Preparing To Buy a Home

Getting Started

Before you begin the home-buying process, it is crucial to understand the differences between your wants and needs. When you're in the thick of viewing homes, it can be easy to fall in love with someone’s decorating or a home’s outstanding architecture – and completely overlook that there aren't enough bedrooms or bathrooms to fit your needs!

Identifying the specifics of how you envision your future home is a must. I recommend creating two lists: one should describe everything you would ideally like and the other should list the features of the home that are an absolute must. Writing these down helps you, as the buyer, avoid uncertainty throughout the viewing process and helps me filter out any homes that do not fit your wants or lifestyle. 

As your agent, I will ask you a wide range of questions to understand your needs and wants but here are some questions to start asking yourself:

• Why are you buying? (Renting vs. owning, relocation, upsizing)

• What must your home have? (Bedrooms, bathrooms, location)

• What’s on your wishlist? (Updated kitchen, large yard)

First Time Buyers

Buying a home can feel overwhelming, especially if it is your first time! How much can I afford? Where will the down payment come from? How much will I need and where can I find the best loan? How do I begin to look for a home, what should I expect from my real estate agent and what type of home is right for me?

These questions are just the beginning, but the good news is—you can and should understand the entire process. With my help, learning a few key terms, concepts, and strategies will make you feel more confident every step of the way.

Most importantly, remember that you are in control. As the buyer, this process moves at your pace. When you approach home-buying with knowledge and confidence, you’re more likely to find the perfect home and make the best decisions along the way.

As a general guide, here are some of the main steps to expect when buying your home:

1. Decide to rent or buy

2. Figure out how much you can afford

3. Find the right real estate agent

4. Get pre-approved

5. Decide what kind of home you want

6. Find the right neighborhood

7. Begin the home search

8. Preview the homes

9. Make an offer

10. Apply for a mortgage

11. Have the inspections conducted

12. Close the transaction

13. Move into your new home!

RENTING VS. OWNING: Which is Right for You?

There’s nothing quite like having a place to call your own. Homeownership gives you the freedom to design your space, build roots in a community, and escape the unpredictability of a landlord. But beyond the emotional appeal, owning a home comes with significant financial advantages:

Tax Benefits

• Mortgage Interest Deduction: In the early years of a mortgage, most of your payment goes toward interest—and that interest is tax-deductible. This can lead to substantial savings.

• Property Tax Deduction: Homeowners can also deduct property taxes from their state and federal income taxes.

Building Wealth Over Time

• Home Value Appreciation: Real estate generally increases in value over time, making homeownership a solid long-term investment.

• Capital Gains Tax Exclusion: When selling your home, you may be able to exclude up to $500,000 in profit (if married and filing jointly) or $250,000 (if single) from capital gains taxes—provided you’ve lived in the home for at least two years.

• Capital Gains Treatment: Congress allows preferential tax treatment on gains from capital assets held for more than one year. This is good news for homeowners with excess gains over the allowable exclusion.

Paying Down Your Mortgage Builds Equity

• Each mortgage payment helps you reduce your loan balance (principal), effectively growing your ownership stake in the property—a form of forced savings.

Before making a decision, consult a financial advisor to determine if homeownership aligns with your financial goals.

How Much Do I Need?

The Down Payment

The good news is that lenders are willing to finance up to 95% of your home’s purchase price, often at competitive interest rates. That means you may only need to cover 5% to 20% of the cost upfront as a down payment. The smaller your down payment, the stricter the financial requirements, as lenders need to ensure you're a strong borrower.

Since real estate is generally a solid long-term investment, lenders consider home loans low-risk. This is why mortgage rates are often lower than other types of loans.

What If I Don’t Have Enough for a Down Payment?

If you have good credit and steady income but lack savings for a large down payment, there are loan options to help. Programs like an 80-10-10 loan or other nontraditional financing solutions can make homeownership possible with lower upfront costs. Don’t assume buying a home is out of reach for you—there are options available to fit all kinds of financial situations!

What Can I Afford?

A common guideline is that you can afford a home costing up to 2.5 times your annual gross income (your income before taxes). However, this is just a rough estimate and doesn’t account for all the financial factors that determine a comfortable mortgage payment for you.

If you’re buying a home with a co-borrower—such as a spouse, family member, or partner—you’ll need to consider both incomes and debts. Keep in mind that both borrowers are legally responsible for the mortgage payments.

What Affects Your Buying Power?

Your ability to afford a home depends on:

• How much money you have for a down payment

• How much a lender is willing to loan you

Down Payment

For first-time buyers, the biggest challenge is often saving for a down payment and closing costs. If you don’t have enough savings, consider setting aside money from each paycheck. You can also use funds from:

• Checking & savings accounts

• Mutual funds, stocks, or bonds

• The cash value of a life insurance policy

• Gifts from family members

Private Mortgage Insurance (PMI)

If your down payment is less than 20%, most lenders require you to pay Private Mortgage Insurance (PMI). PMI protects the lender in case you stop making mortgage payments. Some loan programs allow down payments as low as 3-5%, but PMI will be required.

Some financing options allow low down payments without PMI, such as 80-10-10 loans:

• 80% first mortgage

• 10% second mortgage

• 10% cash down payment

If you can only afford 5% down, there are 80-15-5 loans available as well.

Understanding Closing Costs

In addition to your down payment, you’ll need to cover closing costs, which typically range from 3% to 6% of the loan amount.

For example, if you buy a $100,000 home with a 5% down payment ($5,000), you can expect closing costs between $2,850 - $5,700. Sometimes, you can negotiate with the seller to pay some of your closing costs, which will reduce the amount of money you will need to bring to closing.

How Much Will a Lender Loan You?

Lenders assess how much you can borrow based on your income and debts. They use two key ratios:

📌 Housing Expense Ratio (28%)

• Your monthly mortgage payment (including property taxes, insurance, and HOA fees) should be no more than 28% of your gross income.

📌 Debt-to-Income Ratio (36%)

• Your total debt (including mortgage and other long-term debts like student loans or car payments) should not exceed 36% of your gross income.

Some lenders are more flexible, especially for first-time homebuyers or low- to moderate-income buyers. Special loan programs may allow you to use 33% of your income for housing and 38% for total debt.

GETTING PRE-APPROVED

Before you start house hunting, knowing how much home you can afford is crucial—not just what you’re willing to spend, but what a lender will approve you for. That’s where preapproval comes in.

Why Pre-Approval Matters

Getting preapproved gives you a clear idea of your price range, helping you focus on homes within your budget. Lenders typically allow your total housing costs (mortgage, taxes, and insurance) to be up to 30% of your gross monthly income. Additionally, your total monthly debt, including your house payment, should generally not exceed 36% of your income.

Lenders use slightly different formulas to calculate your monthly house payment, which usually includes:
PITI – Principal, Interest, Taxes, and Insurance
Other costs – If your down payment is under 20%, you may have private mortgage insurance (PMI) or homeowners association (HOA) fees

What is a Pre-Approval Letter?

A pre-approval letter is a lender’s statement confirming how much you can borrow. Unlike a simple pre-qualification, pre approval involves a detailed financial review, making your offer more attractive to sellers.

Benefits of Pre-Approval

• Know how much down payment you’ll need

• Estimate your closing costs

• Understand your monthly mortgage payment (PITI)

• Determine the best loan options for you 

• See if you qualify for special programs (e.g., VA loans, first-time buyer programs)

What You Need for Preapproval

📌 Employment & income history (recent pay stubs)
📌 Monthly debts (credit cards, car loans, student loans)
📌 Available cash for a down payment & closing costs

Important Notes

• Pre-approval is not binding—it depends on the home appraisal and your financial situation staying the same.

• If interest rates change or too much time passes, your lender may need to recalculate your loan amount.

• You can shop around and get pre-approved by multiple lenders to find the best terms.

As your real estate agent, I will connect you with the best lenders in the business. Together, we will guide you through the entire process and get you into a home to call your own. Let’s get started! 🚀