First-Time Homebuyer’s Guide: Navigating the Path to Homeownership

Buying your first home is an exciting milestone, but it can also feel overwhelming. At Sturgis Bank, we’re here to guide you through the process, helping you turn your monthly housing payment into an investment in your future. Whether you're weighing the pros and cons of homeownership, wondering about upfront costs, or navigating mortgage options, we’ve got you covered.

Our Mortgage Loan Originator, Sarah Bartz breaks down what you'll need to in our easy-to-follow presentation, The Path to Homeownership.

Renting vs. Buying: Making the Right Choice

Before diving into homeownership, it’s important to evaluate whether buying a home is the right move for you.

When renting, your monthly payments provide a place to live, but you’re building equity for your landlord rather than yourself. As a homeowner, your mortgage payments build equity in your own property, turning your housing cost into an investment. Homeownership also offers financial benefits such as potential tax deductions and the freedom to customize your space without landlord restrictions.

However, buying a home comes with added responsibilities. A larger upfront cost—including a down payment and closing costs—is required, and homeowners must budget for maintenance, property taxes, and potential repairs.

Understanding the Costs of Homeownership

Purchasing a home requires some upfront and ongoing expenses.

• Earnest Money Deposit: A deposit made when signing the sales contract to show the seller you’re serious about the purchase.
• Down Payment: First-time homebuyers may qualify for as little as 3% down on a conventional loan or even 0% down with some government-backed loan programs.
• Closing Costs: Fees from your lender, title company, and other parties involved in finalizing your mortgage. While it’s possible to negotiate for the seller to cover some closing costs, be prepared to handle these expenses yourself.
• Inspections: While not required by lenders, home and pest inspections help uncover potential issues, preventing costly surprises after you move in.

Beyond the purchase, homeowners must also budget for monthly expenses such as mortgage payments, utilities, property taxes, and homeowners insurance. Additionally, setting aside an emergency fund can help cover unexpected repairs.

Building Your Homebuying Team

The right professionals make a difference in your homebuying experience.

• Lender: Your first step is getting pre-qualified for a mortgage. Look for a lender with strong communication and a willingness to educate you on your options.
• Realtor: A local, trustworthy realtor will help you find the right home, negotiate offers, and navigate paperwork.

The Mortgage Process and Credit Considerations

The home loan process consists of five key stages:

1. Pre-Qualification: Your lender reviews your financial information to determine how much you can afford.
2. Origination: Once you’ve made an offer and it’s accepted, your lender gathers the necessary documentation.
3. Processing: Your financial details are verified, and an appraisal and title work are ordered.
4. Underwriting: A loan underwriter ensures all guidelines are met and gives the clear to close.
5. Closing: You sign the final paperwork and receive the keys to your new home.

While there’s no single credit score requirement, lenders typically look for three active credit accounts with at least 12 months of payment history (credit cards, car loans, etc.). Alternative credit sources, such as rent or utility payments, may also be considered.

To improve your credit score before buying, keep credit card balances below 30% of your credit limit, avoid closing old credit accounts, and space out new credit applications.

Loan Options for First-Time Homebuyers

Not all mortgages are the same. Here are some common loan options:

• Conventional Loan: A popular choice with as little as 3% down for first-time buyers.
• FHA Loan: Requires a 3.5% down payment and is more flexible for lower credit scores.
• VA Loan: A zero down payment loan available for military members and veterans.
• USDA Loan: A zero down payment option for homes in designated rural areas.

For those with unique financial situations, Sturgis Bank offers portfolio loans, which provide flexible lending options. We also offer construction loans for those looking to build or renovate a home. Talk to your local lender to see which loan option is right for you. 

What to Avoid Before Closing

Once you’re pre-qualified, lenders want financial stability. Here are key things to avoid before closing:

• Making large purchases (cars, furniture, appliances)
• Changing jobs
• Opening or closing credit accounts
• Missing bill payments

If you’re unsure whether a financial decision will impact your loan, consult with your lender first.

Ready to Get Started?

Buying your first home is a big step, but you don’t have to go through it alone. Sturgis Bank is here to support you every step of the way. Whether you’re ready to apply or just have questions, reach out to our team today. Your path to homeownership starts here.