Buying a home is one of the biggest financial decisions you can make. While the process can seem intimidating, there are programs, resources and professionals ready to help you with the challenges of purchasing your first home.

Here are some things to consider before buying and what you can expect from the process.

Homeownership Can Build Wealth

Owning a home can be a great wealth builder. As home values grow, you can build equity and boost your net worth. In fact, studies show homeowners have a net worth that is more than 40 times greater than their renter counterparts. 

Home value is based on many factors, including the economy and location, but national appreciation values average around 3.5% to 3.8% per year. Depending on a variety of things (accessibility, proximity to food and entertainment, and comparable homes), you may see a steady increase in your home’s value over time. Making DIY improvements can further increase the value of your home.

There are also physical, mental and social health benefits that come along with homeownership. These intangible benefits include building a sense of accomplishment, having greater agency over your environment, laying down roots in a community and developing a sense of stability.

However, it’s important for buyers to understand their local housing market to make the best financial decision. While there are many benefits to purchasing a home, the current market may be challenging to navigate. With rising interest rates, it may be best to consult a mortgage broker or tax professional before making the decision to buy. For more resources surrounding navigating rising interest rates, check out the Financial Health and Homeownership section at efirstbankblog.com.

How to Calculate Your Budget

Most financial advisors agree you should not spend more than 30% of your gross monthly income on housing expenses. The 30% rule establishes a baseline for what is a realistic and affordable payment each month for your home. For example, if you and your spouse bring home $10,000 gross income, before taxes and deductions, you should pay no more than $3,00 a month on housing.

Your housing budget will be determined in part by the terms of your mortgage, so in addition to accurately calculating your existing expenses, you will want to shop around to find the best mortgage offers from different lenders. Lenders will generally give you a better interest rate, meaning you’ll pay less for your mortgage, if you have a higher credit score as opposed to a lower credit score. If you have a lower credit score, you may still be able to purchase a house by researching loans available to first-time buyers with lower credit scores. You can also work to boost your credit score by paying bills on time and keeping your debt balances low. 

Keep in mind the down payment is only part of the upfront costs you need to consider. You will also have to pay closing costs, which include an appraisal fee, credit report fee, tax services fee, government recording charges and your lender’s origination fee. Typically, closing costs range from 2 to 5% of your purchase price.

Programs for First-Time Homebuyers

There are many programs to assist and incentivize first-time homebuyers. These include tax breaks and down payment assistance plans. There are also non-financial resources, such as free online homeowner education courses. These courses help buyers navigate finding, financing and owning a home. The IRS offers tax breaks to make homeownership more affordable and attractive. Its itemized deduction allows mortgage borrowers to subtract their mortgage interest from their taxable income, lowering the amount of taxes they owe. 

Assistance Programs

Mortgage assistance programs for first-time homebuyers are available from a variety of sources, including the federal government, state and local governments, private organizations and lenders. These programs are worth looking into if you need some financial assistance to purchase a home.

FirstBank’s PATH (Providing Access to Homeownership) Program* available in Colorado and Arizona also aims to close the wealth gap and help Black and African American families build generational wealth by providing grants that help cover down payment and closing costs. Many Black and African American residents have the income to afford a mortgage and the credit to qualify, but they lack access to capital to make a down payment. The PATH Program helps these families by giving them extra support to buy their first home. More information on PATH can be found at efirstbank.com/path for Colorado homebuyers or efirstbank/azpath for Arizona homebuyers.

Federal loan programs are another great resource if you need mortgage assistance. You may be able to receive a Federal Housing Administration (FHA) mortgage with as little as 3.5% down and a 580 credit score. Offered at most banks, including FirstBank, these mortgages tend to be more flexible when it comes to buyer requirements because the FHA backs the mortgage in case the homeowner defaults. A primary drawback to an FHA loan is you will have to pay private mortgage insurance, but it can be a great resource for those seeking mortgage assistance.

The process of purchasing a home can be exciting and rewarding, but with endless moving parts, the more research you do, the better. At FirstBank, we aim to empower first-time home buyers by helping them navigate the process, understand tax breaks and locate potential sources of mortgage assistance. For more information, check out our Empowering Homeownership resources to start your home-buying journey.

*Fees and restrictions may apply

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