Updated 2/7/24
As the housing market continues to stabilize and mortgage rates appearing to be on a downward trend, first-time home buyers are anxious to take the plunge into homeownership. But buying a home involves more than just picking one and making an offer. A lot more.
“It’s really important for first-time home buyers to educate themselves before jumping into the process so they know what to expect,” said Eddie Jasso, Branch Manager and buyer expert with Offerpad Mortgage. “Buying your first, or second or third home can be incredibly complicated and time-consuming. The good news is there are programs and things you can do ahead of time to give you more control over the process, so you have a smoother, less stressful experience and save time along the way.”
Read on to find out how to get ahead in your journey to homeownership and keep up with fluctuating mortgage rates.
Get your finances in order
Making sure your finances are in good shape is the first and most important step toward homeownership. Once you have your down payment saved, be sure to check your credit score. The higher your score, the lower – and better – the rates lenders can offer you. (Remember, the lower your interest rate, the lower your monthly mortgage expense. 😉)
Bonus tip: Research first-time home buyer assistance programs! Even if you’ve saved up for your down payment, you may be eligible for some assistance programs. Many states and some cities and counties offer first-time home buyer programs, which typically combine low-interest-rate mortgages with down payment assistance and closing cost assistance. Tax credits are also available through some first-time home buyer programs.
Gather necessary documents
No one likes paperwork, but it’s important to have all the documentation a mortgage lender needs in order to approve your loan ready. This includes proof of income, such as your two most recent pay stubs and tax returns from the last two years. You’ll also need your two most recent bank statements showing you have the money available for your down payment, as well as copies of any current mortgage payments or rental payment history.
Having the documentation you need updated and ready will help you get through the mortgage approval process faster.
Shop for a mortgage first
Most first-time home buyers tend to look for a home first (that’s the fun part, right?) before finding a lender. But here’s the scoop on how to really find – and afford – the home you want.
Shop for a mortgage first. With mortgage rates continually changing, look for a lender that offers services and programs like these. (Pro tip: Offerpad Mortgage offers all of them– and more. 😉):
- Verified Approval Letter: Unlike a basic pre-qualification, a Verified Approval Letter (VAL) is a fully underwritten approval with many conditions cleared before you start searching for a home. With a VAL, not only does the buyer have a high degree of certainty they can qualify, but they also gain a valuable “head start” since their loan is almost completed when they find a home and go under contract. In most cases, the underwriter will just need an appraisal and some minor administrative conditions to give final approval.
- Lock and Shop1 (free advanced rate lock): Once you’re pre-qualified or pre-approved for a loan, Lock & Shop programs let you lock in your interest rate for a certain time period while you look for a home. This keeps your rate from going up between the time you apply for a mortgage and when you close. Ideally buyers should find a lender that allows them to lock their interest rate for up to 90 days with a one-time float down option. That means if rates go down while you’re locked in, you can still get the lower rate.
- Interest Rate Protection2: With rates as volatile as they are today, it’s good to know you can capture the benefit when they go down. An interest rate protection program like those available through Offerpad Home Loans can provide added certainty that if rates do go down after you close on a home, you can refinance with discounted or zero lender fees.
Stay within your budget
No matter how much you love a home you’re thinking about buying, try to stick to your budget. Commit to the max you’re willing to pay based on the market, your budget and loan qualifications. When budgeting for a home, keep in mind the total cost, including homeowners’ insurance, property taxes and potential home improvement costs.
Speaking of home improvements, you may think you’re getting a great deal on a fixer-upper, but buyer beware. Those homes usually come with a lot of extra work and hidden costs. That’s why it’s a good idea for first-time buyers to seek out move-in ready homes. With a move-in ready home, buyers can skip the stress and inconvenience of a remodel and start enjoying their new home right away. You can always make updates later when you have the time and budget.
Negotiate a seller-paid interest rate buy down
Want to save money on your monthly mortgage payment? Instead of negotiating a lower sales price on a home, ask the seller to help pay down your interest rate. Here’s how you’ll save. If you purchase a $400K home, requesting a buy-down rate instead of a $10K price reduction can shave almost $150 off your monthly mortgage payment.
Offerpad Mortgage has a great buy-down program you can take advantage of.
On select Offerpad-owned homes, qualified buyers can get an FHA permanent mortgage rate at 4.99% (5.70% APR)* with Offerpad Mortgage. Plus, if rates go down after purchasing a home, Offerpad Mortgage will refinance it with ZERO lender fees!
This special program is conditional upon a full-price offer, with 3.5% down and a 660 credit score on an owner-occupied FHA 30-year fixed first mortgage. It’s just our way to help make homeownership more affordable. For full details and all the fine print, visit https://my.offerpad.com/buydown/.
Get a detailed home inspection
After you’ve made an offer and the seller has accepted, make sure to get a home inspection. A home inspection is a visual review of the quality, safety and overall condition of the home. If any serious issues or concerns are found, consider additional inspections by licensed contractors so you’re not stuck with unexpected repairs that could add thousands to the cost of the home.
Review your Closing Disclosure
It’s time to close! You’ll receive a Closing Disclosure, or settlement statement, at least three days prior to close. This is a really important document, so take the time and make sure you review it thoroughly. It spells out how much cash you need to bring to the closing table (wire or cashier’s check). Ask your agent or loan officer questions if you’re unsure of anything.
If everything looks good, you just sign some paperwork and send in your cash to close. The lender will fund the remaining portion of the purchase price, title is transferred, and you get the keys to your first home! Congratulations!
Ready to become a homeowner? Get pre-qualified and start searching for homes here today.
1Offerpad Lock & Shop program available only in states where Offerpad Mortgage LLC is licensed to operate. Offerpad Mortgage is currently available in Alabama, Arizona, Colorado, Florida, Georgia, South Carolina, Tennessee and Texas. NMLS #2087710. Terms and conditions apply. Speak with your Offerpad Mortgage Loan Officer for details.
2 Interest Rate Protection only available in states where Offerpad Mortgage is licensed to operate. Terms and conditions apply. Not all homes and buyers are eligible. All loans subject to credit approval. Some loans cannot be refinanced for the first six months.
*Limited Time Fixed Interest Rate 4.99% / 5.70% APR; Fixed Interest Rate 5.50% / 6.236% APR (“Promotion”) valid on contracts entered as of 12/22/23 – 1/5/24 on select Offerpad-owned Homes (each an “Eligible Home”) that close on or before 3/29/24 (“Promotion Period”). The advertised annual percentage rate (“APR”) of 5.70% is calculated using seller incentives and is based on an FHA 30-Year fixed rate mortgage with a Total Purchase Price of $350,000 and a loan amount of $337,750, 3.50% down payment and 660 median credit score. Available for FHA loan limits, owner-occupied only. The advertised APR of 6.236% is calculated using seller incentives and is based on a Conventional 30-Year fixed rate mortgage with a Total Purchase Price of $350,000 and a loan amount of $315,000, 20% down payment and 760 median credit score. Available for conventional conforming loan limits, owner-occupied only. Offerpad, through Offerpad Mortgage, LLC (“Affiliated Lender”), has a fixed interest rate for a limited pool of funds (minimum loan amount $200,000). Rate(s) may change or not be available at the time of loan commitment, lock-in or closing if funds are exhausted. Actual savings may vary. For eligibility for the promotion, Qualified Buyers of an Eligible Home must (1) pre-apply with Affiliated Lender by visiting www.offerpadhomeloans.com prior to submitting offer to qualify for this Promotion; (2) make a full-price qualifying offer on an Eligible Home; and (3) satisfy all other closing date and eligibility criteria. Seller reserves the right to modify the Promotion terms and/or Promotion Period at any time prior to contract. Buyer is not required to finance through Affiliated Lender to purchase a home; however, Buyer must finance through Affiliated Lender to receive this Promotion. Interest rates and available loan products are subject to underwriting, loan qualification, and program guidelines. Maximum seller contributions apply. Not to be combined with any other incentive offer, except if otherwise expressly set forth above or in an addendum to the purchase contract. Other restrictions may apply. Not all Borrowers will qualify. Services not available in all states. Offerpad Mortgage, LLC d/b/a Offerpad Home Loans, NMLS #2087710, 2150 E. Germann Rd., Suite 1, Chandler, Arizona 85286, Licensed locations and information available at: https://www.offerpadhomeloans.com/CompanyStateLicenses | www.nmlsconsumeraccess.org.