portion.

      The Moving Burden

      This is not a commitment to be taken lightly (as if we need to tell you, you already know!) One thing is for sure: there are a lot of moving parts. When it comes to moving, there’s a lot you need to prepare.

      Understand Your Lease/ Prior Agreements

      As a first-time homebuyer, you’ve likely been renting somewhere else in the interim. It’s important to understand your lease clearly. If your lease (which is a contract) is not over at the time of you moving, there are likely to be fees. This is something you’ll want to factor into your pricing structure when adjusting your ultimate moving costs. Additionally, utilities usually require a setup and/or cancellation fee. 

      Know Your Limits

      Depending on your health, you may be struggling to juggle the responsibilities of your typical day-to-day life, with moving to a new home. The time of year, planned vacations, and weather preparation is also a factor–there’s a reason nobody wants to move in the winter–it’s cold and snowy! 

      Keep Your Deadlines

      Contract deadlines are set times that need to be kept. It’s vital that you meet those deadlines as they come, otherwise you may be caught out of contract and it could void your purchase agreement. You can always request an extension, but the other party has to agree, so make sure when you’re searching for homes, that you are adequately prepared to dedicate all of the time necessary to every minuscule task. They’re important and they add up. 

      Factually, you of course have to move your actual possessions into your new home as well. We’re prepared these helpful sheets to help you estimate your needs and keep track.

      Budgeting to Buy Your First Home

      A budget is an accurate estimate of your income and expenses. To find your budget for a house, use this simple formula:

      income-expenses = your house budget

      **It should be clarified that in this instance you are not including housing expenses in your expense list. This would be rent, utilities specific to the house, etc.

      Whatever the number comes out to be, is the absolute maximum amount of money that you can spend on housing and other housing-related expenses (such as utilities). If that doesn’t seem like enough to acquire the type of home you’re looking for, then you have to change a portion of the equation. You have two options for this: 

      1. Increase your income with a promotion, new job, or side hustle.
      2. Lessen your expenses by decreasing services that are unnecessary, or cutting some out altogether. 

      Savings

      If you’re like most Americans (56%), your savings might look a bit, well, empty. In fact, over half of us couldn’t cover a $1,000 unexpected bill. How then, are you supposed to save money to afford a down payment on a house?

      Remember: Managing your money and growing your savings takes intention. Some popular advice is lifestyle changes.

      If you’d like help understanding which down payment assistance programs you qualify for, connect with us at Stairs. We can help you find all of the down payment assistance programs in your area, compare your options for you, and connect you to a trusted lender familiar with your chosen program.

      Get started now

      The 50/30/20 Rule

      50% of your income should be used for your absolute needs, these are things like housing, utilities, transportation, groceries, and personal hygiene. 20% should go straight to financial goals, your savings and paying down debts. 30% is then reserved for your wants like eating out, buying fun items, memberships, and streaming services.

      What makes this strategy great is that when you break your living down to the bare necessities, you have 30% of your savings available.

      What makes this strategy bad is that depending on where you live, you can’t fit your needs into 50% of your income, so the advice falls on willing ears but empty pockets.

      Bank Savings

      Putting money directly from your paycheck into a savings account that you don’t withdraw from is a great way to make that money grow without being touched or checked on since it’s separate from your checking and day-to-day expenditures.

      What makes this strategy great is that it’s on autopilot. You don’t have to think about it after you set it up, and if you can exercise self-control and not touch it, this can turn impressive over time.

      What makes this strategy bad is that savings accounts on their own don’t have the same growth available to them as other options. That money sitting in a period of higher inflation doesn’t grow at the same rate and slowly becomes less valuable than when it went in.

      Investment Accounts

      There are stocks, bonds, IRA, 401k, mutual funds, and a whole host of choices to pick from. The choice depends on your preferences, risk comfort level, and goals.

      What makes this strategy great is that the money can grow.

      What makes this strategy bad is that your money can lose value based on market conditions. Or depending on the resource you choose, can have hefty fees to withdraw your money early.

      Your Credit Score and How to Improve It

      Credit scores can give people the yips. It can feel like a complicated problem you don’t know how to solve. Perhaps it’s easiest if you think of it as a reputation. The way you interact with your peers dictates your reputation.

      A credit score is a lot like that, but the peers in this scenario are Credit Reporting Agencies (aka CRAs or Bureaus), and they only care about your financial actions: what you spend on credit, how you repay it, when you repay it, and if there are any problems.

      CRAs are also better than peers, in that they give you a private credit score that’s only accessible to you, and anyone you allow to view it, instead of gossiping behind your back about that missed payment from July. It’s an upfront recording of your credit actions and inquiries.

      Getting a Free Credit Report

      Under the Fair Credit Report Act, you are entitled to access a free credit report every year.

      There are 3 credit bureaus, so you can check each of them annually. 

      You can also pay to access your score more regularly through each of the agencies (pricing varies). Additionally, some banks offer monthly access to your credit score for free as a perk of banking with them.

      Whichever path you choose, knowing your credit score, and understanding it is vital to your journey of homeownership. Your credit score determines your eligibility to qualify for a mortgage, as well as dictates the favorability of your interest rate. It is a reflection of how reliable you are at making payments and spending responsibly

      It’d be beneficial for you to know your credit score from each of the 3 agencies, as it can give you a more robust picture of what lenders will see.

      But there’s a strange twist when it comes to deciding which credit score gets used to determine eligibility. And reader, it is a surprise, because 90% of lenders use a FICO score. Yes, that is a new word, and no it isn’t one of the 3 credit bureaus that we mentioned above, it’s entirely different. The FICO score comes from Fair Isaac & co and as stated above, is a different score than the scores provided by Equifax, Transunion, or Experian.

      All companies provide credit scores, but they each get calculated differently. Credit scores even vary by industry. Mortgage lenders will use a different version compared to car financing as compared to credit card issuers.

      The Credit Factors Lenders Care About

      Accounting for these differences are the factors that lenders are valuing to make their decision. For mortgages, it looks like this:

      Payment History (35%)

      If you make your payments on time, and don’t miss any, this is a huge component of your score. If you do have late payments, then your score will reflect that. 

      Amounts Owed (30%)

      This is gauging how much you are spending as compared to how much you have available.

      If you have a credit card that has a 1000 limit, and you have spent $999, you’re almost spending all of the money afforded you. This amount is reflected as a percentage, 999/1000=99% Ideally, this category reflects a lower percentage to avoid being overextended (or borrowing up to your maximum limit). Banks will often like to see your credit usage at 30% of capacity, or in the above example, $300 of your $1000 limit.

      Length of Credit History (15%)

      If your accounts are opened and have been opened for a time as deemed reasonable by your lending institution, as well as if they are frequently in use. This shows responsibility for the credit that’s been issued, and longevity which lenders like to see.

      Credit Variety/Mix (10%)

      This relates to credit cards, student loans, car loans, store credit cards, etc. Again, this speaks to the way you can effectively manage your credit, the better and more diverse, the more respectable your portfolio looks. (revolving and installment)

      New Credit (10%)

      This represents the amount of credit you’re getting over time. How many of your accounts are new or haven’t been around for very long? Lenders want to see that you can take care of the credit you have, nurture your accounts until they mature, and get a new one when it makes sense.

      Think of getting new credit like turning 21.  If you drink irresponsibly every night, people are going to be a bit more cautious about giving you drinks because they’re worried about your liver. Your credit timing is the same way. Just because you CAN get more and more credit, doesn’t mean you should. Credit is still real money that has to be repaid, and doing so responsibly will afford you a good rapport with lenders. Like a bartender may cut you off for bad behavior, credit lenders will stop approving you eventually if you abuse your credit applications.

      Your credit score dictates the risk the lender is taking in giving you money. The higher your score, the lower the risk to the lender. To give you the money, they have to feel comfortable about the risk that they’re taking. They do this by increasing the interest rate the less comfortable they feel with your ability to repay until they aren’t willing to lend to you at all.

      This truly seems counterintuitive because if you already have bad credit, and they raise the interest rates, it makes it even harder for you to repay. It feels like a bigger barrier than you can surmount, so while this is technically a logical course of action for the lending company, it does feel unfair, and we sympathize. What this means is that to overcome your circumstances, you’ll have to focus on your finances more stringently until your credit recovers if you need an improved score to qualify. Or you’ll have to be extra vigilant to make your payments every month and then when you have the option to refinance your mortgage later when your credit has improved you could do so to stop being penalized with the higher interest rates.

      We focus our efforts on helping people gain access to homeownership more affordably, so if you need help improving your credit or repairing your credit, here is some helpful information & other websites you can visit for a more detailed approach.

      Clearing Your Debts

      There are lots of methods to pay off debt. Here’s a small list:

      1. Avalanche Method: start with the highest amount first
      2. Snowball Method: start with the lowest amount first
      3. Pay over the minimum: pay in excess of your minimum every month
      4. Pay multiple times a month: pay multiple times a month in addition to your minimum.
      5. Debt consolidation: Combine all of your debt into one fixed-rate loan

      Resources

      Free Credit Scores: annualcreditreport.com

      Answers & Information: https://www.consumerfinance.gov/

      Understanding the FICO scores: https://www.consumerfinance.gov/ask-cfpb/what-is-a-fico-score-en-1883/

      Money Rules to Live by: https://files.consumerfinance.gov/f/documents/cfpb_worksheet_my-credit-spending-rule-to-live-by.pdf

      Debt to Income Ratio (DTI): Why It Matters

      We’ve talked about your budget & savings landscape. We understand your credit situation. There’s one more piece of the puzzle before we get into the real meat of qualifying for a house and that is your debt-to-income ratio.

      Debt to Income Ratio

      Your DTI is exactly what it sounds like, how much debt you have as compared to your income. There are two ways to do this: front-end and back-end.

      The front end focuses on your total housing expenses as a percentage of your income. The back end focuses on your total existing debt as a percentage of your income.

      We’re going to focus on the back-end ratio first.

      First, you take all of your existing debts. These are all of the payments you are responsible for monthly. Think about your vehicles, student loans, credit cards, store cards, etc. If you haven’t paid for it outright and still owe someone for it, this is a debt.

      **Maybe you borrowed money from a friend or relative and you pay them back but there’s no record of this. While a lending institution isn’t going to necessarily know about this agreement unless you tell them, you should consider this when factoring in your debt total.

      Then, divide your total debt by your total pre-tax income.

      This provides you with a percentage which is your back-end DTI. As a general rule of thumb, lenders try to keep your DTI to 33% but depending on your financial portfolio, the house, the program you might be using, where you are buying, and a host of other factors, they can be willing to go as high as 50%.

      Now, you don’t know what a lender feels comfortable with until you talk to one, right? But, before all of that, you need to know what you feel comfortable with. You’re the one paying for it all; you need to make sure it’s a payment you think is possible and reasonable for your lifestyle.

      Enter the front-end DTI.

      Take your housing budget from section 4, and divide that amount by your pre-tax income. This should give you another percentage.

      Combine your two percentages to get an idea of how much of your income is now going to be allocated to all NECESSARY payments. This will help you understand how extended you will become after getting a house at that budget.

      Let’s look at an example:

      Your total pre-tax income is $5,000

      Your total debts are $1500

      Your total expenses (not including housing) are $2500

      This makes your housing budget $2500

      This makes your front-end DTI 50%

      This makes your back-end DTI 30%

      This means that if you buy a house where your total housing expenses are $2500, then you have $0 leftover every month for anything outside of what already exists in your budget. Do you have money going towards retirement? Savings? Fun activities?

      Whatever your decision, ensure that you’re comfortable with this level of commitment. Once you acquire a mortgage, it’s difficult, but not impossible to get out. You don’t want to wait until you have a mortgage to decide it was the wrong choice for you.

      How Much House Can I Afford?

      Now, you’ve got a pretty good idea of your financial situation. So let’s talk about your options when it comes to buying a house, there’s a range. 

      Stable Goal

      You know the maximum amount that you can afford to pay for housing expenses (the total budget we found in Section 4). This is called your stable goal–with your current state of life, you know that you can afford to pay for a home within that price. You don’t have wiggle room, but you are positive about the affordability if nothing else changes.

      Comfort Goal

      Maybe after looking at all of the numbers, you want to be more comfortable. You want to have a little more leeway with your money, be able to afford incidentals, or just generally have money allocated for enjoyment versus responsibilities. Whatever your reason, if this is you, lower your housing budget by whatever you want to pad your fun budget with. That’s going to change what you can find in your area, but if it suits your lifestyle better, that’s the choice for you. Remember: we want this to be a sustainable life choice. Be honest with your wants and needs and knowledge of your discipline.

      Stretch Goal

      Further, maybe you know how much you can afford, but it’s not what you want to live in. For this, we can finagle. Look at your expenses and start cutting, see what you’re willing to go without to afford a more expensive house payment. Or you can figure out a way to make more money to increase your housing budget if you don’t want to change your expenses. 

      This is a good point of understanding about who you are as a person.

      If you’re out of the house a lot, do you care about certain things in your house? Perhaps you’re putting a lot of pressure to have a house, that you may not be home enough to really enjoy.

      If you’re a real homebody, then lowering your expense budget for anything outside of the house seems like a good way to afford better perks in a house you want. 

      Ultimately, the point of this exercise is to understand your options and determine from there what you want your reality in homeownership to look like.

      House Growth

      Another really important facet of your house reality is the growth potential. Maybe you’ve heard the term “house poor”. This signifies buying a house that you can *technically* afford, but that you can’t afford to furnish or maintain the lifestyle you want while still paying a mortgage. You own the home you want, but you go without in other aspects of your life to compensate.

      While we covered comfort levels above, forecasting your house growth is slightly different. This talks about your potential to acquire a home now, and grow into it later. Perhaps you’re in a field where you stand to increase your earnings substantially once you pass certain criteria like residency for doctors or certifications for air traffic controllers. In cases such as these, you have a lower salary to begin, and after established and rigorous training, you have a stable and dependable income that is significantly higher.

      Maybe you’re happy to have the home you love and have plans to grow your income and fill your house with the things you want or need over time.

      Beware: Taking on a house is another huge responsibility and you can’t always predict the costs that arise from that. Maybe you wanted to buy a couch for your new house but need to wait another year to afford it. But within that year, your roof goes out and needs replacing. As discussed, roofs are one of the top most expensive home repairs and now your couch savings is going to keeping the literal roof over your head. Any large debt such as a mortgage carries with it the risk of things changing. Know the potential for both good and bad in this scenario.

      House Change

      When something physical happens, like a broken roof, it’s easy to understand how to fix it. Hire a roofing company, pay for it to get fixed, and cry into your pillow at night at your lost couch budget. But what about the less tangible items? The big what-ifs:

      • Do you want to move in with a partner one day?
      • Do you have an elderly family member who you might need to provide housing support for?
      • Do you one day want to have children in your home? A dog?
      • Could you lose your job, or end up in an accident?

      How does your life look in these scenarios? Is the house you’re thinking of now something that can grow and change with you as the events of your life unfold? 

      This isn’t meant to scare you, nothing in life is certain, but even just thinking about the possibilities can give your logic and your gut a good check as you move forward toward homeownership.

      **It’s also important to note here that buying a house isn’t a permanent situation. You can sell or rent out your home if necessary due to your life events. However you can’t predict the housing market, so here are some facts to help inform your decisions. 

      Home Appreciation

      House prices have consistently risen over the years, 4.4%. What this means is that you can expect your home value to appreciate or rise in price at a similar rate. Some areas experience more growth, and some might be overvalued and become stagnate or drop in price.

      Appreciation dictates the equity you have in your home. Equity means the amount of money you owe on the house, versus what you paid for it. So if you paid $100,000 for your home, and the housing market appreciated quickly, and you can now sell your home for $150,000, you have $50,000 of equity, plus whatever you’ve paid to the principal of your mortgage.

      Interest Rates

      You might have found the perfect house but your interest rate is currently very high. This could be due to a myriad of factors: your credit score, perhaps the market, or maybe you chose a lender with a higher rate due to insufficient research.

      It’s possible you chose a specific loan option that ended up locking you in at a higher rate.

      Whatever the reason, refinancing is always an option. Your loan might have specific criteria as to when and why you are allowed to refinance, but remember that the housing playing field that you enter the market into, is rarely the one that you exit on, and you can switch and exchange your players as they suit your needs. 

      Mortgage Commitment

      A 30-year mortgage is a long time, but it’s not a death sentence and you’re not locked in forever. Remember, when something stops working for you, the system that’s causing problems can change. Perhaps that’s the way you spend money, and perhaps that’s the bank that your loan is through. But you have the power to change it and you aren’t stuck.

      **If you ever do feel stuck, forbearance is an option. Forbearance is the temporary halt or adjustment to your payments to compensate for extenuating factors. This was a popular option during 2020 as a result of the pandemic and lots of lenders are amiable to it. Lenders don’t want to lose money, so they’re inclined to work with you in the ways that suit everyone best which is getting the money they were promised initially, and you keeping the house you were promised initially. Getting the most money out of the house is usually the best option. 

      Remember house forecasting is an estimate, not a guarantee. Looking at the variables is always helpful in making an informed decision. Focus on your lifestyle and comfort levels in addition to the facts of your financial situation. With all of these combined, you should have confidence going into the act of home buying, which we’ll cover in Module 2.

      Who You Need On Your Team

      The process of buying a house requires you to put together a team. Think fantasy football, a criminal crew for a heist, whatever suits your fancy– you are putting together the dream team to acquire your new home. The people need to work together to accomplish the goal efficiently and to achieve the ring, or score, or house. You are the coach, you are the ringleader, which means that you put people into the game, and you can take them out. 

      The key here is that these people work for you. Not anyone else. If the way they’re working DOESN’T work for you. End your commitment with these people.

      **Quick Caveat: You’ll need to ensure that before entering into agreements with them, you haven’t signed anything binding. Real estate agents have exclusive buyer agreements that can sometimes catch you up if you’re not careful. Read everything you sign carefully and don’t agree to anything before you’re sure of a person.

      This is not the time to allow for timid proclivities to captain the ship. You are the captain now, and as such, need to get the respect of your crew through a thorough and prepared knowledge of what you want, and how to get it. 

      But first, let’s understand where we’ll be scouting from.

      Real Estate Agents or Realtors

      This is the one everyone knows, and for good reason. They’re the people taking you to and from houses and helping you negotiate. One of the most important parts of your team. They’re not the quarterback, that’s you, calling the shots. But they should be your right-hand man.

      Real estate agents make a 3% commission on everything they sell or help you to buy. Sometimes that percentage is lower depending on the area, or the specific home, but that’s the standard price. That is their motivation. They aren’t motivated by anything else. This is good, because that means, whatever house you choose to buy, they’re getting their money. 

      The Negatives

      This means that they make more if they sell you a more expensive house. Don’t allow yourself to ever feel pressured. You know exactly what you can afford. If you’ve forgotten, go back to module 1 (link out??) and there’s your answer. Nobody can force you to sign papers. Stick to your guns, and remember what you’re buying a house for and you’ll be fine. 

      The Positives 

      The best part about a realtor is the fact that they know the area. Agents will typically specialize in a specific location. If they’re not, find one who is. Every agent is licensed for the state in which they live, but cities are different and valued differently. Make sure you have someone who understands that and can value where you’re looking. 

      The other benefit is that they have really powerful tools at their disposal. Everyone has access to the MLS and they can set you up with your login to favorite houses and get the first updates to be sent as soon as houses come on the market. 

      When houses get listed on the MLS they are then pulled to third-party sites. It should be very straightforward and accurate, but depending on your area, the information may be lacking or wrong. Talk with your agent who can give you the most up-to-date information. Agents are required to post homes for sale within a certain time frame of them becoming listed.

      Realtors still love working off of referrals, because mouth-to-mouth is a great way for their business to thrive. Ask around with friends and family and then google search as well. Find brokerages (agents have to be signed with a brokerage to be working), and look up reviews. You can also set up realtor interviews, which are fairly common, especially in locales where there’s a lot of home movement.

      Mortgage Lender or Broker

      There are a lot of cooks in the kitchen when it comes to who you’ll be dealing with for a mortgage. You’ll likely have your first point of contact and then may get transitioned to a Mortgage Loan Originator as the process continues. Your initial contact will help you find the best interest rate, pre-approve, and eventually qualify you. The originator will be the person who eventually originates the loan that you will likely meet at signing when you’re closing.

      Differences Between Lenders and Brokers

      Mortgage Lenders are the people who actually have the money. These are banking institutions or online lenders that you work with directly. You apply to them and go through the process with them alone.

      Mortgage Brokers facilitate a transaction between you and a lender with loans they have access to on the wholesale market. Brokers aren’t tied to a specific company and seek to get you the best interest rate based on your needs.

      Home Appraisers

      Appraisers are a vital part of the real estate transaction. They dictate the value of homes based on market conditions and trends. While there is a lot of appraisal software, every transaction will use a human appraiser, and for good reason. Have you ever heard of the story of chicken sorters? It goes a little like this.

      There’s a job where chicks are sorted into male and female. This job is done entirely by sight–chicks are picked up, inspected, and then sorted. However, it’s challenging to tell the difference, there are a lot of feathers and squirming, understandably. Over time, the chicken sorters actually sort correctly with 98% accuracy. The reason being? Exposure.

      Appraisers work in the same capacity. To even qualify as an appraiser you have to work a specific amount of hours with an existing appraiser to look through homes. You acquire the skills of dictating home prices through exposure. However, this makes the barrier to entry incredibly difficult because it takes an inordinate amount of time to get qualified. This is in addition to the education required and certification. It also makes appraisers’ values subjective.

      If you have an appraiser appraise your home, it’s highly unlikely that they would ever change that value. You’d have to challenge it based on the existing homes in the neighborhood. Appraisers can be a bit proud of their work, as they should be, and should still be open to making adjustments with sufficient evidence. If you ever feel like your appraisal is inaccurate, feel free to reach out to the same appraiser to adjust, or you could also pay for a 2nd opinion appraisal. This is risky because you or your real estate agent may have overestimated the value of your home and this second appraisal will be coming out of your pocket (because the first one is usually paid for by the seller).

      Home Inspectors

      Home inspectors are hired to inspect the state of the home that you are under contract with. If this inspection goes well (meaning there are few or easily remedied problems), then you’ll likely want to continue with the purchase of the home. Home inspectors check a lot of things, but they don’t check everything, and some things only when asked. Know what you’re getting in your inspection. You can ask for a checklist for the service, and a good company will certainly issue you a report of their findings that includes pictures and detailed descriptions.

      Inspection times range based on the property size and condition, and you can be there for all or part of that time. Your attendance is optional and depending on your schedule, it may be something you want to be a part of. However, your attendance could also help solidify any questions you have about the property and provide peace of mind on such a large financial decision. 

      Title Office

      The title is the name of a book, song, and also the very important and expensive reputation of your house. The buzzwords, free and clear were made for the title, though retailers love to market skin care products that way too. The title of your house is different than the deed and is the culmination of activities that have transpired and connected to your property.

      The Good

      A good title is free and clear of any encumbrances. This means nobody has filed something against the house.

      The Bad

      If you got arrested, it’d go on your rap sheet, and you’d go to jail. Houses aren’t mobile, so they can’t be put in jail. Instead, they have the title of the house. And on this title, it puts them in proverbial jail. 

      Something on a title can be a small error such as incorrectly drawn property lines or measurements. Others can be much bigger such as a lien on the property. Liens can be things like unpaid taxes, or a contractor who never got paid for the work on your house.

      Titles also signify the passing of property from one owner to the next. If this line is unclear or there is an heir that wasn’t found at the time, these would have to be resolved before closing which can delay the process.

      The Title Agent

      Your title agent is an internet sleuth for your house, researching its life since birth. Who owned it, sold it, the size, property lines, unpaid taxes. This interaction is a part of due diligence and integral to closing.

      You may be surprised if you’re buying a new construction house, that might seem unnecessary since no one has owned it before. But let’s tell you a little story about Sally. Ready to close on her new construction home that just got completed when a lien appeared from one of the subcontractors on the job. They hadn’t been paid for their work and had the legal right to place a lien (legal ownership) on the home until it had been paid. This isn’t Sally’s fault, but the owner of the home is the construction company, and they are selling the house to Sally, but it’s not free and clear and therefore can’t be sold until that’s remedied. This can delay closing and also cause costly court fees. But because Sally got her title insurance, she isn’t responsible and those fees will get passed directly to the person responsible, the construction company. 

      Contractors

      Why would I need a contractor for a job? You don’t. Not necessarily anyway. But it might be advantageous to have one before you buy a house.

      There’s nothing quite like liking a home and wanting to make *just a few* changes before realizing that it will cost you several tens of thousands of dollars later because you underestimated the work. And if you were going to have to pay that amount anyway, why not increase your home search value including that, and roll it into the life of the loan? The negatives of this are of course that you’d have to pay interest on a greater purchase price, but the benefit is that you don’t have absolutely all of your savings sucked dry once you get into a home that you don’t even want to live in if you can’t make those changes as soon as you expected. 

      Additionally, maybe you did expend all of your savings just to get into the house and now need to take out another loan such as a HELOC or second mortgage to afford it which will likely have higher rates than your traditional and first mortgage because it’s less risky. There’s a lot to factor in here but one thing is for sure: making that extra phone call and getting a bid/estimate from a contractor will not hurt you in the long run. Knowledge empowers your buying decisions, and waiting or thinking you can do it later, is a risk you may regret taking. 

      Real Estate Lawyer

      Wondering if you need a lawyer for your home purchase? Fun fact, several states do require it.

      • Alabama
      • Connecticut
      • Delaware
      • District of Columbia
      • Florida
      • Georgia
      • Kansas
      • Kentucky
      • Maine
      • Maryland
      • Massachusetts
      • Mississippi
      • New Hampshire
      • New Jersey
      • New York
      • North Dakota
      • Pennsylvania
      • Rhode Island
      • South Carolina
      • Vermont
      • Virginia
      • West Virginia

      An interesting thing to note about these states is they are some of America’s first, which means they have a long history of home ownership and occupation. This is relevant because the purpose of a real estate attorney is to handle any potential legal mishaps. As we discussed above, titles can get messy between owners, and a lawyer can help solve those ends. Additionally, they’re versed in legal jargon, which puts them prime for reviewing paperwork and negotiating deals. 

      Think of a lawyer on your home deal as a middle point almost between you and the seller contacts. If any issues arise about the property value, size, or quality, you have someone there to help negotiate and/or help you evacuate the deal if necessary with the least amount of loss. 

      You also have the dual benefit of them attending the closing for you, which helps to have an extra set of eyes on your official documents. They can raise a red flag to anything that might have changed which was previously agreed to, or simply offer the reassurance that everything is in order. 

      Of course, attorneys are paid hourly, so you’ll want to use this time wisely as that bill can rack up significantly.

       So what if you don’t live in a state that requires this? The good news, you can save money on it. But, there may be cases it’s still a good idea, and that’s when the property gets a little more complicated, typically financially. These include foreclosures, rental evictions, and estate sales. The word to the wise here is if it seems like an overcomplicated purchase that you can’t rationalize with your real estate agent (also exposed to contract law) then you should hire a real estate attorney–they’re the experts.

      Insurance Agent

      Insurance agents help you secure your home against unfortunate surprises. Maybe your washer leaks and floods the room, dripping from the ceilings and lights. Maybe a storm blows a tree onto your roof. Insurance agents help you safeguard your house against the possible negatives that come from owning a home. 

      You likely have a renter’s insurance policy, if you don’t already own a home, and that works similarly. In renter’s insurance, your belongings are protected through the policy, especially in instances of damage or theft, however, the unit itself is not. That always falls to the owner, ie an owner’s insurance policy. So if there’s a flood at your rental and all of your furniture is water damaged, your renter’s insurance covers your stuff.

      When you own a home, the policy has to cover everything. The exterior and building as well as the interior belongings. This is part of what makes a homeowners’ policy more expensive than a renter’s insurance, but when buying such an expensive long-term investment, this is certainly not the time to skimp. There are lots of state-specific rules that require you to have a specific set of insurance policies based on where you live to safeguard against more natural issues. For example, in areas with a low water table, you may be required to have flood insurance for a company to protect your home and insure you. However flood insurance isn’t a standard policy like fire protection, so you’ll need to get it and it will end up costing more. 

      The important thing to remember here is that you are required to have an insurance policy, and you’ll want to cover as much as you can within budget. The average cost for a policy with $500,000 in dwelling coverage is $3,519 per year or $293 per month.*

      * This is hard to come up with an average for because across the US is a wide variety of locations and needs. However, this can be a good ballpark for you while searching. 

      Going with a company or a person that you know well may be rewarded. Perhaps you want to use the same people your car insurance is through. Bundling can certainly provide certain benefits. Whatever you do, know that this person is looking to secure the value of the home, which you do want, ultimately. Do they make commissions off your policies? Absolutely. So they are incentivized for the more you want to cover. But don’t let this stop you from getting sufficient coverage. Look at your area, identify what would be the biggest cost for you were something to happen to your home, and what you could or couldn’t recover from. In the eyes of a large home disaster, insurance is a small price to pay for piece of mind. 

      **But also, don’t let fear of “acts of God” stop you from saying no to add-ons. Acts of God are included in most insurance policies as something they will not cover. This is to cover themselves from the potential inexplainable and unstoppable no matter how it may occur. They want to be a part of the expected expenses for home ownership.

      How to Find a Good Realtor

      A realtor is like a good therapist, you trust them to give you life advice. Don’t go with someone just because you know them. Making a huge purchase like this isn’t the time to scrimp and save money. Your realtor needs to know their stuff because you deserve that security. 

      Agents work primarily on the concept of financial integrity, in classes they call it fiduciary responsibility. But ultimately, it’s just going to be a guideline that people should operate under. So you should know a few things about this. 

      1. There’s a thing called dual agency, this means that a singular agent is capable of representing both you and the seller in a single transaction. Some states don’t allow this because it seems entirely implausible for one person to serve two parties with full fiduciary responsibility. In fact, it’s actually banned in certain states. 
      2. Agents value their time so they outsource a lot of other responsibilities so they can maximize their house-buying/selling freedom. You’ll often be referred to as a facilitator or transaction coordinator. These people are kind of like a realtor’s secretary and keep everything running smoothly and on time.

      Realtors still love working off of referrals, because mouth-to-mouth is a great way for their business to thrive. Ask around with friends and family and then google search as well. Find brokerages (agents have to be signed with a brokerage to be working), and look up reviews. You can also set up realtor interviews, which are fairly common, especially in locales with a lot of home movement. 

      Questions to Ask

      1. How long have you been doing this?

      Tip: don’t be scared if they’re new, time spent on the job does not correlate to a job well done. Sometimes the newer they are, the better they’ll take care of you. Trust your gut, and remember you can always make a change. 

      1. What’s your availability?

      You need to make sure that you’ll both be available to see houses at the same time. If your interviewee only works 9-5, you’d have to take off work and if you have young children who aren’t in school, find a babysitter. Because I assure you, house hunting with children is the third ring of hell. 

      1. What neighborhoods/cities do you specialize in?

      Remember that every realtor gets a state license. But if you live at the southern end of the state, you’re probably not going to understand the intricacies of the market at the northern end. So factor that in as you make decisions or get recommendations from friends and family. 

      1. Does your agent work independently or with a team?

      A team might mean you have multiple touchpoints. Pros to this are that you have lots of different availability and perspectives. Some cons are that there’s a lot of information that might need to transfer between people and some of that could get lost or you end up having to repeat yourself or have missing information. Generally, I don’t think there’s a benefit to either option, trust your gut and go with someone or a team who you feel understands thee are and will help you get what you want. 

      1. How is it best to communicate with you?

      This could be phone, text, email, their assistant, or smoke signals (just kidding about that last one). But in the housing market, primacy is key. It’s important to know how to get into contact with your agent quickly and efficiently. 

      1. How many homes have you closed this year/quarter (depending on the market in your area)? 

      This will help you determine the experience level with closings and how attuned to the market they are. But if their answer is 0, follow-up questions would be why and how do you expect to help me? Especially if you live in an area where strong contracts and back-and-forth negotiations are pivotal for winning a deal. 

      Questions Not to ask

      1. How long until you find us a house?

      This is an unfair question from start to finish. For starters, nobody knows or can predict that. There are market averages, but you may be pickier, or looking for houses in a large span of area. There’s no way to know if the first house you see is the one, or the 100th and it’s an unfair burden to place on the relationship between you and an agent. Mostly because they get paid on commission, so they don’t make money until you buy a house. It’s in their best interest to find you one ASAP. A better question might be, how do you stop trying to sell me on houses I don’t want to live in?

      How to Find a Lender/Broker

      Banks and Lending institutions

      Each has the interest rates that they’re able to offer and other perks that go with it. Unfortunately, finding one that fits your needs can take a long time. This is because there are so many different loan options and so many different lenders. Google can be your friend, as well as us here at Stairs, where we can not only help you find a lender that meets your needs, but we can also ensure they know what down payment assistance is available to help you access more equity to your home, immediately.

      Find out which down payment assistance you qualify for

      Getting Preapproved

      When you’re pre-approved, this is the maximum amount of money that a bank or other financial institution will lend you to buy a house. It is the absolute maximum. This isn’t like a speed limit, where people treat it as a suggestion. 

      This is good! Because this gives you boundaries to work within. And if we’ve all done our trauma therapy appropriately, then we know that boundaries are a way to show love for those around us. Your pre-approval is a way to show love to yourself and your bank account, and especially, to future you who will be grateful for your frugality.

      Anybody who’s lending you money is making money on the interest that you pay. So the higher your mortgage the more interest they make. Don’t allow yourself to be swindled outside of your comfort zone–where you would live most comfortably with a mortgage. And *SPOILER* that amount is unlikely to be your pre-approval maximum. 

      Remember what we discussed in module 1. Know your finances and know what you’re comfortable, truly comfortable paying.

      While the world has come a long way since 2008 in terms of asinine mortgages and predatory lending, it certainly isn’t non-existent. Here are some things to look out for:

      Common Predatory Lending Practices

      Equity Stripping

      The lender makes a loan based on the equity in your home, whether or not you can make the payments. If you cannot make payments, you could lose your home through foreclosure.

      Bait-and-Switch Schemes

      The lender may promise one type of loan or interest rate but without good reason, give you a different one. Sometimes a higher (and unaffordable) interest rate doesn’t kick in until months after you have begun to pay on your loan.

      Loan Flipping

      A lender refinances your loan with a new long-term, high-cost loan. Each time the lender “flips” the existing loan, you must pay points and assorted fees.

      Packing

      You receive a loan that contains charges for services you did not request or need. “Packing” most often involves making the borrower believe that credit insurance must be purchased and financed into the loan to qualify.

      Hidden Balloon Payments

      You believe that you have applied for a low-rate loan requiring low monthly payments only to learn at closing that it is a short-term loan that you will have to refinance within a few years.

      How to Get Preapproval for a First-Home Mortgage

      When you get prequalified for a house, it’s a relative estimate amount that they anticipate you being able to afford a house based on general unverified data like your income and average debt amounts. They take this information that is self-reported, meaning you’re just telling them, and then they can offer you a pre-qualified amount that pending nothing huge changes from what you reported, you would likely be able to be approved for a mortgage up to that amount. 

      But preapproval is a more accurate representation of that estimate, where you have to provide physical evidence of your financial situation for the mortgage officer to verify your maximum mortgage pre-approval. 

      Now obviously, a lot can change between when you get preapproved to when you’re trying to close on a mortgage depending on how much time has passed, which is why occasionally financing will fall through. This usually only happens when you go out of the anticipated budget that was already on the highest end. Or when something substantial has happened with your income or savings that were available for use. If that’s the case, your preapproval may no longer be an accurate representation of what you can afford and therefore they have to place other contingencies on your loan to approve you. A common contingency is adding a guarantor, or another person to secure the loan and make payments if you cannot. This gives the bank more assurance that their money won’t go unrepaid, but that also puts a large amount of liability on you and the new guarantor for your loan. Not only this but it allows them to be financially responsible for your home, which could end up also allotting them homeownership rights. When given the option, I would recommend lowering your mortgage amount before seeking external help to guarantee your loan. 

      Remember, for your preapproval, you need:

      • W2s or confirmation of income
      • Bank statements
      • Savings or other retirement accounts

      Mortgage Types and Your Options

      When it comes to actually getting prequalified and pre-approved, it’s important to know the criteria they’ll be using. Most loan originators are looking to give you a housing ratio or Front End DTI of 30-50%. What this means is that no more than 50% of your income should be spent on your mortgage. 50% is the high end, and it’s preferable to keep this number around 30% but that’ll depend on the other make up of your financial portfolio, so keep this in mind with your search. 

      Another factor is your Back End DTI. This is your debt-to-income ratio or the amount of money you owe in all of your debts (cc, car, student loans, etc), and have that amount be 50-55% of your monthly income as well. Since a mortgage is just another debt, this could mean that all 100% of your income ends up being allocated to debt payments. Which wouldn’t be a good financial situation for everyone. You should be aware of this as an option, to ensure you don’t get trapped in being unable to afford anything outside of what you’re already committed to. 

      Loan Types

      Now let’s discuss loan types. There are a lot of options when it comes to loans that are offered. The number one thing you should know is the guarantee-ing party dictates the rules. There are a lot of government-backed loans, but depending on which entity is facilitating your loan, dictates your rules for eligibility and repayment based on government initiatives.

      FHA loans

      This is a federally backed loan, which means they can allow for more risk. So your credit score doesn’t need to be as high as conventional loans, and they have more leeway with DTI. This is good for anyone who needs more flexibility with the terms of their loan qualification such as low credit scores, low money for down payments, or poor income history or DTI.

      USDA/Rural

      These loans are specific to rural locations and you can check your eligibility here: https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do

      USDA Direct Loans

      These loans are issued for qualifying low-income borrowers with interest rates as low as 1%.

      USDA Loan guarantees: These loans are issued by participating lenders and offer low-interest rates and minimal down payments as low as 0%.

      USDA Home improvement loans: These loans are given to qualified homeowners to make repairs or improvements on their homes.

      VA Loans

      These loans are backed by the department of veteran affairs. You are only eligible for these loans if you are a veteran or active duty military personnel. This is one of the benefits that the government offers to those who serve the country under the government’s bidding. 

      Conventional Loans

      This is going to be the most common option for the majority of people based on low-interest rates and simple fixed terms. (5,10,15,20,& 30 years). They are privately backed mortgages which means they are not government-backed. This means that the rules can change a bit for them since they aren’t set by the government as the ruling entity. They can take greater risks and therefore can have different requirements to qualify. 

      ARM Loans

      Adjustable rate mortgage. This is a set-rate mortgage, like a typical fixed-rate mortgage, but after the fixed-rate period of 5, 7, or 10 years, that rate becomes variable and can change up to every month, given the market. This makes it riskier, because you don’t know what your interest would be and financially you’d have to be prepared for that rate to increase dramatically depending on market conditions.

      Balloon Loans

      Balloon loans are mortgages where you pay traditional fixed payments for a length of time, and then the full amount of your loan comes down in a large balloon payment at the end. So if you pay your 30 years fixed loan payments and then after 5 years, you’re required to pay off the balance. This could afford you better interest rates in the short term for the house, but if you planned to stay there longer or for any length of time over the initial payment, you would have to be prepared to make that payment, and/or refinance or move/sell the home. It’s not necessarily a bad option but would require you to be on top of your mortgage, understand the market, and be able to refinance if you weren’t able to pay off the balance. 

      Interest Only Loans

      Interest-only loans come in many different shapes and sizes. As a mortgage, it’s just as it seems. For a period of time you’re required to only pay the interest, which means you aren’t paying any of your principal down. As a result, all of your payments aren’t building equity. The times when we’ve seen this most common is with Home equity loans where you are paying interest on what you take out against the home, for the draw period, then you have to repay it by the time the loan comes due. 

      Words of Warning

      Now that you know everything about loans, here are some things you should be wary of or just entirely avoid. 

      Remember that your approval and qualification is dependent on the financial snapshot that your lender took at the time. This means that should you do anything that significantly alters that financial snapshot, you may be disqualified from the mortgage. Things that alter your eligibility most often: large purchases, over 1-2k (this is dependent on your financial circumstances but if your qualification was borderline, large purchases in the thousands of dollars may very well tip you over from being capable of affording costs at closing. Large purchases are tempting to enter after you’ve gone under contract on a house because you want to buy new appliances or furniture, etc, but we recommend waiting until your loan has closed before making those decisions. 

      1. New credit lines also alter your DTI ratio, so it would behoove you to limit the credit options to what already existed before your mortgage pre-approval until after you close on the house. 

      2. This one may be surprising, but you should also avoid any large deposits into your account as this can cause an additional layer of research that needs to be done and a trail that needs to be documented and could delay your closing. The reason for this is that they want to have sure amounts of money to depend on, and if you got approved without this money, then it seems odd to have this money deposited. This is called secure money, and it’s what they approved you on and can depend on to close with. 

      All of these factors affect your lend-ability which is what lenders are concerned with. It’s important to focus on the goal at hand: to buy a home. Plan for your future purchases at a later date, once you’ve gone through the home-buying process. Narrow in on this short stretch of time to ensure you’re doing everything as intended. 

      Fair Housing As a First-Time Homebuyer: Your Rights

      It’s unfortunate that this even needs to be a section in this guide. When you feel like your rights to fair housing have been violated, there is a course of action you can take to rectify it. You don’t need to allow for the injustice to occur, choose to hold them accountable.  

      For a list of rights: https://www.hud.gov/program_offices/fair_housing_equal_opp/fair_housing_rights_and_obligations

      To report a violation: https://www.hud.gov/program_offices/fair_housing_equal_opp/online-complaint

      In the news: https://www.businessinsider.com/professor-housing-discrimination-fair-housing-act-mortgage-appraisal-redlining-racism-2022-8

      Top Considerations for Choosing Your First Home

      Maybe you know the exact type of home you already want to live in. But, maybe you can’t find it in your area. In that case, you have to make a choice, change what you want to buy, or move. This section can help you assess the criteria for evaluating your home purchase.

      Location

      Location is often the most important factor people consider when buying a home, not only the state and city of choice, but often right down to the very neighborhood. This can be due to schools, proximity to other infrastructure or highway access, or a growing area where your house might appraise in value more. Whatever the reason, figure out what the location you live in means to you. 

      • Do you care about the commute to work? 
      • Is the distance to the nearest grocery store a factor? 
      • Are there any weird smells while you’re outside? 
      • Is there a train nearby? Is it generally noisy or quiet? 
      • What do you know about crime statistics or sex offenders in the area?

      The location that you’ll be living in means a lot, understand what is most important, prioritize that, and know what you’re comfortable letting go of.  

      Function

      We talk a lot about the role a house plays in building generational wealth and future investments. But at its core, a home is intended to be a shelter from the elements and a refuge for you and your family. When evaluating a property on whether it could be a good home for you, try to focus on the function of the home. Functional elements are the bones of the home, the walls, the exterior, the layout, and the things that aren’t changing.

      • Are you a big cooker? Ensure the kitchen has ample counter space and storage for your needs.
      • Into woodworking? Is there a garage or shed you can use, or a backyard where you could build one to complete your projects and store your tools? 
      • Love baths? Maybe you have a wonderful walk-in shower, but it doesn’t have a tub. Is this a concession you’re willing to make?

      Sometimes when looking at houses, especially online, the pictures are good at making a house look appealing to you. That’s the job of the photographer, and if you’re enticed, they’ve done that job well. However, when you see things that seem nice, but aren’t really necessary for your lifestyle or wouldn’t be utilized well by you, it means you’re interested non-functional reasons. Don’t be so quick to give up the things you know you’ll love and use, just because of aesthetics or curb appeal. Try to find a house that works for you and what you like, not one that you have to change a lot about or spend your days wishing were different. (Unless. DIY is your jam, we’ll get to that a little later.)

      This is challenging advice to offer because maybe you can’t find anything you want within your budget or your specific area. Maybe it doesn’t function well, but it’s all that you can afford. Inventory can be low or simply not appealing to you. There’s no shame in this. The internet makes it seem like everyone has a dream house with a huge kitchen and it’s never dirty. Without harping too much on “social media is a highlight reel, not real life”, remember that America has 33 million people living in it. The 100 houses you see flaunted on the internet don’t even represent 1% of the population. Lots of people may own homes, but those homes are lived-in, functional works in progress, and you should be proud to be embarking on the same journey. 

      Routine

      When you buy a home, you add an extra layer of responsibility into your routine. We’ve touched on it briefly in this guide already, but this is a time to consider the items that weren’t a factor in your previous home, and that will be a factor for some houses you might be looking at. For example, if you rented before owning, you may not have been responsible for the exterior of the home or general maintenance and upkeep costs. 

      Some examples: Pressure washing the exterior, window cleaning, drainage problems, duct cleanliness, landscaping and maintenance, pest control, large appliances working properly, etc. While the general guideline is saving 1-3% of your total purchase price for these expenses annually once you’re living in a home, it’s often not factored in when purchasing a home. For the average homeowner in the U.S., a $350k home, amounts to as little as $3,000 a year, up to $10,500 a year. 

      It’s not a small amount to consider when moving, and if you haven’t budgeted for wiggle room and you don’t know how well the property has been kept up to date before you bought it, you’re not guaranteed what will or won’t go wrong. It’s a bad time to find out that you can’t afford to take care of the house you bought when you’re already committed to the house. These examples change based on the type of home that you buy, some get less expensive, and some get more, but knowing what to expect is the best safeguard to being prepared if and when these issues crop up in your daily routine. 

      Type of First Homes

      There are a lot of factors to consider when it comes to buying a home. We’ve discussed general factors that apply to any home you might buy, the location, the function, and the impact on your routine. Now let’s talk about the state of the homes you might encounter and what to be aware of for each.

      Fixer-Upper

      You’ve almost certainly heard the term before. Sometimes this is aptly named, and the home has been well-loved and needs just a little TLC to become a bit more comfortable for a new owner. Other times, this term is used to indicate a home that needs an extreme amount of work to be livable, and fixer-upper is used as a marketing term to attract investors who want to flip houses. No matter the extent of repair needed on the home, you have the option to do it yourself, or pay someone. Ultimately this costs you your time and money, or just a lot more money and a little bit of your time for managing the repairs. 

      DIYers are admirable in the time that they invest in turning homes into more beautiful living spaces. However, most haven’t been professionally trained. While it’s not technically necessary to perform work on your property, certifications and skills make the process smoother and more trustworthy. Contractors or subcontractors that you hire would need insurance to cover their job performance, and should something go wrong, they can rely on that to rectify any mistakes. If you work on your own property and something goes wrong, you have nowhere else to turn but yourself and your preferred vice to drown your sorrows in.

      When deciding what condition of home to buy, be honest about the realities and potential for mistakes and know how you might handle the less-than-ideal.

      Now that we’ve discussed the condition of homes you might find, let’s talk about the different types of homes you’re sure to come across.

      TurnKey

      A property that is perfectly prepared for you to move in is called a turnkey. It’s clean and functional and doesn’t require any immediate attention to any areas to be livable. You can turn your key in the lock and immediately be at rest in your new home. Unfortunately, this doesn’t make promises on the age of the home or the interior fixtures, simply that it is still functional. This could mean 1960s orange stain cabinetry, or a continually upgraded 2000’s home. The price should be reflective of the value based on consistent upkeep.

      New Renovation

      This would be a fixer-upper home that was bought by a house flipper or other investor who hired contractors to improve the property and make it livable and sellable. When doing construction on fixer-uppers, investors have to be making a profit, so while they may have upgraded the home, perhaps they didn’t use the best finishes or there were some corners cut to save on some margins. A good inspection can be your best friend in any home purchase, but especially where you know work has been recently performed, because it should come with some kind of warranty for quality or longevity. Seller’s disclosures (something we’ll cover in the next section) will be good for this, as will home warranties, and perhaps a custom agreement between you and the seller for a specified period. That way you’re safeguarding your new asset against any failure.

      New Construction

      New construction homes are freshly completed on new lots. These are most often done by a builder who has a set of models that you can choose from and also supplies the lot that you build on. Depending on when you come to the property during the construction process, you may be limited in the finishes you can choose. Often, the builder will start a handful of homes without having a buyer be under contract and continue through completion until they’re purchased. These are called SPEC homes, they have never been lived in, but you also didn’t build them from the ground up and came in later in the process. New construction homes typically come with a builder warranty of 1 year which means you can submit the requests for anything that is covered to the builder to come fix within the first year of occupancy. These houses often go up very quickly as the builder is trying to maximize their profit and finish all the houses in the neighborhood or area. They have inspections already scheduled to receive their certificate of occupancy (meaning you could live there legally), but that doesn’t mean you shouldn’t get an independent inspection as well.

      Apartments/Condominiums/Co Ops

      These homes are separate places inside larger buildings that are connected. Apartments are everywhere in the U.S. but are more likely to be purchased as a home in more cities as they’re densely populated and centered around existing infrastructure.

      These are home units contained within a single building that share walls and amenities with your neighbors. It’s often strictly on one floor but the more luxurious your apartment, the more likely it is to have stairs within your own dedicated unit. Apartment costs vary wildly, but they all have one thing in common. When you own your apartment you’re responsible for the interior of your living space, and that’s it. This takes off extra burdens from your plate like exterior maintenance and upkeep and especially any amenities provided. You’ll likely still pay for maintenance, just in other ways such as building fees or HOA fees, but the mental burden is gone. Apartment complexes or buildings are owned by a single company and then each of the individual units can be purchased but all have to be operated within rules established by the parent company.

      Condos/Condominiums are structurally the same concept as an apartment but change in terms of ownership. For a condominium, you’re also responsible for the building fees as an owner but aren’t obligated to adhere to the rules of the parent company because the owners of each unit become the company themselves. 

      Co-Ops are also structurally identical to apartments and condominiums but in terms of ownership very different. With a co-op, you own part of the company that owns the building, and instead of owning your unit specifically, you own shares in the company. 

      Strengths

      As a general rule, apartment units are less expensive than their housing counterparts. This is due in part to the size of the unit, and in part to not owning land either. However, this isn’t necessarily true in every city, especially HCOL (high cost of living) areas where a mortgage on an apartment can be the same as a single-family home in more midwest suburbia

      • There’s less maintenance responsibility as these get taken on by HOAs and the work is outsourced and fees are shared. If your roof needs replacing on an apartment building, you aren’t responsible for that entire bill. 
      • Building amenities make it so that you benefit from items like a gym or pool or playground but don’t have to be responsible for any of this yourself like you would if you had it in your backyard
      • Most apartments are situated nearer to cities or more urban environments so you’re in closer proximity to options for food, entertainment, and your other needs. 
      • Unlike other housing options, apartments are mostly safer. This is in part due to having more neighbors, but additionally, there are fewer entry points and most buildings will have security systems or cameras outside and in hallways. 

      Weaknesses

      • If you live close enough to a city with good public transportation, parking may not be an important factor. But if you don’t, parking can be limited or expensive for you, and challenging if you have visitors who are also driving to your place.
      • Due to the shared walls, you could have noisy neighbors and no way to quiet or dampen the sound.
      • Your building might impose a no-pets or restrictive pets policy
      • Apartments are traditionally smaller than your other housing options, so you don’t have as much storage or generally as much space as an alternative. Depending on where you live, you could always try to buy two in the building and knock down barrier walls to expand your space.
      • Buying any large item when you own an apartment requires a lot of doors to go through or a large window or balcony. Sometimes you have to get creative, and you need to measure before purchasing. 

      Ultimately, apartments, condos, or co-ops, are great homes for anyone who values the strengths above. They’re often more reasonable in price and can be a great first entry into homeownership. Any home you purchase you can sell at a later date if you’d ever like to move or rent out at the end of your time there. (This is another easy benefit to apartment ownership.) The choice, as always, is yours and you should pick whichever fits your lifestyle best.

      Townhomes

      Townhomes are houses attached in a row that are similar in structure and size. When you own your townhome, you’re responsible for the exterior as well as the land it sits on and any yard that is predetermined for your unit. They vary in size and height as some can be 3 stories above ground level. Owning a townhome is most similar to owning a single-family home, in that you’re responsible for more maintenance and potentially a yard, but still has a bulk of the benefits of apartment living. For example, you may still have an HOA or management company and could have a clubhouse that still has the amenities you would have in an apartment situation. 

      Strengths

      • Lower cost than a single-family home because of reduced land costs and square footage
      • Clubhouse and amenities
      • A good rental opportunity for the future
      • May come with an attached or detached garage
      • Fewer maintenance responsibilities

      Weaknesses

      • Parking can still be diminished for yourself and visitors
      • You have shared walls still and could have noisy neighbors on one or both sides depending on which unit you occupy. End units would share one wall.
      • Limited customization options for the exterior of your home because they are all connected you often have to abide by a set of design principles so that each unit of the townhome row flows well aesthetically.
      • You may have an outdoor space but it will be smaller and could be shared.

      Single-Family Home

      In 2018, there were 138 million homes nationwide. Of those, 67% were single-family units (Urban Institute). So it’s safe to say that the majority of housing in the U.S. will be single-family homes. These are residential structures that sit on their own land. When you own a single-family home you are responsible for the interior, exterior, landscaping, walkways, and driveway. Going from renting to owning is a large jump in responsibility and maintenance costs. It can come with a bit of a shock, and sometimes a bit of relief for the freedom of action you can take on a property you call your own, the original American Dream. Single-family homes are usually in more suburban areas where neighborhoods have been created outside of cities to have close proximity to infrastructure but still maintain a degree of privacy or peace from the hustle and bustle of a city. 

      Strengths

      • Greater privacy
      • Control over the property
      • Potential for more outdoor space
      • Greater home price appreciation than other housing options

      Weaknesses

      • Higher initial cost
      • Higher maintenance costs
      • Higher utility costs
      • High responsibility 

      It should be noted that there are also, duplexes or semi-detached homes, multi-family homes, tiny homes, or manufactured homes. When it comes to purchasing these units, the rules can be different per state laws. Duplexes or other multifamily homes are not identified as separate parcels and cannot be sold as such. Where they are, you can refer to the rules for townhouses as that’s the most similar option for the setup. Tiny Homes or manufactured homes can be most similar to single-family homes but do require their own land and hookups to function.

      All-in-all, the type of home that you choose should fit your lifestyle, budget, and needs. We hope this section helped lay out the multiplicity of options you have in choosing and maybe helped you narrow down the options that you’re looking for based on how they can benefit you in your current state of life.

      Home Inspections and What to Look Out For

      Buying a home would be a lot easier if when you signed the papers, all of your stress just went away. Unfortunately, it’s just the beginning of your responsibility.

      Owning a home feels a lot like having a child or caring for an elderly adult. They can’t do most things on their own and need your help often. If you can’t do it yourself, you have to hire someone else to perform the tasks. And let’s get real clear, save for a few life-or-death items a lot of things don’t necessarily NEED to get done. Not having your vents cleaned regularly doesn’t mean your dryer will cause a house fire, but it does mean that you’re more likely. With any risk, you need to hedge your bets and ensure that the house is working for you, not against you. However, keep in mind that the longer you put off a problem that continues to occur, the worse it gets, and with houses the worse something gets, the more expensive it ends up being. 

      1. Foundation repair

      If your home was built in an area where the soil tends to swell with rains and contract during periods of drought, those changes put your foundation at risk. Foundation repairs are complicated and can get very expensive.

      Cost: Anywhere from $450 to $11,000

      Signs of a problem

      • Doors and windows that don’t fit their frames and are hard to shut
      • Cracks showing up around the house
      • Sloping floors
      • Water pooling in your basement or around the edges of your house.

      Preventative measures and maintenance

      • Use soaker hoses around the perimeter of your house during periods without rain to keep the soil from getting too dry.
      • Check for proper drainage during periods of rain
      • Keep the soil around the house at a slope to enable drainage.

      2. Roof repair

      Your roof is the most important part of your house for protecting everything else in it from the elements. When it needs repair, it’s important to do it fast.

      Cost: Average of $650 for a partial repair or $6,000 for roof replacement

      Signs of a problem

      • Leaks
      • Missing shingles

      Preventative measures and maintenance

      • Hire professionals to inspect your roof periodically (10 years after installation, and every 3-5 years after).
      • Look over the roof yourself in between inspections to identify weak spots or minor repairs you can address.

      3. Repair or replace hot water heater

      The water heater is something we all depend on every day without thinking too much about it, but water heater problems can lead to flooding and even more expensive problems.

      Cost: Average of $523 to repair, and $1000 to replace.

      Signs of a problem

      • It makes loud or unusual noises
      • It leaks (particularly if it’s rust-colored water)

      Preventative measures and maintenance

      • Check the pressure valve periodically
      • Flush the tank once a year

      4. Termite damage

      Bugs in your home are an inconvenience at the very least, but one type causes far more trouble than any of the others. If you’re unlucky enough to deal with termites, it’s important to treat the problem – and treat it fast.

      Cost: Treatment costs an average of $541, but the damage caused by termites averages $7,229

      Signs of a problem

      • Swarms of small flying bugs, or bug wings in the basement
      • Hollowed out wood
      • Mud tunnels about the width of a pencil leading up to your exterior walls

      Preventative measures and maintenance

      • Install termite monitors
      • Keep wood and mulch away from the outside of your house
      • Have your home inspected for termites once a year

      5. Water damage

      Water can rot wood, cause mold growth, and make metals rust. Whether due to flooding, a leak, or damage that happens little by little, water is one of the biggest culprits in costly home repairs.

      Cost: Average of $2,330

      Signs of a problem

      • Leaks
      • A musty smell
      • Fuzzy discolorations in the walls or ceilings (mold or mildew)
      • Peeling paint

      Preventative measures and maintenance

      • Clean your gutters
      • Fix leaks in the roof or pipes right away
      • Test your sump pump once a year

      6. Repair or install new pipes

      Plumbing issues are another potentially enormous expense, as they’re generally located in spots that are hard to get to (underground and inside walls).

      Cost: Repair for a sewer line averages $2,443, for a drain pipe it’s $559, and installing new pipes averages $1,054

      Signs of a problem:

      • Discoloration or flaking in exposed pipes
      • Leaks
      • Rusty water

      Preventative measures and maintenance:

      • Avoid using chemical products to unclog drains
      • Insulate your pipes during the winter
      • Hire a plumber to clean out your sewage pipes every few years

      7. Heating/AC repair

      Not only are AC and heating repairs expensive, the systems inevitably seem to break at the time of year you need them most (because it’s when they’re working the hardest). You won’t want to wait on getting them fixed.

      Cost: Average of $372 for AC, $288 for furnace

      Signs of a problem

      • It’s not cooling or heating
      • The unit’s leaking or making strange noises

      Preventative measures and maintenance

      • Hire a professional to perform yearly maintenance
      • Replace your air filters every 3 months

      8. Mold Removal

      Mold in your home can cause several health issues, particularly for anyone with allergies. Even if you’re not allergic to mold itself, it can have a serious effect on your home’s resale value.

      Cost: Average of $2,155

      Signs of a problem

      • Musty odor
      • Discoloration in the walls or ceilings
      • Allergy symptoms

      Preventative measures and maintenance

      • Take care of leaks right away
      • Inspect your home periodically for signs of mold

      9. Electrical issues

      Similar to dealing with plumbing problems, it’s not easy (or safe) for the average homeowner to access or attempt to fix electrical issues because the wiring is located within walls. But if electrical issues go unfixed, you face a risk of fire – not to mention the inconvenience of your electricity not working.

      Cost: Average of $318 for repairs, but up to $15,000 for rewiring

      Signs of a problem

      • Circuit breakers trip regularly
      • Appliances shock you
      • Flickering lights

      Preventative measures and maintenance

      Have a professional inspect your electrical system annually, or anytime you suspect issues.

      10. Septic system repair

      A septic tank not working properly can be a big, messy problem. It’s not one you’ll be able to (or want to) put off fixing.

      Cost: Average of $1,488

      Signs of a problem

      • Toilets won’t flush
      • Slow drains
      • Standing, smelly water in your yard

      Preventative measures and maintenance

      • Hire a professional to inspect it every 3 years
      • Have it pumped every 3-5 years

      Remember: Saving 1-3% of your total purchase price every year is estimated to be enough to cover the majority of annual home maintenance and repairs.

      How to Buy Your First House: The House Buying Process

      By now you should have a good idea of where to find a real estate agent in your area, and know what type of lenders are available to you, and maybe even be pre-approved! You should also be prepared for the type of homes you’re interested in and now you want to know your next steps. So let’s help you see how that process from searching for a home, to becoming a homeowner, will go.

      Step 1: See What’s Out There

      The Multiple Listing Service or MLS

      Real estate agents are required to list all houses for sale on their state MLS within a certain time frame of the house being put up for sale with them and their brokerage. To do this they have to pay a subscription fee to use the service. This is to your benefit because it also allows for automated email messages. Your real estate agent can set up criteria for the type of houses you’re looking for (like bed and bath count and city or sqft) and these emails will immediately fire off to you daily or multiple times a day depending on your preference. What this means is that it will comb the MLS and ensure that you’re getting any new listings sent to you as soon as they become available. In this way, you have recency on your side to get you to set up appointments for these houses ASAP and be first to the home. This, combined with a competitive offer can win you the house that you want. 

      Now, some houses get sold off market. These can often be good deals, and your real estate agent might have an ear to the ground to be aware of them. These include FSBOs that have been on the market for a long time and need to be sold quickly, or otherwise distressed properties such as pre-foreclosure or short sale, they could also be bank owned and go up at auction somewhere.

      Then there are 3rd party websites that also operate like the MLS but haven’t different rules. These are like Zillow, Redfin, etc. Each generally pulls their data from different sources, but a lot pull from the MLS directly which can be they will be secondarily accurate to what your real estate agent will have available. However, some sites, like Zillow, actually allow for houses to be listed on their website 30 days before they’re going to go on the MLS, which means that sometimes you may find something there that you wouldn’t get notified of the MLS emails. All housing sources are different, but when it comes to finding a house, just make sure you’re seeing it on a reliable site, and that your agent will be able to get access to the property. 

      For Sale By Owner or FSBO

      If by chance you love a house that is listed as FSBO, they often don’t want to work with real estate agents. This can cause a bit of an issue because it potentially puts you at risk of entering into a deal without all the knowledge necessary that a real estate agent would provide. There’s a lot of information online, and most FSBOs are just trying to save the money of paying commissions to two agents, but either way, it would be advantageous to look at all possible options before entering into any sort of agreement. Real estate agents are unlikely to change their commission percentages, but an FSBO may be likely to change their stance depending on the quality of your offer. 

      REMINDER: Your relationship with your real estate agent is professional, while the home-buying process is deeply personal. While most real estate agents do care about their clients, it’s paramount for you to ensure that you aren’t getting convinced into a home, or that you’re standing up for your requirements. 

      Key Things to Remember When House Shopping

      1. Know your budget, and stay within it. Understand your down payment assistance options ahead of time.
      2. Know your needs, and don’t compromise on those. But compromise on the wants or nice to haves. 
      3. You’ve taken this course to prepare you for buying a home and knowing your options. Those options aren’t changing, there’s no wiggle room. Don’t make wishful choices that aren’t backed by facts. 

      Step 2: Putting in an Offer

      The real estate contract is a legal document that has a lot of mumbo jumbo. It’s time-consuming to read and understand and while making a big life decision, you likely don’t have the time to suddenly become an expert in contract law. Fortunately, your real estate agent SHOULD be able to fill in the gaps, but you also need to know what you’re working with. 

      Quick Note: Market value 

      Competitive market analysis is used across the housing market for a slew of things. Lots of banks and mortgage companies will use automated software but that doesn’t typically capture the true value of the home. That’s actually why appraisals still exist because it requires a real human to walk through a home and take measurements and acknowledge upgrades as well as existing fixtures for the home. They have rigorous learning and training to become appraisers and their opinion is valued as a result. Additionally, because they’re 3rd party so they don’t answer to the buyer/seller and they don’t answer to the banks. They simply get paid their fee and report as they find the value of the home. CMA software is a tool your real estate agent and lender will use to find a value for the home in addition to the appraisal, but the CMA will come first and help you determine if your offer on the home is going to be at market value or under/overpriced.

      Key Negotiation Options for Buying a House

      The price

      In case this isn’t obvious the price is always flexible. Your realtor will be able to create a CMA (competitive market analysis) that tells you the homes that have sold in the area or neighborhood that are similar in structure and offerings and help you gauge if their asking price is reasonable to you, and what price would be reasonable. 

      Earnest money

      Earnest money is a symbol of commitment. It tells the seller, if you accept my contract, this money is immediately put towards the house (usually required to be deposited to the title company within 3 days) and becomes collateral against the sale of the home. What this signifies is how serious the buyer is. 

      Cash offers

      Paying cash for a home allows for a much shorter time frame to close because you don’t have to go through acquiring and qualifying for a loan. It’s also a sure thing. While the official payout doesn’t change for the seller, they may be swayed to a slightly lower cash offer because it can be instantaneous and isn’t contingent on much else. Investors will often use these tactics to acquire homes. 

      Inclusions

      The contract will specify what constitutes a fixture of the home. This is anything that’s attached, like lights, flooring, custom window coverings, fans, etc. What is also very negotiable even though it’s not a fixture would be things like appliances, furniture that fits an area perfectly, outdoor playsets, or even garage or storage shelving. To the seller, these become commodities that, if the price is right, they don’t have to move which saves them headaches and hassle. To the buyer, these become perks of the purchase that they can move into a home more put together from the beginning. 

      Repairs for the home

      This aspect won’t come until after you’ve put in the initial offer, but once they accept and you’re officially under contract, you can negotiate any home repairs that come up as a result of the home inspection.

      Upgrade budget

      The seller discloses in their disclosures what large items have occurred to the house for better or worse. If there was a flood, they’re required to disclose it, if there was a major upgrade like an addition, that should be disclosed as well, so they’re familiar with the ins and outs of the house. They know if/when the carpet was replaced and the last time there was fresh paint on the walls. These two points have often been used to put towards the home in the contract. You pay us XX asking price and we’ll afford you a 5000 upgrade budget to replace all the carpet upstairs. 

      Get personal

      Find out what the biggest factors to their move are, and then see how their motivation can also fit with your own. If they want to move quickly, make sure you’re pre-approved. If they don’t want a lot of back and forth, give your best most robust offer first. At the end of the day, you are dealing with people who have something you want. Figure out how best to make you look appealing. 

      Buy down points

      With interest rates so high, it can be hard to swallow the monthly mortgage that’s sure to come your way. Sellers are usually getting a large equity payout after selling their homes and have money they can allocate towards buying down your interest rate. This allows you to keep the purchase price the same, so they’ll be making the same amount of money, but offset the monthly expense for you by having the seller pay for a lower interest rate.

      Closing Costs

      These are also negotiables when it comes to who is paying what for the home. Both parties have to close and can negotiate the responsibility here. You can split them, or either party can pay in entirety. Perhaps the seller, as an act of good faith has mentioned a specific amount they’re willing to contribute towards closing, which means, you can negotiate that higher or lower depending on other points of the contract.

      Appraisal and Inspection Contingencies

      These are optional, but it is not in your best interest to have them be optional. During 2020, lots of inspections and appraisals were waived. The inspection contingency states that you’ll accept the house as is, without an inspection and it saves time on the close of the house which is appealing to the seller but puts the buyer at risk for being financially responsible for the state of the home. The appraisal contingency states that even if the asking price of the home is higher than what the appraisal comes in at, you won’t back out of the contract. This again is very positive for the seller but hurts the buyer. You can make the choices as you see fit to get the house you want. However, it is common practice to always have this contingency in place as it protects you, the buyer from getting into a bad transaction that could be financially damaging to you.

      Bidding Wars

      When buying a house this can be a lot of people’s fear. It’s scary to put in an offer and have to wait to know if it’s accepted and even scarier if those offers end up looking more like an auction. Bidding wars indicate interest, but can also be artificially instigated if you have a seller who’s just really looking to up their equity when they sell the home.

      This is where CMA’s come into play from your realtor and can help you feel certain of the value you feel in the home, instead of feeling pressured by competing offers. Bidding wars aren’t inherently bad, but they can be stressful and will include a lot of quick decisions and negotiations. Know ahead of your home search if this is something you’re going to want to be a party to, or if it ever comes to that, know that you want to walk away.

      Never Be Afraid to Walk Away

      Sometimes the saddest reality of home buying is that sometimes all the factors combine to make it feel too difficult to complete. Perseverance will always have a place, but there can also be a time and place when you have given too much and the deal isn’t coming together the way it should and you need to walk away.

      This can be a hard choice to make when you’ve invested so much time and sometimes money into the deal already, or you’re very emotionally invested in the future you saw there. Whatever the case, listen to your gut and know that something else will come through. Be brave enough to walk away instead of forcing yourself into a situation that may not benefit you long term.

      Step 3: Under Contract

      Going under contract is an exciting time. Your offer was accepted, so now what?

      Earnest Money

      In your contract, you put up a certain amount of money that tells the seller how committed you are. Earnest means to show a sincere and intense conviction, and the money you offer indicates your interest and conviction for the house (as discussed in negotiation points). Now is the time to pay that, you’ll get a check and it will be held with the seller’s title company until closing. Rules for earnest money vary, but generally, buyers will get this money back if the sellers have done anything to void the contract, and sellers will retain the money to compensate for the loss in the buyer does anything to void the contract.

      Financial Contingency and Underwriting

      You have a lender that pre-approved you, but now it’s time for them to commit. This is when you enter the process of underwriting and the lender does a full financial history and search to approve you for the specific property and purchase price of the home that you’ve offered. Two things can happen here:

      1. You get the financing. If this is the case, you don’t need to worry about #2 and you just continue to the other contract contingencies.
      2. You don’t get approved. Your financing falls through. You can try to re-qualify through a different lender or with a different loan or using a guarantor, but you must meet the financial deadline, and request an extension that gets approved, to maintain your contract for that house. If you cannot do these things, your contract is void and you have to start back at step 1. This can be incredibly hard and frustrating and happen for a multitude of reasons. Talk with your lender about why this might have happened and how to avoid it going forward.

      Appraisal

      A home appraisal is frequently required by the lender to dictate the current market value of the home. They want to ensure that the amount of money they will be loaning you, isn’t more than the house is worth. They do this by hiring an appraiser, which we discussed in section 1.

      Expect anywhere from 1 to 2 weeks to receive your appraisal results.

      If your appraisal comes in accurate to what you offered for the home and the purchase price, this is good news that everyone is aligned with the overall value of the home in today’s market.

      However, if your appraisal comes in too low, you can renegotiate the contract terms with the seller and lower the purchase price if you didn’t waive your appraisal contingency. If the seller refuses to negotiate, but you still really want the house, you would have to pay the difference in cash to qualify for the loan.

      Inspection

      Your home inspection may be the number one question mark throughout the process. It offers you a physical insight into the quality of the property and allows you to negotiate repairs with the seller or plan for them in the future. Your contract specifies dates that the inspection must be performed to be valid, so this is a time-sensitive top priority.

      Your inspector’s report will be delivered to you and you can share it with the seller so they’re aware of the condition of the property, and you can negotiate what needs to be fixed or given to you as a financial concession to continue in the contract.

      Insurance

      Now that you know the home you’re buying, you’ll need to get your insurance sorted. You’ll need insurance to close on the property, so the sooner you have it done, the better. You’ll give this information to your realtor who will likely request the first year of insurance premiums to be paid at closing and kept in an escrow account. (This will also be done with your property taxes often and the lender will pay these for you out of the account.)

      Final Walk Through

      After all is said and done, you will have negotiated what needed to be done to the home before you took ownership. Any repairs that were identified during the inspection or any fixtures or furniture that were negotiated during the offer process. During the final walk-through, you’ll go to the house and ensure that everything you expected is in the house and that the condition of the home was as agreed upon. If there are any problems, you can delay closing based on the contract that was signed by you and the seller and come to an agreement to get the home up to condition. However, before delaying closing, you’ll want to make sure that the condition is enough to warrant a delay.

      Step 4: Closing

      Before the big day, when you get keys to your new home, the lender provides a detailed outline of exactly what this decision looks like for all parties involved in your closing disclosures which you’ll receive about 3 days before your closing appointment.

      The Day of Closing

      Closing on a house comes with a lot of paperwork. You and all relevant parties will sit down and sign approximately 100 pages about your new purchase. Expect this to take about an hour. The lender wants to ensure that everyone is on the same page with how you plan to pay for your new home. They recheck everything to verify that your life and circumstances haven’t changed drastically from when you were first approved for the loan. Primarily, that you are still employed, with the same credit score, and the same savings in your accounts to complete the transaction. You will need to sign, date, and initial at every instance. Bring a photo ID and know how to initiate a wire transfer with your banking institution.

      Closing is a dot your I’s and cross your T’s kind of situation; the details matter. Ensure you’re looking for who is responsible for what costs: these are dictated by the negotiations you went through before going under contract for the property. If the seller was paying for the home inspection, but it’s under your column of responsibility, speak up! This is not a time to say you’ve read the terms and conditions when you haven’t. If at any time you have a question or don’t understand where the total came from—ask! Chances are you’ll get a good explanation and feel more at ease, and occasionally you may have caught something that needs clarification. The underwriter may need to reprint a page and have everyone sign (or resign) it, so don’t get too ink-happy. Take your time, read thoroughly, and focus on the task at hand.

      If you leave the closing appointment and have terrible buyer’s remorse, you have 3 days to invoke your “Right of Rescission”. This means you can essentially dissolve the loan and paperwork you signed, and avoid taking out the debt necessary to purchase the house. These don’t happen often, nor do they come without a cost, but it is an option. 

      Once all of the paperwork is completed, you’ll get a copy and wait for the lender to tell you that the wire money came through and you are free to take ownership of your new home. What a journey!

      Find out which down payment assistance you qualify for

      Bring your first-home purchase within reach years sooner with down payment assistance (DPA).

      Stairs Financial matches you with a targeted list of loans and down payment assistance programs for which you qualify, making it easy to compare DPA options side-by-side, apples-to-apples.

      You also get access to knowledgeable lenders who understand the nuances of your specific DPA program, so you can reduce the headaches of buying a home and ultimately get the most benefits possible.

      Learn more about your down payment assistance options.

      Find up to $15,000 towards a home 🏠

      Compare local down payment assistance and find a mortgage, fast.

      Where do you want to buy?
        Search by ZIP code, address, city, county, or neighborhood
        Stairs Footer Logo

        Help

        Partner with usCalifornia Down Payment AssistanceColorado Down Payment AssistanceIdaho Down Payment AssistanceTexas Down Payment AssistanceMinnesota Down Payment AssistanceMissouri Down Payment AssistanceNorth Carolina Down Payment Assistance

        Legal

        Terms of UsePrivacy PolicyGLBA Notice

        Protected by reCAPTCHA:

        Google Terms of ServiceGoogle Privacy Policy

        Lattice Thinking, Inc. All rights reserved. Lattice Thinking, Inc is a mortgage broker that does business under the business name Stairs Mortgage. Lattice Thinking, Inc is not a mortgage lender and, therefore, does not make residential mortgage loans.

        NMLS # 1839645


        Consumer Access


        Licensing Status

        © Lattice Thinking, Inc. 2024