Did you know you can take a homebuyer education class even if you're not ready to buy a home just yet? It's worth learning the steps you'll need to take in advance—from first prepping your finances to the final closing on your dream home.

By Hiranmayi Srinivasan
May 19, 2021
Advertisement

Confession: I have always been pretty intimidated by the process of buying a home. It's honestly something I didn't give much thought to because, like most millennials, I grew up thinking that owning a home was something that would be out of reach for me for a very long time—and those California real estate prices always kept me in check. But with today's historically low interest rates (and my recent engagement), homeownership has been on my mind a little more. While yes, I've created fairly detailed Pinterest boards about what I want my future home to look like (a cozy Italian-style villa with a beautiful flower garden and pool? A girl can dream), I haven't learned much about what actually goes into buying said villa.

Enter Caffeinated and Homebuyer Educated—a free virtual workshop organized by Chicago-based real estate advisor Emily Kaczmarek and loan consultant Bill Pendley for potential first-time homebuyers. What pulled me in right away was the fact that the workshop was also for people who might be a few years away from buying their first home, like me. The event description said the goal of the workshop was to "alleviate any stressors to those who are considering a home purchase in the future, whether that be in the next few months or years down the road." That—and the $5 Starbucks gift card that Emily emailed to all participants before the workshop—definitely had me sold and ready to learn about buying a home at 8:30 a.m. on a Saturday.

first-time-homebuyer
Credit: Getty Images

The information is applicable for anyone who is looking into buying a home—everything from the benefits of homeownership, to financing, to what to look for in an agent, to the steps to finding said home. Even if you're someone who never wants to buy a house, it doesn't hurt to take a workshop to truly understand your options and what you may be gaining or giving up—after all, investing in real estate is a great way to create wealth. In fact, some lenders require you to take a first-time homebuyer workshop—and it could even make you eligible for perks, such as a lower down payment or help with closing costs.

Here are some of the biggest takeaways first-time homebuyers need to know to prepare financially—and everything you need to keep in mind when you're ready (or just thinking about getting ready) to buy your first home.

Related Items

1 Buying a house saves you more money long-term.

Of course, this depends on the market you're in and the type of house you're looking at, but buying a house can save you some major cash in the long run. One of the things that stuck with me from the workshop was the money-saving tax benefits when you buy a home, such as capital gains exclusion.

This means that if you owned and lived in your main home for two out of five years before selling, you can exclude up to $250,000 in profit ($500,00 if filing jointly) when selling and not have to claim that amount on your taxes. This, of course, depends on the equity your property builds up over time, but you don't have to claim that amount on your taxes.

Also, if you have a fixed-rate mortgage (instead of an adjustable one), your monthly payments are not likely to change over the course of the loan. If you're renting, rent will increase over time based on the market, which is why buying may be cheaper than renting in the long term.

Kaczmarek used an app called ChicagoAgent One (it works in other states too) that calculates the cost of buying versus renting that was very helpful—all you do is plug in your current rent price, the price of the place you're looking at, and the interest rate, and you can see which option is better for you at the moment. 

2 Waiting to buy can cost you.

If you're like me and are not really thinking about buying a home right this minute, but want to someday, you should know that there is a cost of waiting to buy. "With rates being historically low right now, that rate is going to increase too," says Pendley. The market moves fast, and things like interest rate, down payment, and mortgage insurance can all increase significantly in the span of six months.

Pendley used MBSHighway's cost of waiting tool to show what the numbers looked like. For a property valued at $300,000, with a loan amount of $285,000 and an interest rate of 2.95 percent, the loss was $11,519 for waiting six months—and $22,917 for waiting a year. "Not to pressure you, but these numbers speak louder than what we're trying to tell you," says Pendley. "If it's in your mindset right now, this might help you understand why you would want to look at purchasing now."

These numbers definitely made me consider buying more seriously—at least for the sake of planning ahead and knowing that when my fiancé and I are ready to take that step, it's best to act sooner rather than later to make it a better investment of our money. 

3 Get pre-approved before you look at houses.

Before you actually start the house-hunting process, get pre-approved. This step is crucial, especially in the current ultra-competitive market. 

In order to put an offer in, you have to have a pre-approval letter to submit along with it. If you wait until the last minute to get pre-approved, you might risk losing the place, especially if there are multiple offers. Submitting a pre-approval letter shows the seller that you can afford the place and are making a serious offer. A pre-approval examines your finances, including things like credit score, which is critical in today's competitive market.

Running a credit check during the pre-approval might impact your scores, but only by one or two points. Pendley says revolving debt is really the big factor that affects people's credit scores. It's best to get pre-approved because you don't want to be put in a situation where you don't even get a chance to put an offer on a house you really love. 

4 Get an inspection.

Inspections aren't required and don't automatically happen unless you choose to have one—which you always should, says Kaczmerak. An inspection isn't the same as an appraisal—an appraisal is done to protect your lender and get an estimate of the home's market value. An inspection takes an in-depth look at the actual condition of a property, such as any repairs that might be needed, the integrity of the structure, and how well major systems and equipment of the house work. 

Inspections can cost anywhere between $250 to $600, depending on the size of the home and the location you're in. "It's easily the best couple hundred dollars you'll spend as a buyer," says Kaczmarek. "It tells you every little thing that could be incorrect or a safety concern." Have your realtor recommend an inspector, and make sure they are certified and reputable.

Once you get the report from the inspection and review it, you can ask the seller about any major concerns. Be careful not to go in with a laundry list of small repairs—Kaczmerak suggests saving those for once you move into the house, because the seller might pull out of the deal if you go in with too many minor requests. 

Taking homebuyer education was eye-opening and motivating for me. I might even take another course once I start looking more seriously—but for now, I know I have the information I need to start planning my finances, as well as the goals I need to meet to make that home-buying dream come true. A little education can go a long way in putting your fears and anxieties to rest—even if you're not looking to buy your first home today, it's better to educate yourself early if you think you'll ever want to buy.