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Entering the housing market for the first time can be daunting but also quite rewarding. For many, the daunting part is the long-term cost, along with all the potential unknowns. Will I find a house I like? Do I have enough saved up for a down payment? How do I get a mortgage and can I afford one?

However, the payoff can be significant. Owning a home is generally a sound investment that allows individuals to build generational wealth for themselves and their families for years to come. Homeowners also typically report a great deal of pride in being able to call a place their own.

As you prepare to begin this journey for the first time, here are some important things to keep in mind.

Education is key

The old saying “you don’t know what you don’t know” is certainly true in the housing market. That’s why homebuyer education is so critical, particularly for first-time buyers.

There are many educational resources available to help first-time homebuyers with their purchase. For instance, our Homebuyer Resource Center offers a buyer’s handbook, a housing checklist, information on mortgages and more. A number of homebuyer courses are also available, both online and in-person. Try searching for some in your area or talk to a mortgage loan officer for recommendations.

As you learn more about the entire process, you’ll be better equipped for all the steps along the way.

Determine what you can afford

This is probably the biggest question area for most first-time homebuyers. Purchasing a home is a significant long-term investment, so it’s important to establish a budget and stick to it.

To buy a home, you’ll likely need the help of a mortgage loan. The first step in that process is to get pre-approved. A lender will look at items such as pay stubs, bank statements and credit score to get a better sense of your financial situation. This will determine how large of a loan you may be able to afford.

Keep in mind that the amount you are approved to borrow may not necessarily be what you want to spend. Many factors impact your unique financial situation, such as other loans you may be paying off or children that you need to take care of.

Lenders will look at your debt-to-income ratio when reviewing a mortgage application and calculating maximum monthly payments, and you should be aware of this figure as well. To calculate the ratio, take your anticipated mortgage payment plus other debts and divide it by your gross monthly income. For instance, if you’re expecting a $1,500 mortgage payment and you have $500 in other debts, your total monthly debt figure would be $2,000. If your gross monthly income is $5,000, your debt-to-income ratio would be 40%, or $2,000 divided by $5,000.

The Consumer Financial Protection Bureau suggests maintaining a debt-to-income ratio of 36% or less, though it notes that lenders will sometimes go up to around 43%¹. The example above is right around that range, but you might determine that it’s a bit more than you’re comfortable with on a monthly basis. Lowering the total monthly debt in that scenario to $1,800, either through smaller mortgage payments or reducing other debts, would lower the ratio to 36%.

These are the types of things to think about as you look at available homes.

Finding the right home

After getting pre-approved for a mortgage amount, it’s time to find a home that falls within your budget. Remember, you don’t necessarily need to borrow the full amount of what a lender may offer. Deciding what you’re comfortable paying will help you determine which homes to look at and what to ultimately spend.

When you find a house you like and are ready to make an offer, you’ll work with the lender on the final mortgage application and approval. While the pre-approval looked at your financial situation, this process ensures that the home qualifies, so the title will be reviewed and an appraisal will be done before the lender signs off on a mortgage.

Once an offer is accepted and a mortgage is finalized, one of the final steps to lock everything in is a down payment. This can be another financial hurdle, and an old belief is that you need to pay 20% down, which can make owning a home seem impossible. However, this is not true anymore, as lenders are often willing to accept much smaller down payments. There are also a number of state and local programs available that offer down payment assistance depending on someone’s financial situation. You can talk with your lender to learn more about these options.

Buying a home is a big step, but it is possible. Connect with our team if you’re ready to learn more and move forward in your homebuying journey.