First-Time Home Buying

First-Time Home Buying

Nearly everything you need to know about buying your first home – from deciding to purchase to moving in.

Buying a home is a huge decision. For most people, it’s the biggest purchase they’ll ever make. It requires careful planning, budgeting and consideration. As a first-time buyer, it’s vital to go into the process armed with the knowledge you need to ensure you make the right choice on both the actual home and the financing.

We’re Addition Financial Credit Union. We consider it our calling to provide our members with the guidance they need for life’s big financial moments. We’ve put together this primer on first-time home buying to help you navigate the process from making the decision to buy a home to closing with a minimum of stress and uncertainty.

Am I Ready to Buy My First Home?


The first step in the home-buying process is deciding if you’re ready to buy your first home. There are a lot of things that must fall into place before you buy a home. 

Differences Between Renting and Owning

Let’s start with the differences between renting and owning. The biggest difference is an obvious one, which is that you’ll own the place you live instead of simply renting space there. When you pay your mortgage each month, you’ll be building equity in your home. That doesn’t happen when you rent.

Another key difference is that when you rent an apartment or house, you’re not responsible for things like maintenance and repairs. Those things are taken care of by your landlord or a maintenance company. Your only responsibility in that regard is to report problems as they occur, so that your landlord can fix them. 

When you’re a homeowner, you’ll be the one repairing things – or paying to have them repaired if that’s necessary. That’s a big responsibility to take on and it’s important to be prepared for all the costs of buying a home before you make the decision.

If personalizing your living space is important to you, renting isn’t ideal. When you don’t own your home, you’ll most likely be limited in what you can do. Some landlords won’t allow tenants to paint the walls. You may be stuck with colors and design features that you don’t like. 

As a homeowner, you can change whatever you want. You’ll be free to paint your home inside and out, knock down walls and do anything else you need to do to make the space work for you.

That’s a lot to consider! Click the link below to try our first-time homebuyer readiness quiz to see where you land.


Take Quiz: Are you ready to buy your first home?


    Pros and Cons to Buying a Home

    One of the things that can be confusing for first-time home buyers is that there are a lot of myths and misunderstandings around the process of buying a home, including mortgages. We want to make sure you know the truth. Here are the pros and cons to buying a home.

    There are some significant advantages to buying a home. They include:

    • You’ll own your home and build equity over time.
    • You can make any improvements and changes you desire.
    • Owning a home offers a level of stability you can’t get from renting.
    • In the long run, residential real estate tends to appreciate over time, meaning that you will probably be able to earn a profit when you sell your home.
    • You may be able to deduct mortgage interest and property taxes when you file your tax return.
    • If you make on-time mortgage payments, you can improve your credit score.
    Homeownership Downsides

    Potential Downsides to Homeownership

    There are some potential downsides to homeownership as well, and some of them are things that first-time buyers may overlook:

    • Buying a home may be more expensive than renting when you add property taxes, maintenance and HOA fees to your mortgage payment.
    • At first, you won’t have any equity in your home because your mortgage payments will all go toward the interest at the beginning of your term.
    • While you will build equity in your home eventually, at first you won’t have any true ownership.
    • You will be responsible for handling (and paying for) all repairs and routine maintenance.
    • There’s no guarantee that you’ll be able to sell your home for more than you paid for it.
    For many of our Addition Financial members, the dream of homeownership is enough to make the choice to buy a worthwhile one. We suggest weighing the pros and cons carefully and taking your personal situation and plans into consideration as well.

    Steps to Securing Home Loan Financing


    The financial implications of buying a home are considerable – and they can be daunting for first-time buyers. The key to navigating the process is to get your financial ducks in a row before you start looking at houses.

    Costs of Buying a Home

    One of the most common misconceptions first-time buyers have is that they don’t fully understand the costs associated with buying a home. Many of them focus only on the down payment. That makes sense, since a down payment is the biggest up-front expenditure when you’re buying a house, but you should know about the other expenses as well.


    Down Payment

    Let’s start with the down payment. Conventional wisdom says you’ll need about 20% of the purchase cost as a down payment. However, FHA loans and some other options mean that you may be able to buy a home with as little as a 3.5% down payment. A larger down payment may very well translate into a lower interest rate, so it’s important to keep that in mind.


    There are costs associated with the buying process as well. The two most significant are the home inspection cost and the mortgage application fee. You can expect the inspection fee to be between $300 and $500, and the mortgage application fee to be about $100.

    Closing costs account for about 2% to 3% of the purchase price. They include document preparation fees, property appraisal and survey fees, title insurance, homeowner’s insurance, recording fees and legal fees. They may also include discount points, which allow buyers to reduce their interest rate by buying points from the lender.

    All told, you should expect to spend about 6% of the purchase price in up-front costs and it’s important to be prepared for those expenses before you start looking for a house to buy. Keep in mind that there are down payment assistance programs for first-time buyers, too!



    The Real Cost Guide to Buying a Home This Year

    In this guide, you’ll learn everything you need to know about the true costs associated with buying a home this year.


    How to Save Money to Buy a Home

    Saving money to buy a home takes time and planning. We suggest starting by putting your savings into a high-yield savings account such as Addition Financial’s Insured Money Market Account.

    What about building your savings? There are lots of ways to find extra money in your budget each month. You may want to start by cutting down on discretionary spending. For example, you could reduce the amount you spend on non-necessities such as entertainment. You can also set spending limits to reduce what you buy in other areas, such as clothing or food.

    Even your fixed costs may be reduced with a little bit of work. For example, a lot of insurance carriers will reduce their premiums if you consolidate your policies with one company. If you have car insurance with one carrier and renter’s insurance with another, ask both companies what they can do for you if you move both policies to them.

    Money Saving Tips

    Quick Money Saving Tips

    • Choosing a less expensive cable package or eliminating cable and using streaming services
    • Cutting back on your cell phone data
    • Buying groceries in bulk and cut back on take-out meals
    • Getting a roommate
    • Negotiating your rent – some landlords will offer a discount if you’ll agree to a longer lease

    Gamifying your savings can help too. Try saving your change, saving every $5 or $10 bill that comes your way or competing with a friend to see who can save more.

    What are the Different Mortgage Types?

    Before you apply for a mortgage, you’ll need to know about the different types of mortgages that are available. We’ll break them down into categories to make them easy to understand.

    The first category is conforming versus non-conforming loans. Conforming loans are loans that meet the lending standards of Freddie Mae and Fannie Mac. For 2020, the maximum amount for a conforming loan in most counties is $510,400. Other requirements for conforming loans include a credit score of 620 or above, a down payment between 5% and 20% of the purchase price, a 41% maximum debt-to-income ratio and mortgage insurance.

    Non-conforming loans are sometimes called jumbo loans. Since these are not insured by the government, the standards for approval are higher than for conforming loans. You will need a credit score of 680 or higher, a minimum 15% down payment, a maximum 43% debt-to-income ratio and significant cash reserves to qualify.


    Fixed Rate vs. Adjustable Rate Mortgage

    With a fixed rate, you will pay the same interest amount for the term of the mortgage because it’s locked in at closing. The only way it can change is if you refinance your mortgage. By contrast, an adjustable rate mortgage is linked to an index such as the maturity yield on one-year Treasury bills, and includes a built-in margin. After an initial fixed period – usually two years – the rate adjusts at specified intervals, with the margin staying the same.


    Fixed rate mortgages offer more stability than adjustable rate mortgages. Adjustable rate mortgages can save you money if the index stays low, but they may also end up costing you money if the reverse is true.

    The final consideration for mortgages is the term you choose. The standard is 30 years. If you can afford a 20-year or 15-year term, you can save a significant amount in interest. However, you’ll need to be confident that you’ll be able to handle the higher monthly payments that come with a shorter term.

    How to Get Pre-Approved for a Home Loan

    Choosing the right lender can make a difference in your home buying experience. Credit unions tend to take a more hands-on approach and may offer lower interest rates than banks. If you want guidance through the process, you should choose a community-based credit union for the best results.

    Mortgage pre-approval is something first-time buyers should consider. You’ll go through a preliminary application process with your lender and in return, you’ll have a clear idea of how large a mortgage you can get and what your interest rate might be.

    The main benefit of pre-approval is that sellers like dealing with buyers who are pre-approved. It takes a lot of the uncertainty out of the process. Pre-qualification is a less rigorous process that doesn’t offer the same benefits as pre-approval.


    How to Find Your Dream Home


    Once you’ve saved for a down payment and applied for mortgage pre-approval, it’s time to start looking for a home to buy. 

    How to Choose a Real Estate Agent

    While it’s possible to buy a home without a real estate agent, an experienced agent can provide you with realistic guidance and advice as you evaluate your options.

    Choosing an agent is an important decision. Here are some tips for choosing a reliable agent:

    • Ask for recommendations from your friends, family and your lender
    • Read online reviews
    • Interview at least three agents before choosing one
    • Ask for and check references
    • Read your contract thoroughly

    We recommend doing a final gut check. Choose someone you feel comfortable with and then verify your gut feeling by checking references and doing your homework.

    Narrowing Down Your Home Options

    Touring homes is exciting. Most people try to imagine what it would be like to live in each one. Because it’s a big decision – one that will affect you for years to come – we want to offer some guidance about how to narrow your choices.

    You may have created a list of priorities for your new home. For example, if you’re planning on starting a family, buying a home in a good school district may be your top concern. You may also have preferences in terms of square footage, number of bedrooms and what kind of yard your home has.

    We suggest making a list of priorities and ranking them. You may not be able to find a home that has everything on your wishlist. That’s why it’s helpful to know that a good school district is more important than a fenced yard, or that you’d prefer a newer home to an older one.

    Once you have your list of priorities, you can make a list of pros and cons for each home you’re considering. A home that is missing your top priority will in all likelihood be removed from your list, while those that hit the mark should be looked at in more detail.

    It’s unlikely you’ll be able to make a true apples-to-apples comparison since no two homes are like. You may also want to get input from your real estate agent, friends and family members.


    Listen Now: Making it Count Episode 6 “Buying a Home for the First Time”


    Ways to Make Sure You Get the Home You Want

    You’ve found the house of your dreams… but how can you make sure that yours is the winning offer? When there’s more than one offer on the table, there are some ways to make yours the one that gets chosen.

    If you’ve got a mortgage pre-approval, that should give you a leg up on any buyer without a pre-approval because it removes uncertainty in the mind of the buyer. You may also be able to improve your odds by increasing your offer or upping the amount of your down payment.

    Another option is to include an escalation clause in your contract if you can afford it. Such a clause allows for automatic increases in your offer when you get outbid to a predetermined limit. If you can afford to pay cash, then that may be enough to swing the deal in your favor.

    If the home has not yet been inspected, you should consider calling your inspector and asking them to speed up the inspection. A thorough inspection can eliminate potential deal breakers and give the seller some peace of mind about doing business with you. You also have the option of waiving your contingencies, but there are risks associated with that option. For example, if you waive contingencies and then your inspection reveals foundational problems with the home, you’ll still be able to pull out – but you’ll forfeit your earnest money.

    One final option is to talk to the sellers and tell them why buying their home is important to you. Getting emotional won’t work with everybody, but it may work with some sellers.

    Under Contract

    Going Under Contract with a Home

    Your offer has been accepted and that means it’s time to draw up a contract for the purchase of your home. But what does it mean to go under contract

    Simply stated, it means that you will sign a purchase agreement for the property you’re buying and put down your earnest money – usually between 1% and 2% of the purchase price – to secure the agreement. The typical term for a contract is between 30 and 45 days, but it can be longer.

    As noted above, you still have the option of pulling out after the home you’re buying is under contract. For example, if you have not waived contingencies and the home inspection happens during the contract period, something could turn up that would make you reconsider. If you do so, you will lose your earnest money.

    What does it mean to “close” on a house?

    The closing is the final step in the home buying process. The buyers typically show up to the title company and sign all the documents necessary to transfer ownership from the seller. After the buyer has delivered the final closing costs via wire transfer, the keys can officially be handed over!


    Typical Steps in the Closing Process

    For first-time buyers, the closing process can be confusing. Here’s what you need to know.

    Before the closing, you should review your loan terms and settlement statement to make sure you understand what you’ll be signing. If you have questions, contact your lender and ask them ahead of time to avoid problems at the closing. You should also schedule a walk-through of your new home 24 hours before the closing. This is your last chance to confirm that your contingencies have been met and that the sellers have moved out.

    You’ll need to bring documentation to the closing, including:

    • Copies of your purchase agreement and home inspection report
    • Proof of FHA mortgage insurance, if required
    • Proof of homeowner’s insurance
    • A photo ID that matches the name on your paperwork. (If you’ve changed your name due to marriage, make sure to update your ID prior to the closing. A notary won’t be able to notarize the documents if your name doesn’t match the paperwork.)

    You should expect several people to attend the closing, including you, the sellers, your attorney, their attorney, your real estate agent, a representative from the title company and a representative from your lender, as well as a notary.

    Our suggestion is to ask for an estimate of how long the closing will take and then build extra time into your schedule for the unexpected. You’ll be required to sign your name many times and you should plan for questions, potential issues with the paperwork and so on. If problems arise, stay calm and ask for clarification.



    The First-Time Homebuyer’s Guide to Mortgages

    In this guide, you’ll learn everything you need to know about the home purchasing and mortgage lending process as a first-time buyer.

    How to Ensure a Smooth Closing

    There are some things you can do to make your closing a smooth one. It’s not possible to anticipate every problem, but here are some of the things we recommend.

    First, read the terms of your loan and your settlement statement ahead of time and get clarification from your lender if you have questions. You shouldn’t go into the closing expecting to read the contract for the first time.

    Second, bring all necessary paperwork with you. If you’re not sure what you need, double check with your lender. In most cases, you’ll need a photo ID that matches the name(s) on your loan, a copy of your signed purchase agreement, your completed home inspection, proof of FHA mortgage insurance and proof of homeowner’s insurance.

    Third, it’s essential to manage your expectations. Closings can take a long time. You’ll be signing your name repeatedly and initialing the contracts as well. Everything must be notarized. You should try to go into the closing with a calm attitude. If questions arise, make sure you understand them and don’t be afraid to ask for clarification when it’s necessary.

    Finally, as we already mentioned, build extra time into your schedule. While it’s unlikely that your closing will take hours longer than anticipated, we recommend against scheduling anything immediately after the closing. Giving yourself some breathing room will minimize your stress.

    What to Do if Something Goes Wrong During Closing

    What happens if you’re in the middle of your closing and something goes wrong? Most closings are simple but that doesn’t mean you shouldn’t expect the unexpected. Here are some potential problems and suggestions of what to do if they arise.

    You Lose Your Job Between the Offer and the Closing

    Your mortgage approval is contingent on proof of income, so this is a problem that has the potential to derail the closing. Your best bet is to inform your loan officer immediately. If you can’t find a job quickly, you may need to ask someone to cosign the loan.

    The Appraisal is Too Low

    The bank relies on a property appraisal to justify the amount of your mortgage. If the appraisal is too low, you may need to pay the difference in cash. Or, if you find out early enough, you can request a second appraisal.

    Contract Mistakes

    There are Mistakes in the Contract

    You should get a complete copy of all paperwork several days before the closing. It’s your responsibility to read it over and double check everything, including dollar amounts, names and the loan terms. If you find any errors, you should inform your agent and the lender immediately. If you find an error on the day of the closing, say so and request a corrected copy of the contract

    There's an Encumbrance on the Property

    An outstanding lien on the property can prevent your closing from happening on schedule. Your lender will do a title search and you can get some peace of mind by asking to see it before the closing. If there are issues, you and your agent need to work with the seller to get them cleared up as quickly as possible.

    There's an Issue with the Property in the Final Walk-Through

    After the home inspection, it’s common for the sellers to address serious issues as a contingency of the sale. If these issues are unresolved at your final walk-through, you should notify your agent immediately. They’ll negotiate with the seller’s agent to handle the repairs or credit you at the closing, so you can take care of them.

    There's a Natural Disaster that Damages the Property

    Living in Florida, the threat of storm damage is significant. Minor damage that the seller takes care of immediately shouldn’t delay anything. There should be a clause in your contract that gives you, the buyer, the option of backing out if there is significant damage from a natural disaster.

    There's a Delay with Your Down Payment

    A lot of first-time buyers make the mistake of showing up with a personal check for the down payment. That’s not an option. You’ll need either a certified or cashier’s check, which you can get ahead of time; or you’ll need to arrange for a wire transfer or ACH transfer to be done ahead of time to ensure the money is there in time for the closing.

    In general, if you have any doubts or if anything changes between the time you go under contract and the day of the closing, you should inform both your agent and your loan officer immediately. That’s the best way to minimize the risk of a last-minute problem.


    Tips for Moving In and Renovating

    After the closing, it’s time to move into your new home. It’s an exciting time that may also come with some stress. At Addition Financial, we work with members as they plan to move and undertake home improvements and renovations.

    What are the average moving costs?

    Moving can be an expensive proposition even if you plan to enlist the help of friends and family instead of hiring movers. It’s helpful to create a moving budget that allows for movers or a truck, gasoline, packing supplies, cleaning supplies and anything else you might need during the course of your move. The American Moving & Storage Association estimates that the average in-state move costs about $2,300 with movers, and an interstate move comes in at an average of $4,300.


    We strongly recommend getting into the home and giving it a thorough cleaning before you move. It’s always easier to clean with no furniture to get in your way. You may even want to hire a cleaning service to ensure everything looks its best for moving day.

    It’s natural for your focus to be on closing costs and your down payment when you’re in the process of buying your first home. But after you move, you’ll need to create a budget that allows you to meet your financial obligations in your new home

    There are also some things you should do immediately for the safety and comfort of your family and pets. They include finding the locations of important safety features, including circuit breakers and shut-off valves for water and gas; checking the batteries in smoke and carbon monoxide detectors; and creating a safe place for your pet and finding nearby resources, such as a dog park or vet.

    We recommend getting to know the neighborhood and neighbors as quickly as possible. Taking a quick walk or drive around the neighborhood is a good way to orient yourself. Walking may make it easy to interact with your neighbors and make a quick introduction, too!

    We have additional tips for what to do when you move into your new home here.


    Print Now: New Homeowner Monthly Expense Worksheet

    Renovation Plan

    Making a Renovation Plan

    Even if major repairs were handled by your home’s previous owners, you may plan renovations to your new house. There’s a natural order for renovations that first-time homeowners may not be aware of.

    The first step is careful planning. Make a master list and budget for your renovations. Then, you should do things in this order:

    • Roof replacement, foundation repairs, water issues and siding
    • Demolition
    • Structural carpentry (tearing down or building walls, etc.)
    • HVAC, plumbing & electrical
    • Windows
    • Insulation, drywall & framing
    • Fine carpentry (cabinets & fixtures)
    • Interior painting, wallpaper & finishing
    • Flooring
    • Siding & gutters

    A good contractor will know the best order to undertake your planned renovations. If you’re doing them yourself, make sure to research the process. For example, it makes sense to handle plumbing and electrical repair when the walls are open after demolition. Doing the floor last reduces the likelihood of paint marring your new flooring.

    How to Finance Renovations

    If you’re lucky enough to have the money to pay for your renovations out of pocket, you can skip this section. But few people can undertake major renovations and repairs without financial assistance.

    You have several choices for financing your renovations. The first is a personal loan, which offers you an up-front payout of money to use as you need and monthly payments for the term of the loan. 

    Your next option is to take out a second mortgage to pay for renovations. Depending on the size of your first mortgage, you may be able to qualify for a second mortgage. Some people even take out a second mortgage at the same time they get their first, particularly if they know they will be doing renovations immediately. The key is to make sure you know how much your monthly mortgage payment will be and that you can afford it.

    The final option is a Home Equity Line of Credit, or HELOC. To qualify for a HELOC, you’ll need 20% equity in your home, a credit score of 660 or above and a good payment history on your mortgage and other debts. A HELOC is not something you will be able to get immediately after moving into your home because it uses your equity as collateral.

    The primary difference between a second mortgage and a HELOC is in the disbursement of funds. A second mortgage is almost always a lump-sum payment, while a HELOC is a line of credit that allows you to withdraw money as you need it to pay for your renovation.


    Bonus Advice for First-Time Home Buyers


    Taking on a mortgage is a major responsibility and there are a few things you can do to minimize your payments and save money.

    The first thing is to consider mortgage amortization strategies. Choosing a longer mortgage results in lower monthly payments but higher overall payments, while a shorter term translates to higher monthly payments and lower overall cost.

    You also have the option, with most lenders, of paying an extra amount toward the principal of your loan each month. Some people – particularly those who are paid bi-weekly – choose to make 13 mortgage payments each year to pay down their balance and reduce the term of their mortgage.

    If you can afford it, you may want to consider re-amortization. You would need to pay your lender a lump sum to reduce your principal. Then, you can ask them to re-amortize your payments based on your new balance.

    Another financial consideration is the length of time you live in your new home. If you live there for a short time, you’ll be on the hook for capital gains tax when you sell it. To avoid paying the tax, you’ll need to live in the home as your primary residence for at least two of the five years prior to selling it.


    When should I consider refinancing my home?

    Finally, you’ll need to know about refinancing your home. If your credit improves or your income increases, you may be able to qualify for a lower interest rate after you’ve lived in your new home for a few years. The process of refinancing is similar to the mortgage application process. We suggest using our mortgage refinancing calculator to determine how much you can save by refinancing your mortgage. Saving money isn’t the only reason to refinance your mortgage. It can also help you undertake home improvements or renovations with a cash-out refinance. The money from a cash-out refinance may be used for other purposes as well, including college tuition or paying down debt.


    The Refinancing Checklist for Savings-Oriented Homeowners

    In this guide, you’ll learn everything you need to know about refinancing your home with savings in mind.


    At Addition Financial, we work with first-time home buyers every day to help them navigate the mortgage application process. We believe it’s our job to provide our members with the advice, guidance and resources they need for financial health. You can learn more about the benefits of membership here or get started applying for our first-time homebuyer mortgage here.