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First-time homebuyers often rely on the help of family, friends, and professionals to guide them, helping them know what to expect, avoid costly financial mistakes, and find an affordable home that meets their needs.

As a trusted lending partner in Northeast PA, we work hard to help our customers have a smooth and successful home-buying experience. Keep reading to learn more about our top 10 tips for first-time buyers.

1. Get Your Financial House in Order

Buying a home is a huge financial step, and not one that you should take lightly. That’s why it’s so important to make sure all your ducks are in a row well before you take the plunge. The three biggest financial components of preparing to buy a home are having sufficient funds for a down payment and other associated costs, developing an affordable housing budget, and having a good credit score. 

The more money you have upfront to cover your down payment and closing costs, the better. This means you’ll save money in the long run, borrowing less, having lower monthly payments, and possibly getting a better interest rate. While 20% is an ideal number for a down payment, as Freddie Mac explains, in reality first-time buyers only put down about 8% on average. This is because first-time homebuyers tend to be younger, with less in savings, and also do not have the proceeds from a previous home to put toward their new house. If 20% isn’t a possibility, you can get by with much less, or even no down payment at all—we’ll talk more about low down payment mortgages later.

However, regardless of your down payment, you can expect to pay 3-5% in closing costs. For a $250,000 home, this amounts to $7,500 to $12,500 in closing costs alone. The lower the cost of the home, the lower your closing costs will likely be, which means these costs can play a big role in setting your budget. Certain homebuyers may qualify for local closing cost assistance, so explore your options before you commit to any specific home loan.

Your housing budget will also be determined by what you can afford (or what your lender thinks you can afford) each month for your mortgage payment. A good rule of thumb is to keep your housing costs to 28% or less of your overall monthly budget. Most buyers choose a 30-year mortgage, which spreads the total price of the home (minus your down payment) out over 360 monthly payments, bringing down the cost each month. While shorter mortgage terms are available, and can result in lower overall costs, they will have a higher monthly payment.

Additionally, lenders look for your monthly debt payments to stay below 36-45% of your total income, depending on the lender and the mortgage product. This number, called your debt-to-income ratio (DTI), will be a major determinant in how much home you can afford. Our Simple Loan Calculator can help you get a better idea of a monthly payment for different home price points (but, don’t forget to add in costs for insurance and taxes!).

Finally, your credit score is a crucial aspect of your qualification for buying a home. Poor credit can lead to a higher interest rate, limit your mortgage opens, or prevent you from qualifying for a mortgage at all. Making small improvements to your credit to give your score a boost can therefore have huge impacts—even if it means you have to wait a few extra months before applying for a home loan. Important steps you can take in the short-term is to pay down large credit card balances, pay your bills on time, and pay off loans with lower balances to reduce the number of monthly payments you’re handling. 

2. Get Prequalified

Feel like you’re ready—financially—to buy a home? Then it’s time to take the preliminary step to shopping for home loans. Getting a prequalification is a precursor to a full home loan application and can help you see what amount of loan your lender thinks you may actually qualify for, essentially setting your budget. Many realtors require it before they will start seriously showing you homes.

Prequalification is a step below an actual mortgage application. Getting a prequalification will ensure you have all the financial documents in order, can speed up the mortgage application process, and can give you (and potential sellers) a firmer idea of your ability to afford a home. In fact, most sellers prefer offers that are presented with a mortgage prequalification. Wait till you’re truly ready to make offers on a home to get prequalified, as prequalification requires a hard credit check, which will appear on your report. 

3. Understand the Different Types of Mortgages

Mortgages are not one-size fits all, and there are so many different options to choose from that you can usually find a product that is just right for your situation, making purchasing a home an affordable investment. Mortgages vary in terms of down payment and financial qualification requirements, term lengths, and whether or not the interest rate is fixed (set over the life of the loan) or adjustable (changes over time). 

To compare loans effectively, it’s important to look at three figures: the monthly payment, the down payment and closing cost requirements, and the *APR (the interest rate plus all other associated costs, represented as a percentage). These figures will help you get a better idea of monthly affordability and out-of-pocket costs for each loan. 

Let’s take a quick look at potential loans that may be available to you.

• Conventional Loans: These are mortgage loans not insured or guaranteed by the government, typically requiring higher credit scores and larger down payments of 10-20%—but may have a lower *APR.
• Fixed Rate Loans: Fixed rate loans have a constant interest rate and monthly payments that remain the same throughout the loan term, providing stability and predictability for borrowers.
• Adjustable Rate Loans: Adjustable rate mortgages (ARMs) usually have a fixed rate for the first 1,3, or 5 years. After this initial period, the interest rate will change periodically, which can result in varying monthly payments over time.
• FHA Loans: These loans are insured by the Federal Housing Administration and are designed for low-to-moderate-income borrowers, requiring lower down payments (3.5 to 10%) and flexible credit scores.
• USDA Home Loans: These loans are backed by the United States Department of Agriculture and are intended for certain rural and suburban homebuyers, offering low interest rates and no down payment options for eligible applicants.
• Loans for First-Time Homebuyers: You may qualify for localized programs that offer mortgage loans or down payment assistance loans. To learn more about options in Northeast PA, visit our 1st Time Homebuyer Mortgage page. 

Finding the right mortgage for your needs can be daunting. Don’t be afraid to ask questions and lean on the expertise of your lender. To learn more about any of the products listed above, reach out to one of our Mortgage Experts in Northeast PA.

*APR = Annual Percentage Rate.

4. Don’t Make Major Changes to Your Financial Picture

When applying for a mortgage, it's crucial to maintain stability in your financial picture. Lenders scrutinize your history, including your income, savings, employment status, and debt-to-income ratio. Any significant changes—switching jobs, taking on new debt, or making large purchases—can raise red flags and jeopardize your loan approval. This is especially important after you’ve been prequalified.

Additionally, know that opening new credit accounts or closing existing ones can impact your credit score negatively. Each new credit inquiry can lower your score, while closing accounts can affect your credit utilization ratio—a key component of your credit score. It's best to avoid these actions until after your mortgage has closed to ensure your financial profile remains consistent. And as always, be sure to pay your bills on time and avoid racking up debt to keep that score up.  

5. Look at Multiple Houses

When buying your first home, it’s a good idea to check out several options instead of jumping at the first place you see. Looking at several properties can help you compare different homes in terms of price, location, condition, and features, making sure you find one that really fits your needs and budget. You’ll also get a better feel for the market, helping you make a smarter decision and maybe even score a better deal.

Lastly, seeing multiple homes can help you figure out what you really want and need, giving you a clearer picture of what's out there in terms of amenities, neighborhoods, and any potential issues a home has with layout, location, or condition. Taking the time to explore your options can help you avoid buyer’s remorse and ensure you end up with a home you’ll be happy with for a long time. 

6. Choose a Good Local Realtor

Working with an experienced real estate agent from Northeast PA can make a huge difference in your home-buying experience. Our local agents have deep knowledge of the area, including the nuances of different neighborhoods and towns, market trends, and local regulations. Additionally, local agents have established relationships with other professionals in the area, such as inspectors and contractors (and lenders!) which can streamline the entire buying process.

Moreover, a local real estate agent understands the unique characteristics of our Northeast PA, from its scenic landscapes and outdoor recreation opportunities to the charms and benefits of each community. They can provide valuable insights into what makes each area special, helping you make a more informed decision that aligns with your lifestyle and needs.

However, it’s also important for you to do your own due diligence. Conduct your own research, explore homes you are interested in in greater depth (stopping by at different times of the day to better understand the neighborhood), and don’t be afraid to get a second opinion.

7. Get a Second Opinion Before Making an Offer

When buying a home, it's wise to get a second opinion—in addition to your agent—by bringing someone who knows you and your needs well and knows what to look for when doing a home viewing.

An experienced homeowner can spot problems you might overlook, saving you time and money by eliminating potential homes that are problematic before you make an offer. This allows you to avoid costly inspections that will reveal the same issues—after much time and expense. They may also help bring you down to earth, finding a home that meets your needs on your budget—even if it doesn’t check every single box on your wants list.

If they can't join you for every viewing, be sure to have them check out any homes you really like as you narrow down your choices.

8. Don’t Skip the Inspection

Many first-time homebuyers are on a tight budget and anxious about closing the deal. But skipping a home inspection to save money or improve the competitiveness of your offer can be a costly mistake in the long run. 

Inspections can reveal hidden issues that might not be obvious during a regular viewing, such as structural problems, faulty wiring, or plumbing issues, which can lead to expensive repairs and safety hazards if left unaddressed. Knowing these issues before settlement can help you:

• Negotiate repairs or your offer: Armed with the inspection report, you can negotiate with the seller to either fix the issues before closing or reduce the sale price to account for the necessary repairs.
• Plan for future maintenance: The report highlights areas that might need attention in the future, helping you budget for maintenance and avoid unexpected expenses down the line—or determine that a home isn’t the right financial fit for you.
• Make an informed decision: An inspection can help you make a better-informed decision about whether to proceed with the purchase or walk away.

Ultimately, spending a little upfront can prevent major financial headaches and ensure you make a sound investment.

9. Know the Pitfalls of Foreclosures and Short Sales

Buying a foreclosed home or short sale might be appealing to first-time buyers who are looking to get more home for their dollar. And these homes often come at a steeply discounted price. However, there are a lot of additional considerations you need to take into account before you jump into a potentially challenging homebuying and homeownership experience.

• Poor property condition: These homes are usually sold "as-is," often requiring significant repairs and renovations that can be costly and overwhelming for first-time homeowners.
• More complicated buying process: The foreclosure purchase process can be complex, with more paperwork, legal considerations, and potential delays, which can be challenging for inexperienced buyers.
• Unknown maintenance history: There may be undisclosed issues or a lack of maintenance, leading to unexpected problems and additional expenses. While experienced homeowners may be able to handle these challenges, it might prove overwhelming on top of the usual requirements of owning a home.
• Limited financing options: Some foreclosures may not qualify for traditional mortgage financing or special loan programs (Like USDA or FHA loans) that require homes to be in good condition.

In the right circumstances, a foreclosure or short sale can get you in a home that meets your needs on a shoestring budget. But this decision requires careful consideration and additional legwork and often comes with surprise costs—so be sure you’re up to the challenge. 

10. Think Beyond the Home Purchase 

When you first buy a home, it's not just the upfront costs you need to consider. It’s also crucial to calculate ongoing homeownership expenses in your budget to ensure you can comfortably afford your new lifestyle.

Beyond the initial purchase price, closing costs, down payment, and mortgage payments, you need to account for property taxes and homeowners’ insurance (usually part of your mortgage payment), and utility bills and regular maintenance costs (additional out-of-pocket expenses). Being able to set aside funds in a savings account for unexpected repairs, from roof leaks to broken appliances, is essential to avoid future financial strain. Bob Vila recommends saving 1-4% of your home value each year for maintenance, upgrades, and repairs. Additionally, create a regular maintenance schedule to ensure that you keep up with routine tasks. 

Planning for these expenses helps you maintain your home properly and ensures long-term financial stability. Consider our free Kasasa Saver to start growing your home emergency fund.  

Citizen Savings Bank Can Help

Buying your first home in Scranton, Taylor, Honesdale, Clarks Summit, or Mt. Pocono? Citizens Savings Bank can help. With special mortgage options for first-time homebuyers and local lenders experienced in navigating the homebuying process in Northeast PA, we’ll work with you to find a loan that meets your needs, assisting you from application to closing—and beyond.

Reach out to us to learn more about what we can do for you, or stop by your local branch in Lackawanna, Wayne, or Monroe County today!

Citizens Savings Bank has multiple locations throughout Lackawanna, Wayne, and Monroe Counties. For branch locations and hours, visit our website. We also have a Customer Support Team ready to answer any questions you may have. Call us today at 1.800.692.6279 or email [email protected]. Member FDIC. Equal Housing Lender.