Buying Your First Home: Terms, Tips, and Traps

Blog Highlights

• Master the Mortgage Lingo: Get up to speed on must-know terms – down payment, PMI, escrow, ARMs, closing costs, and more - so nothing slips past you at closing.

• Budget for the Full Picture: Learn how lenders calculate what you can afford and build in those “hidden” expenses – before you sign.

• Prep Like a Pro: Follow our financial dos (pay down debt, build savings, get pre-qualified) and don’ts (avoid new loans, late payments, or co-signing) to keep your first home purchase on track.

Buying your first home is a big deal! It’s a very exciting time in your life, but it can also be a bit overwhelming when you’re a new homeowner. We're here for you with answers and solutions for first-time homebuyers.

From smart financial tips and mortgage terms to common pitfalls to avoid, our team can help you understand the responsibilities involved with buying your first home. Peach State is here to help you understand the essentials that every homeowner needs to know and we'll guide you every step of the way during your first home purchase. 

Key Terms Every First-Time Buyer Should Know

• Down Payment – A down payment on the purchase of your home is the percentage of the home’s purchase price that you're required to pay in advance when you close your home loan. 

• Adjustable Rate Mortgage (ARM) – An Adjustable Rate Mortgage (ARM) starts out with a lower interest rate for a set period of time that then changes as the market rates fluctuate. Homebuyers get the advantage of having a lower initial interest rate and monthly payment than that of a fixed rate mortgage. However, when the rates change, the loan rate may increase, which will also mean a higher mortgage payment.

• Conventional Mortgage – A conventional mortgage is one that's not guaranteed or insured by the government like those backed by the Federal Housing Administration, Department of Veterans Affairs, or Department of Agriculture loan programs.

• Private Mortgage Insurance (PMI) – This insurance policy is mandatory for homebuyers who purchase a home with a down payment of less than 20% and is designed to protect the lender should the borrower default on the loan.

• Closing Costs – The fees, services, and expenses that are required to finalize a mortgage are called closing costs. These fees can vary depending on the loan. 

• Escrow – An escrow account is one where funds are held by a neutral third party on behalf of the participants involved in the homebuying/selling transaction until contract terms and conditions are met. After the purchase and throughout the life of the loan, another type of escrow account can be used to hold the homeowner’s money for insurance and property taxes due throughout the year. 
  

Helpful Tip: To learn more about Adjustable Rate Mortgages, they're potential savings, and to break down the lingo, checkout our 'ARM Rates 101: Break Down the Lingo & Find Potential Savings' blog.  

Know How Much House You Can Afford

Your lender will determine how much you can afford to spend on your first home when you begin the prequalification process. There are a variety of factors that are considered by affordability, including the following.

Factors Considered for Home Affordability

• Gross monthly income 
• Existing debts and monthly payments 
• Credit score 
• Down payment amount 
• Current mortgage interest rates 
• Property taxes and homeowner's insurance estimates 
• Private Mortgage Insurance (PMI)
• Loan term (i.e., 15-year, 30-year) 
• Loan type (conventional, FHA, VA, ARM)

Once calculated, your lender will determine how much house you can afford each month for the payment. First-time homebuyers may underestimate the monthly payment amount, which does not include things like association fees, and may need to reevaluate what is really needed versus what they want in a home. 

Helpful Tip: Download our 'How Much House Can I Afford in Georgia and South Carolina' guide for access to tools and tips to figure out your maximum house-hunting budget. It includes the factors to consider when calculating your budget and tips for qualifying for an affordable mortgage so you can buy your dream home.

Don’t Forget These Hidden Costs of Homeownership 

In addition to the monthly mortgage on your first home, there are added costs to consider as a homeowner. Here are some of the hidden costs that need to be factored into your budget:

• Homeowner’s Association Fees (HOA) – If your community has a Homeowner’s Association (HOA), there will be a fee. This is paid monthly or quarterly, and are due as long as you own the home. Fees vary by location and community amenities, and can typically range from a few hundred dollars to thousands. 
• Emergency Repairs – Your home will need some sort of repairs eventually and the cost could break the budget if you're not prepared. Having an emergency fund for home repairs is crucial, so that unexpected issues don’t put you in a financial bind.  
• Insurance and Taxes – If you've chosen not to have your property taxes and homeowner’s insurance paid via escrow with your monthly mortgage payment, you must plan and prepare to pay for these required costs when they come due each year. 
• Maintenance – Don't underestimate the cost of maintaining your first home - from outdoor to regular in-home maintenance - as these items do add up and are necessary to protect your home and its value. 
• Utilities – Things like water, gas, electricity, internet, etc. are due in addition to the monthly mortgage payment, and should be accounted for in your monthly budget.
• Furniture and Decor – Before you buy a home, take the number of rooms that will need to be furnished into consideration, the number of windows that will need covering, and appliances that may not be included in the purchase. 
• Lawn Care – If your community doesn't cover lawncare, be sure to include the costs for mowing, landscaping, and potential snow removal (depending on where you live). 
• Trash Removal – Some states may charge for trash and recycle collection services, either through property taxes, utility bills, or a separate monthly fee.
• Security – If a security system is installed, homeowners may need to pay for the system installation along with ongoing monitoring fees.

Understanding Key Financial Responsibilities

Buying your first home comes with financial responsibilities that can shape your future for years to come. Understanding the key financial dos and don’ts is essential for making smart, informed decisions throughout the homebuying process. From paying down debts and building a solid credit score to avoiding new debts and overspending – knowing what financials to prioritize and what to avoid – can help first-time buyers navigate with confidence and avoid pitfalls.

Financial Dos for First-Time Buyers

When considering buying your first home, there are some things first-time buyers should do to prepare financially. Here are some smart habits to consider:

• Pay down debt to lower your debt-to-income ratio and strengthen your financial position.
• Check your credit report for errors and correct them so they don't negatively impact your score.
• Build your savings for planned and unplanned costs.
• Get pre-qualified before you begin house hunting so you know how much budget you have to work with.
• Create a budget that includes your mortgage payment and additional homeownership costs.

Financial Don’ts for First-Time Buyers

It's important to keep your finances in mind when preparing to buy your first home and be sure not to make any decisions that might derail your purchase.

• Avoid taking out new loans, adding new debts, or co-signing on some else's loan.
• Keep bill and loan payments current and pay them on-time. Missing or making late payments can negatively affect your credit score, mortgage application, and overall financial health.
• Don't underestimate move-in costs, including moving and supplies, furniture, appliances, and things for outside of the home. Be sure to create or update your budget to include these expenses.
• Don't deplete your savings or increase spending habits that will hinder you from saving up for your down payment, closing costs, and homeownership expenses. 

Finding the Right Mortgage for You - Peach State's Home Loan Solutions

Following these tips and taking the time to understand key mortgage terms can help you prepare and avoid common pitfalls when buying your first home. When it comes to finding the best mortgage for your unique needs, it's important to compare interest rates, terms, and loan types, as all of these factors impact your payment and financial future.

At Peach State, we offer a variety of mortgage options for first-time homebuyers, including 30-year and 15-year conventional options, as well as Adjustable Rate Mortgages (ARMs). Our ARMs offer a down payment as low as 10%, have 5, 7 and 10-year adjustments and no PMI requirement. Our team of home loan specialists will help you find the best mortgage solution to meet your needs and budget. With the right knowledge and support, you can get started on your path to homeownership today! We invite you to contact us today and begin your dream of homeownership.