As the 2024 homebuying season begins, Rivermark’s mortgage team has some insights to help you through the exciting and complex process. Whether you’re a first-time homebuyer or a seasoned homeowner, there’s plenty of new information you can learn about homeownership and the journey to get there. Here is our complete guide to Breaking Down the Path to Homeownership.

Understanding the Housing Market

Do you have any insights on navigating the current housing market as a buyer?

While no one has a crystal ball to predict how the market will change, currently, there is a lot of talk about affordability and high interest rates. Historically, when interest rates are lower, housing prices tend to rise, which still impacts affordability. So, if homeownership is your goal, waiting for lower rates or lower housing prices may not play out in your favor.

To thrive in this market, buyers need to play to their strengths—boosting their down payment, polishing their credit scores, and securing mortgage pre-approval. Taking these steps not only increases your purchasing power but also makes you a top pick for sellers, especially where the competition is fierce.

Plus, diving into different loan options and programs designed for first-timers or certain groups could land you sweeter deals. Chatting with a savvy mortgage advisor early on can lead to tailored tactics that align with your dream of owning a home, no matter the market's ups and downs.

Are we seeing a difference in our local market compared to national trends in homebuying?

It seems that throughout the nation, everyone is experiencing a lack of inventory, which drives home prices higher, while interest rates are not at the historically low levels we saw a couple of years ago. Our local markets reflect that trend closely.

However, it's essential to understand that even within the broad trends of high prices and low inventory, local markets can vary greatly. Some areas may see an influx of new construction that can ease the inventory shortage, while others might be experiencing rapid price increases due to high demand and limited supply.

Therefore, working with a real estate professional who has deep local market knowledge is critical. They can provide insights and data specific to your area of interest, helping you make informed decisions and identify opportunities that might not be apparent at the national level.

How does the Federal Reserve Bank impact homebuying, if at all?

The Federal Reserve does not set mortgage rates, and the central bank's decisions don't move mortgages as directly as they do other products, such as savings accounts and CD rates. Instead, mortgage rates tend to move in lockstep with 10-year Treasury yields.

The Federal Reserve's actions, though not directly connected to mortgage rates, play a significant role in shaping the homebuying landscape. By adjusting its target interest rate to manage inflation, the Fed can cause a ripple effect that affects mortgage rates indirectly. A hike in the Fed's interest rates often leads to increased government securities yields, which can push mortgage rates upward. This, in turn, may make homebuying less affordable for potential buyers as their monthly payments go up.

On the flip side, a reduction in the Fed's rates tends to lower mortgage rates, thereby making borrowing more affordable and potentially more attractive for homebuyers. Hence, keeping an eye on the Federal Reserve's policy shifts is crucial for anyone looking to buy a home at the most opportune time.

The Homebuying Process

For someone who knows nothing about homeownership, where do you suggest homebuyers begin their journey?

For first-time home buyers or those who haven’t bought a home in quite some time, it would be best to seek financial advice from a trusted, reputable mortgage broker or real estate agent before anything else. You can become knowledgeable about the buying process by attending Homeownership classes or reading articles from trusted financial partners.

In addition to educating yourself about the financial aspects of homebuying, establishing a realistic budget based on your current financial situation is crucial. It's important to understand not only the upfront costs associated with purchasing a home, such as down payments and closing costs, but also the ongoing expenses like property taxes, homeowners insurance, maintenance, and potential homeowners association (HOA) fees.

While online mortgage calculators can give you a ballpark figure of what you might afford, chatting with a mortgage advisor will give you a clearer financial outlook. Doing this makes sure you're ready for what owning a home financially entails and helps you look for properties that won't break the bank, laying a strong foundation for your homebuying journey.

For comprehensive assistance, Rivermark recommends checking out our partner, GreenPath. They offer extensive financial tools and information to help homebuyers navigate the complexities of buying a home. With personalized financial counseling and educational resources on budgeting and credit management, GreenPath helps simplify the homebuying process, enabling informed decisions. Exploring GreenPath’s services is a smart move towards confident homeownership.

What determines how much house a buyer can afford?

Housing affordability is based on several factors, including debt-to-income ratio, assets for downpayment, and credit history. Based on those factors, we can help determine things like how much monthly payment a buyer can afford and what interest rate bracket they may need to be in.

Beyond the basic financial calculations, potential homebuyers should also consider their long-term plans and lifestyle needs. Factors such as career stability, family planning, or personal preferences for living in a specific type of community (urban, suburban, or rural) can influence the decision on how much house to afford. Purchasing a home that fits your current needs and future aspirations can prevent you from outgrowing your space too quickly or facing buyer's remorse.

Additionally, buyers must remember that owning a home involves variable costs, like utilities, maintenance, and repairs, which can fluctuate and should be factored into the overall budget to ensure financial comfort and security in their new home.

What is the general homebuying process?

There are 3 main steps to buying a home with Rivermark: getting pre-approved, shopping for a home, and final approvals and closing. During the first step, you’ll submit a home loan application and receive a pre-approval letter for the amount you’re pre-approved for. In the second step, you’ll search for a home, negotiate sales prices, get the home under contract for purchase, and get the required appraisals. During the last step, your closing documents will be sent to the Escrow officer to work up and go through title search and escrow. Once the documents are ready, you are ready to sign! Once you and the title company sign all the documents, your loan will be funded, and you can move into your new home!

After the closing process, it's crucial for new homeowners to understand that the homebuying journey doesn't end with receiving the keys. Post-purchase, homeowners should prioritize setting up their utilities and changing their addresses with various service providers and governmental agencies. It's also a good time to consider purchasing a home warranty plan, if not already done, to cover unexpected repairs on appliances and major home systems.

Additionally, new homeowners should familiarize themselves with their new community, explore neighborhood amenities, and establish a maintenance schedule for their home to preserve its value and ensure their comfort and safety. This final step of settling into your new home marks the culmination of the homebuying process, transitioning from the logistical aspects of buying a house to making it your home.

What is earnest money, and do buyers need it?

Earnest money is a deposit that homebuyers use to show their commitment to purchase a home. It’s an important part of the buying process as it assures a seller that the buyer is serious about the purchase. Typically, earnest money is a percentage of the sales price, typically ranging from 1% to 5%.

The earnest money is held in an escrow account until the closing process is completed, at which point it is applied toward the closing costs or the home's down payment. It's crucial for buyers to understand that while earnest money can demonstrate their good faith, there are specific conditions under which the deposit can be forfeited. For example, if the buyer decides to walk away from the purchase without a valid reason outlined in the purchase agreement, the seller may be entitled to keep the earnest money.

Therefore, it’s important for buyers to carefully review their contracts and be aware of all contingencies that protect their earnest money, ensuring they can recover their deposit if the deal does not go through due to reasons like failed inspections or an inability to secure financing.

How important is a home inspection?

Very! A home inspection can shed light on issues that might not be easily discovered. Home inspections are performed by licensed individuals trained to look for defects and abnormalities. This essential step in the homebuying process allows buyers to gain a comprehensive understanding of the property's condition and identify any potential concerns that could affect the home's value or require costly repairs down the line.

The inspection covers a wide range of areas, including the home's electrical systems, plumbing, roofing, insulation, as well as structural features. Armed with this information, buyers can make an informed decision, negotiate repair costs, or even back out of the deal if the inspection reveals significant issues.

Ultimately, investing in a home inspection is a prudent measure to protect oneself from future unforeseen expenses and ensure the property is a safe and sound investment.

Can you negotiate repairs in a Purchase Agreement?

Negotiations within a purchase agreement are performed by your Real Estate Agent. Repairs can be part of these negotiations. PRO TIP: you can also negotiate the purchase price or receive a credit toward closing costs.

When negotiating repairs, it's important for buyers to prioritize their requests. Focus on issues that are significant and may impact the safety, functionality, or overall value of the home. Minor cosmetic issues can often be overlooked or dealt with after the purchase. It's also beneficial to have an estimate of the repair costs, as this can provide leverage in negotiations.

Your Real Estate Agent can guide you on the best approach to ensure that necessary repairs are addressed while keeping the purchase deal favorable. Remember, the negotiation process is a delicate balance of give-and-take, aiming to reach an agreement that satisfies both parties and keeps the purchase moving forward.

Choosing the Right Real Estate Agent

What is the role of a buyer’s agent?

A buyer’s agent helps buyers find homes within their budget and specifications. They help discover properties, write offers, and other relevant logistics all the way through to closing on the home.

Additionally, a buyer's agent acts as a crucial liaison between the buyer and the seller, or the seller's agent, negotiating terms that best serve the buyer’s interests. They have a fiduciary duty to the buyer, offering expert advice on pricing, market trends, and when to make an offer or walk away from a potentially bad deal.

They also assist in navigating the complexities of the paperwork and legalities involved in purchasing a home, making the process as seamless as possible. Essentially, a good buyer’s agent is not just a facilitator but an advocate for the buyer's homeownership goals.

Is there a difference between a local real estate agent and using a national agency?

One significant difference is local real estate agents are familiar with the local market including schools and available services in the area. A national agency might not be as well-informed. Local agents also often have in-depth knowledge of neighborhood-specific details, such as zoning laws, property taxes, and future development plans, which can be invaluable during the homebuying process. Their relationships with other local agents and familiarity with local property inventory can give buyers early or exclusive access to listings, while their network of local service providers (e.g., home inspectors, contractors, and attorneys) can streamline the buying process.

In contrast, national agencies might offer broader resources and technology platforms, but they may lack the personal touch and immediate responsiveness that a local agent can provide. Ultimately, the choice between a local agent and a national agency should depend on the buyer's specific needs and preferences.

What’s the difference between a real estate agent and a mortgage broker?

In simple terms, real estate agents put buyers and sellers together, while mortgage brokers put buyers and lenders together. Real estate agents specialize in negotiating the sale and purchase of real estate property, offering extensive knowledge of the real estate market, pricing, and negotiation strategies to help buyers find their ideal home within their budget and sellers get the best possible price for their property.

On the other hand, mortgage brokers focus on finding the best mortgage deals for buyers, working as intermediaries between buyers and multiple lenders. They have a deep understanding of the lending market, including the various mortgage products available and the qualification criteria of different lenders, which enables them to tailor financing solutions to a buyer’s specific financial situation.

Thus, while both roles are vital in the process of purchasing a home, they offer distinctly different services tailored to their area of expertise.

Final Steps in Buying a Home

What are closing costs, and how do I prepare for them?

Closing costs are the expenses over and above the property's price that buyers and sellers incur to complete a real estate transaction. These costs may include loan origination fees, discount points, appraisal fees, title searches, title insurance, surveys, taxes, deed recording fees, and credit report charges.

For buyers seeking to minimize out-of-pocket expenses, it is possible to negotiate for closing costs to be rolled into the loan amount, subject to the lender's approval. This means that instead of paying these costs upfront, they are added to the total loan balance and paid off over the life of the loan. However, this option varies by lender and may depend on specific loan qualifications and the loan-to-value ratio of the property.

By choosing to finance closing costs, buyers can ease immediate financial pressure, but it's important to consider that this increases the overall loan amount and interest paid over time. Buyers should discuss this option with their lender to understand the implications and ensure it aligns with their long-term financial goals.

What is a “closing date” and “final walkthrough,” and why are they important?

The closing date in a real estate transaction is when ownership passes from the seller to the buyer, after financial arrangements are set. It involves transferring funds and requires coordination between agents, lenders, and lawyers to ensure all paperwork and payments are correct. This day finalizes the sale, including settling costs and transferring the title.

Before closing, a final walkthrough lets buyers check the property's condition matches the contract, ensuring repairs are done and the home is ready to move into. It prevents last-minute disputes by confirming the property's state and terms of the sale, offering buyers reassurance just before they finalize the purchase. Although not required by Oregon law, a request for a final walkthrough is an option buyers may want to do and should talk to their real estate agent about doing one.

Tips for First-Time Buyers

What advice do you have for first-time homebuyers?

Hire a knowledgeable team that has the buyer’s trust. Respond in a timely manner and try not to book a trip close to the closing date. Avoid making large purchases that might affect the debt-to-income ratios. Look for homes within the buyer’s means. First-time homebuyers should also be flexible and open to compromise, as finding a perfect home that fits all of their criteria is rare.

What are some of the ongoing home expenses that first-time buyers might not be aware of?

Many costs can be incurred after buying a home. It is advisable to take into account moving costs, appliance purchases (like washers, dryers, and refrigerators), re-keying an already existing home, etc. It is also important to factor in recurring expenses such as homeowners insurance, property taxes, and possibly homeowner association fees. And, of course, home maintenance costs should not be overlooked, including routine tasks like lawn care and more significant repairs or renovations that may arise over time.

First-time buyers should create a budget that accounts for these ongoing expenses to avoid any financial surprises after closing on their new home. Overall, it is important for first-time buyers to do their research and consult with their real estate agent to fully understand all the costs associated with owning a home before making such a significant purchase.

What are Homeowners Association Fees?

Some neighborhoods have a homeowners association (HOA) that help to pay for things like neighborhood maintenance and landscaping. HOAs set rules and regulations for homeowners living in the community to follow. HOA fees can cover areas like parks, sidewalks, community pools, and exterior maintenance. Homeowners must pay these fees as part of living in that particular community.

Researching the specific HOA fees and regulations for a neighborhood is essential before deciding to purchase a home in that area. These fees should be considered as part of the overall budget when looking at potential properties. Ultimately, understanding HOA fees and regulations is crucial in determining if a particular neighborhood is the right fit for a buyer's lifestyle and financial situation.

Financial Considerations of Homeownership

How important is having a good credit score?

A good credit score is vital in the homebuying process because it signals to lenders the borrower's ability to repay loans. Lenders use credit scores to determine the interest rates and terms of mortgage loans; higher scores often result in lower interest rates, which can save homeowners significant amounts of money over the life of the loan.

Additionally, a strong credit score could broaden the selection of loan programs available, including those with more favorable conditions, such as lower down payments or no private mortgage insurance requirements. Thus, potential homebuyers should strive to maintain or improve their credit scores well in advance of applying for a mortgage to access the best possible loan terms and reduce their overall borrowing costs.

What is Private Mortgage Insurance (PMI)?

Private Mortgage Insurance is typically required when you make a down payment of less than 20% of the purchase price. It’s not common for first-time homebuyers to be able to afford the 20% down payment, so PMI is a common expense to cover that cost. However, you can ask your lender to remove PMI once you have 20% or more equity in your home.

PMI acts as a safety net for the lender, not the borrower, in case of default on the loan, thereby allowing individuals to become homeowners even if they cannot reach the 20% down payment threshold. While PMI increases the monthly mortgage payment, it enables buyers to enter the housing market sooner rather than later, which can be particularly beneficial in rapidly appreciating markets.

It's important for prospective homeowners to factor in the cost of PMI when calculating their budget for a new home, as well as to stay informed about their loan's equity status to request PMI removal as soon as they are eligible.

How is a debt-to-income ratio important to homebuying?

Your debt-to-income ratio is very important. It helps your lender determine how much you can afford toward a monthly mortgage payment. This monthly payment amount ultimately determines how much you can afford overall for a home.

Lenders typically prefer a debt-to-income (DTI) ratio between 36-49%, although this can vary depending on the lender and the type of loan. The DTI ratio is calculated by dividing your current total monthly debt payments by your gross monthly income. This ratio helps lenders evaluate your ability to manage monthly payments and repay debts. A lower DTI demonstrates to lenders that you have a good balance between debt and income, making you a less risky borrower.

For homebuyers, understanding and improving your DTI ratio can be a crucial step in preparing for a mortgage application, as it can affect both the amount you're eligible to borrow and the interest rate you're offered.


What is the biggest takeaway you want prospective buyers to get out of this?

Choosing between renting and buying a home can be confusing, especially with the common belief that buying is always more expensive. In truth, even though buying a home has its upfront and upkeep costs, it can actually save you money in the long term compared to renting. However, things like changing market conditions and interest rates sometimes make renting cheaper.

For example, in cities like here in Portland, where house prices stay strong even when the market shifts, buying a home can be good for those who already own one but tough for first-time buyers. Recent studies have shown that, with today's economy and interest rates, buying a home might cost more than renting for now. But this could change as the market changes. It's important for people to keep comparing the costs of renting versus buying, considering how the economy keeps changing, to make the best choice for their wallets.

Another one we often see is thinking that a large downpayment is required. While it is true that a larger down payment can potentially lower monthly mortgage payments and eliminate the need for PMI, there are many loan programs available for first-time buyers with smaller down payments. It's important to explore all options and consult with a real estate agent to find the best fit for individual financial situations.

Both of these myths tend to create unnecessary fear in buyers. There are a lot of different programs that can help buyers, especially first-time buyers. The best thing to do is to reach out to a trusted mortgage broker or real estate agent to help you get ready for homeownership.