Whether you're fed up with renting or just ready to own some real estate, buying a house is a big decision! There's no doubt that homeownership is an excellent path to creating a long term, comfortable, safe space for your loved ones. Even so, this could also be one of the largest purchases you'll make in your life. That's why it's so crucial to have all the details.
Get ready for 5 life-changing lessons to learn ahead of time as a first-time homebuyer (especially in Arizona).
1. Don't Be Mistaken
As a first-time homebuyer, you’ve probably been told that buying a house is the best investment you can ever make. But, there's a bit of a catch...
Becoming a homeowner comes with additional costs that aren't always top of mind. We want you to enter this journey with eyes wide open, because it turns out that 52% of buyers feel remorse after closing on their house.1 Yeah, no thank you.
For full transparency, let's uncover the costs.
Let's say you're paying $2,000 a month for rent in a two bed two bath apartment in Phoenix. So you can easily afford a $1,900 monthly mortgage payment, right? That would put your mortgage affordability at around $350,000 (30 year term) according to the calculator below.
Not so fast!
The mortgage payment above is only factoring in Principal and Interest. New housing costs will also include monthly:
- taxes and insurance ✔️
- water/sewer/trash bill✔️
- electricity and/or gas✔️
- most likely HOA dues✔️
Here's what your actual monthly housing costs with a $350,000 mortgage loan could look like with a 7.2% interest rate and 20% down payment (approximately):
$1,900 for Payment and Interest
$600 for Taxes and Insurance
$120 for Water/Sewer/Trash
$130 for electricity
$60 for HOA
All of a sudden, you're up to $2,810 per month.
Plus home maintenance costs: experts say to budget 1%-3% of your home's value to be used for improvements, maintenance, and repairs to the home every year. This is everything from leaky faucets to peeling paint and a busted refrigerator. In this example, just 1% is another $3,500 a year. Budgeted monthly: 👇
$300 for home maintenance
Grand total: $3,110
Now your previous all-inclusive $2,000 per month rent doesn't seem quite so bad! Consider adjusting your purchase amount down so that the final numbers aren't so daunting.
Pro tip: townhouses and condos are typically more affordable than houses in Arizona and start at prices closer to $200,000 rather than $400,000.
2. Get Pre-Approved
It's tempting to start browsing for homes before you get the details figured out, but housing markets, at least here in Arizona, are still fierce. If you find something you want, you need to be ready to pull the trigger. The best way to do this is by getting a mortgage pre-approval with a lender you trust.
A pre-approval means that your lender will provide you with an interest rate and max loan amount once you hand over necessary loan documents (see the house buying checklist for details).
Once you're pre-approved, you will have 90 days to find a home with a knowledgeable realtor. Remember, your interest rate isn't set in stone until you go under contract— so it's possible you might end up with a different interest rate than what is stated on your pre-approval.
A lot of people put off the pre-approval because it requires the lender to take a credit pull, resulting in a slight credit score hit. Remember though, this only decreases your score by a few points and is temporary. Once you have your home, you'll be on your way to building your credit score bigger and better than ever with your new home loan.
Also... Most realtors in Arizona won't even let you see a property in person without getting approved by a lender first. Show them you're serious and ready to go with that pre-approval in hand. How are they supposed to know which homes to show you if you don't have an interest rate and loan amount in mind?
3. Find a Team You'll Love Working With
This is your first home! It's a big decision and often a lengthy process. You owe it to yourself to find both a real estate agent and a mortgage team you trust and enjoy working with.
Choosing your realtor is so important because this is the person who is going to advocate for you throughout the entire process. They're communicating with selling agents, potential new neighbors, HOAs, your lender, title company and many others to make things happen on your behalf.
A solid real estate agent will:
- Take the time to thoroughly answer your first-time homebuyer questions.
- Keep your best interests in mind by showing listings within your budget.
- Offer expert advice while respecting your boundaries and non-negotiables.
- Have experience as a buyer's agent and thoroughly know the areas you're interested in.
- Respond quickly and take prompt action.
Selecting a trusted lender is just as important. Their purpose is to help you find and fund the right first mortgage loan— including the type, term, and interest rate. They will qualify you, process the loan, and distribute funds in time for closing. Not to mention, you'll be making payments to them long after you finance the house. Down the road you might ask the question "Should I Refinance?" Or, you may decide to secure a home equity loan or home equity line of credit with your home.
An excellent mortgage team will:
- Take the time to get to know you and your financial picture.
- Guide you through the process, educating and answering all questions.
- Have familiarity and experience with the area you're buying in.
- Fully explain the cost breakdown and be up front with any required fees.
- Sustain excellent service throughout the life of the mortgage loan.
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Keep in mind, realtors and lenders will often have their own connections to title agencies, appraisers, inspectors, and other homebuying contacts when you ask them how to buy a house. Remember that who you work with is your choice. If you're not happy with the service you're receiving, most of the time you can gracefully decline and move on to a better option. A positive homebuying experience is worth it. 🙌
4. Get the Inspection
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Never stepping foot inside your future house is one thing - we've gotten pretty good at digitizing the viewing process - but you don't want to buy your first house without having it properly inspected.
Newly built homes and renovated spaces can look beautiful on the outside, but there are so many things that could be hidden inside that a certified home inspector can find. These things often give you negotiating power, peace of mind, a way out of a contract, or just a realistic picture of what you're getting yourself into. Trust us - don't skip it!
⭐ PSA - Many home inspections DO NOT include the following: ⭐
- Hazards like asbestos, lead paint, mold, or radon
- Appliances such as washers and dryers
- Indoor air quality
- Pests
You may want to hire experts to specifically check these out. This is a lesson we don't want you to learn the hard way. A hazard or pest problem can cost a lot— not just financially, but mentally and physically.
5. Understand Closing Costs
We want to make it clear that closing costs cover several fees, pre-payments, and other services that it takes to purchase a home. On the other hand, your down payment consists of the money you choose to put towards the home from your own funds (this money can come from your savings, a gift, or a grant). Read about a few other common down payment amounts if you're a first-timer applying for a First-Time Homebuyer Loan.
Although the types, names, and amounts of different closing costs vary widely, it's safe to say that on average, closing costs will total to about 2-5% of your home's purchase price. On a $300,000 home, this would come out to be approximately $9,000. Plan to have this money set aside in addition to your down payment.
All in All
As you're buying your first home, remember: knowledge is power!
For more resources, be sure to check out:
- Our house buying checklist of mortgage documents you'll need
- Guide to the Best Neighborhoods in Phoenix
- Down payment assistance grants like WISH (we partner with the Federal Home Loan Bank's WISH program)
- Housing classes
- Free credit counseling sessions to help you adjust your budget for home ownership
- Mortgage Calculator
- Virtual Coach: What Mortgage Can I Afford?
We have a bit of a soft spot for first-time homebuyers in Arizona. It can be a confusing process, but we promise you, you're not alone. We would love to see you succeed on this huge milestone!
Ready to get started or just want to ask a question? Fill out the form below so we can connect. 😄
Sources:
1 https://www.forbes.com/sites/reginacole/2021/08/31/how-to-avoid-homebuyers-remorse/?sh=a89bb33791fa
This article is intended to be a general resource only and is not intended to be nor does it constitute legal advice. Any recommendations are based on opinion only.
Rates, terms and conditions are subject to change and may vary based on creditworthiness, qualifications, and collateral conditions. All loans subject to approval.
