Back to blog For many people, buying a home is not only their biggest financial goal, but also a life’s dream. Home ownership not only helps you put down roots in your community, it can also help build equity and create generational wealth. For such a big step, preparation is important. This starts at the very beginning of financial planning.
Make a budget.
Knowing your financial picture is important. Would a home loan fit in to your finances? Before you start house-hunting, it’s important to establish a solid budget and develop good money management habits.
To build your budget:
- Calculate your income
- Identify all your expenses
- Categorize your expenses as fixed or variable
- Subtract your expenses from your income
- Write your budget down and stick to it
If you come out ahead each month, that’s great! You can start saving for a down payment, and you might have some room to take on a higher housing expense in the form of a mortgage payment, compared to rent.
If your expenses exceed your income, look for ways to cut back.
If you don’t know where to start, GreenPath is an OnPoint-recommended organization that offers financial management tools and counseling to assist you.
Think about what you can afford.
Depending on where you buy in Washington or Oregon, your monthly mortgage payment might be more or less than what you’re paying in rent. But when it comes to home-buying, it’s easy to overlook some of the other expenses to plan for, including:
- Down payments
- Closing costs
- Property taxes
- Homeowner’s insurance
- Home maintenance
When it comes to property taxes and homeowner’s insurance, you might want to ask your lender about setting up an escrow account, which collects extra money each month on top of your mortgage payment which is used to pay your taxes and insurance automatically. That eliminates the risk of a surprise bill each year, but will increase the monthly cost.
You’ll also want to think about your ability to save, not only to save up ahead of time for down payments and closing costs for buying your home, but also to start saving for the inevitable costs of maintaining a home, such as roof repair, plumbing, and more.
Keep all that in mind when considering how much you can comfortably dedicate each month to your mortgage and all the related costs of home ownership, leaving enough to cover your remaining bills, savings goals, and leisure expenses.
You can also use one of OnPoint’s home loan calculators to see how much you could afford.
Understand the homebuying process.
From loan applications to house-hunting to making an offer to closing, there are many steps and questions you might have about the homebuying process, including:
- Do you need a fixed-rate or adjustable-rate mortgage?
A fixed-rate mortgage has a single interest rate that doesn’t change throughout the duration of the loan.
An adjustable-rate mortgage begins with a set rate that stays the same for a set period of time, then is adjusted up or down based on market conditions.
Do you plan to stay in this home long-term, or do you see another move in a few years? An adjustable-rate loan can sometimes start with a rate lower than a fixed-rate loan, so your future plans might make a difference as to what type of mortgage you choose.
- How much of a down payment should you make?
The standard you hear mentioned most often for a down payment is 20 percent of the home’s sale price. However, a 20 percent down payment generally isn’t required to make a home purchase and isn’t always realistic. The typical first-time homebuyer in 2022 made a 6 percent down payment, and the typical repeat buyer made a 17 percent down payment—repeat buyers can often make a larger down payment because they’ve benefited from the equity built up in a home they’re selling. OnPoint even has a first-time homebuyer option that finances up to 100 percent of the value of the home.
Every situation can be different. If you’re approved for a loan with a down payment lower than 20%, mortgage insurance might be required, which will increase the monthly payment and APR. However, you will have more cash available for closing costs and any other expenses that might come up as you move in to your new home.
- What government-sponsored mortgage programs might be available?
Depending on your circumstances, you might qualify for government assistance in certain scenarios.
- VA mortgagesare available to service members, veterans, spouses and dependents of people who are serving or have served in the U.S. military. Compare OnPoint VA loans with our other great loan options.
- USDA mortgageshave income restrictions and are limited to homes located in eligible areas. For example, Portland, Oregon, is not a qualifying region. Due to these restrictions, OnPoint does not currently offer USDA mortgages.
- FHA mortgages are a great alternative for members facing certain types of credit challenges. FHA loan limits vary by county. The typical OnPoint member lives in areas with a $448,500 limit—please contact someone from our mortgage teamto help determine the specific cost limits for the county where you are looking to finance a home. You should plan for a minimum of 3.5 percent down payment, and you need to have at least two established credit accounts, like a credit card or auto loan.
- Should I get a pre-approval?
Getting a mortgage pre-approval can make a big difference in making your purchase go smoothly. A pre-approval gives you a good idea of how much you can borrow for your first home. Getting pre-approved will also show the seller that you’re serious about the purchase and ready to close. This can be an important factor when you want to move fast on a home that might have multiple offers.
- Are home inspections important?
Closing on the home of your dreams is exciting. It might be tempting to waive a home inspection in order to make your offer more attractive to the seller. However, similar to how you should ‘measure twice, cut once’, you’ll want a second opinion on your future home as well. We highly recommend you get the house inspected before closing.
A home inspection will point out any major defects in the home before you finalize your purchase. You don’t want to spend a large amount of money on a home and then find you have to pay thousands more to fix a serious problem.
If you include an inspection contingency in your offer—which is very common—you have an out if you find something like extensive mold or a completely useless furnace. If the inspection results come back with something the current owner can fix, you can often require that he or she do so before you move in as part of the sales agreement. In many cases, an inspection is also required to get your loan approved. Lenders want to ensure that your new home is valuable enough to secure the balance of your loan.
Do your research.
Many resources exist to help you better understand the homebuying process, including your lender or organizations dedicated to helping people become homeowners, such as the Portland Housing Center which provides education and counseling services for prospective homeowners, free of charge.
It’s important to compare rates and fees, and to find a lender you trust.
Learn more with an OnPoint Homebuyer’s Seminar
If you’re looking for more guidance and information, you’re not alone, and we’re here to help. OnPoint offers free Homebuyer’s Seminars where you can find everything you need to get started all in one place. OnPoint Mortgage Loan Officers and real estate agents are available to answer your questions and get you on the road to home ownership.
