Owning a home is one of the cornerstones of the American dream. Homeownership is not just a mark of hard work and independence - it’s also one of the most effective and accessible wealth-building mechanisms in the world. When you buy a home, you get more than a roof over your head in exchange for your mortgage payments - you build equity in your home, which can appreciate in value over time. Plus, homeowners enjoy stability in their living situation, the ability to improve their property and realize lifestyle and financial benefits as a result, and even some income tax benefits. 

It’s no wonder homeownership is such a coveted achievement. What isn’t as clear - especially to those in the market for the first time - is just how to go about the whole process. As exciting as it is to embark on the search for a first home, it can be plenty intimidating, too. After all, a home is far and away the largest purchase most people will ever make. 

Prospective first-time buyers today face a particularly daunting market. Interest rates remain high after spiking in the wake of post-COVID-19 inflation, and although their peak is likely behind us, rates are unlikely to drop significantly in the next year. Factor in low inventory, high prices, and the fact that many peers who bought just a couple years earlier are happily settled into homes at sub-3% interest rates, and you’ve got the makings of a frustrating search process. 

But don’t be discouraged - regardless of the whims of the notoriously fickle housing market, you can still buy a home that suits you and your family and get great value out of the deal. You just need to understand a few key concepts, make a plan, and stick to it. Here’s how: 

Step One: Get a Grip on Your Financial Situation

• Conduct a personal financial audit. Review your credit score. Determine how much debt you have and how long it will take you to pay it off. Understand your debt-to-income ratio and your overall personal cash flow picture - how much money comes in, how much goes to existing debt payments and other obligations, how much is saved, and how much remains. 
• Start saving cash. You don’t necessarily need to have 20% of a purchase price to put down on a home, especially as a first time buyer. However, you will need some cash, and the more cash you’re able to bring to the deal, the better your terms will be and the lower your payment will be. 
• Get pre-qualified. Pre-qualification is a helpful first step to honing in on a budget. You’ll apply for pre-qualification through a lender who will evaluate your creditworthiness and issue an estimate of the amount of financing you might be able to secure and the interest rate you’d be subject to. A pre-qualification typically doesn’t involve a hard credit check or verification of the information you provide, and thus is not a guarantee that you’ll be able to borrow the amount you’re pre-qualified for. However, if you provide full and accurate information, the amount you’re pre-qualified for is likely in the same ballpark as what you’d be able to be pre-approved for. 
• Set your budget. Once you’re pre-qualified and have a ballpark picture of how much funding you’re likely to have access to, it’s time to set your purchase budget. Don’t be tempted to simply set your budget to the highest number you see on your pre-qualification - make sure to run the numbers through an online calculator to understand what your monthly mortgage payment would be at various price points under the given terms. Make sure the calculator you use also factors in estimated taxes and insurance, which are typically included as a line item in your monthly mortgage payment, and consider penciling in any other predictable expenses - maintenance, moving costs, furnishing, etc. 

Step Two: Find Your Dream Home & Make an Offer

• Let the search begin. This is the fun part. Once you have a budget in mind, you can start perusing online listings and forming a list of properties you love that fit your budget and other search criteria. Try not to be too defined with your search criteria, at least not early in the search - be willing to consider options that are slightly outside of your preference for geography, size, style, etc. You may find yourself pleasantly surprised. 
• Work with a trusted mortgage lender. Find and build a strong working relationship with a great mortgage loan officer. Discuss your budget with them, and the amount of cash you plan to bring to the table. Ask about optimizing your loan structure - it may be advantageous, for instance, to take some cash out of the down payment to buy down loan points. You may want to consider an adjustable rate loan, which offers a lower rate (and payment) for the first year or two. The ideal route is different for every person and every loan, so make sure to find someone you trust to help you get the best value.
• Make your offer confidently.  If you’ve followed the steps above, and you have a clear understanding of your financial situation, including what level of financing you’re able to secure and the impact it would have on your cash flow, your ultimate decision will seem crystal clear. You’ll be able to move forward with confidence and excitement, knowing that you’re making an informed decision. 

At Arise, we help first-time homebuyers navigate the questions and concerns that come with this momentous decision every day. If you’re in the market for your first home - whether you’re interested in one of our homes or not - we’d love to get to know you and help you in your decision-making process. Reach out to us anytime - contact info is below - or drop by and see us at our newly-opened Stone Ridge development at 83rd and Cedar Niles in Lenexa. 

Save the Date: We’re excited to celebrate the Grand Opening of our exciting new development, Stone Ridge, on Friday, September 27. Join us for an afternoon of fun and celebration to mark this important milestone - enjoy food and drinks, games and entertainment, door prizes, and more, including a chance to see the Arise construction process up close and personal. We'd love to see you there - RSVP here to get updates as the day draws closer!