You’re ready to become a first-time homebuyer and have set your sights on the Salem area. How exciting!

But before you start mentally decorating your new digs or planning epic gatherings with your family and friends, there’s a lot to do.

In this post, we walk you through the steps to homeownership, providing tons of essential information along the way. We’ll highlight some of the challenges you may encounter along the way and strategies for success.

Feel free to print out this post so you can tick off items as you complete each step.

Step 1: Assess Your Financial Situation

Before you can even think about buying something, anything, you need to understand what costs are involved and what your buying power is. What are you spending on? How much can you afford to spend?

Given that most people are actually purchasing their home over the course of many years (i.e., monthly mortgage payments), you must think about these questions from a long-term perspective. During the period that you’re paying off your new home, you may experience many life events that impact your cash flow — and ability to pay your mortgage and other home-related expenses.

We recommend that, based on your assessment of your financial position, you establish a budget that aligns with your goals and comfort level. Then, aim to keep your total housing costs (including mortgage, taxes, insurance, etc.) within 25-30% of your gross monthly income

Your Homebuying Budget

Your budget is based on several factors. Determining a reasonable-for-you amount to allocate to buying your home means looking at and weighing each financial dimension.

Here are a few things to consider to help you zero in on your sensible budget:

• Financial standing. Review your current and upcoming income, savings, expenses, and debts. This will reveal your cash flow patterns and needs and help you identify where you can adjust your budget to make more room for homeownership.
• Debt-to-income ratio. DTI measures your ability to meet your debt obligations. It’s basically how much you owe (credit cards, mortgage, etc. debt) compared to how much you make (gross income). A DTI below around 36%-43% is most attractive to prospective lenders.
• Credit history. Check your credit report and credit score. Higher credit scores usually give you access to better mortgage terms — like lower interest rates.
• Emergency cushion. Unexpected events and expenses — related to your home and otherwise — are bound to happen. Budgeting in a financial safety net must be accounted for.
• Long-term goals. For most, homeownership is a major commitment of resources for several years. So, figuring out how homeownership fits into your broader, extended-range financial and lifestyle aspirations is helpful.
• Mortgage pre-approval. The process of getting pre-approved for your home loan involves a thorough evaluation of your financial situation, which will clarify how much you can borrow and spend.
• Professional guidance. Real estate agents, mortgage lenders, and financial advisors are experts in money matters associated with homebuying and homeownership. Take advantage of their knowledge and experience when determining how much you can afford.

Costs Associated with Homeownership

No homebuyer checklist is complete without a list of expected and potential expenses. Let’s break this down into two categories:

Homebuying Expenses

Costs related to acquiring a home may include:

• Travel (if you’re not currently in Salem and need to pay for transportation and accommodations while you house hunt)
• Down payment
• Home loan application fees
• Closing costs

Homeownership Expenses

Once you own your home, you’re on the hook for:

• Mortgage payments
• Homeowners insurance
• Mortgage insurance
• Property taxes
• Utilities
• Maintenance and upkeep
• Repairs
• Home services (like yard care or house cleaning)
• Renovations and upgrades

And don't forget, if your new home is bigger or less efficient than the one you’re moving from — your costs for utilities, maintenance, etc. will probably increase.

Miscellaneous Expenses

Moves often bring about extra costs for things like: 

• Moving expenses
• Temporary accommodations (if your new home isn’t move-in ready by the time you have to leave your current home)
• Transportation (if, for example, your new home requires you to buy an additional car)

Step 2: Learn Homebuying Terminology

Learning the language of real estate can boost your confidence and competency as you go through the homebuying process. Here's a primer to get you started.

• Amortization. The process of paying off your loan over time through regular installments
• Appraisal. The evaluation of a property to determine its market value
• Closing costs. The fees and expenses for finalizing your homebuying transaction
• Closing disclosure (CD). A document given to you by your lender before closing that summarizes the final terms and costs of the mortgage loan
• Down payment. The initial payment you make toward the purchase of your home
• Equity. The amount of your home that you own (property's market value - mortgage balance = equity)
• Earnest money. A deposit you make to demonstrate your serious intent to purchase a property
• Escrow. An arrangement in which a neutral intermediary holds money, property, or documents on behalf of the buyer and seller until the purchase agreement is fulfilled
• Home inspection. An examination of safety and quality of a property that’s being sold
• Homeowners association (HOA). A private community organization that’s funded by HOA fees and responsible for managing and maintaining shared facilities and enforcing neighborhood rules and regulations
• Mortgage. A kind of collateralized loan used to finance the purchase of real estate
• Pre-approval. A lender’s preliminary assessment of your financial situation to determine what size loan you’re qualified to borrow
• Principal. The amount of money you borrowed for your mortgage (excludes interest and other charges)
• Private mortgage insurance (PMI). Mandatory loan insurance if your down payment is less than 20%
• Title insurance. Insurance that protects you and your lender against any issues with the property's title
• Underwriting. The in-depth evaluation of your creditworthiness and financial position to decide whether to approve your home loan application

Step 3: Check Out First-Time Homebuyer Programs

First-time homebuyer programs are a fantastic resource you can tap into. These initiatives, run by federal, state, and local governments or organizations, are designed to help people buy their first home. Many first-time homebuyer programs offer financial incentives and assistance to make homeownership more attainable.

Step 4: Get Pre-Approved for a Mortgage

If you know you’re going to need a mortgage, it’s time to start shopping for a loan and lender. You can home in on your best options by getting quotes, considering fees, terms, and reputation, and seeking recommendations from people you trust.

Once you’ve picked the mortgage that works for you, getting pre-approved is next. Pre-approval for a mortgage helps you figure out your price range, strengthens your offer, and speeds up the homebuying process. Prepare documents like:

• Official ID
• Employment verification
• Pay stubs
• Tax returns
• Bank statements
• Investment statements
• Loan and credit card statements

Step 5: Begin House Hunting

You’ve run the numbers and gotten preliminary paperwork out of the way. Now the fun part!

Research the Salem Housing Market

Start by learning more about the Salem housing market. You can do this by:

• Browsing online listings
• Attending open houses
• Explore different neighborhoods
• Reading local area guides
• Contacting local organizations
• Consulting with local real estate agents

Where you look may depend on your budget, preferred property type, and desired community amenities. Some popular Salem neighborhoods include South and West Salem, Fairmount Hills, and Bush Park. But if affordability is your top priority, neighborhoods like Jan Ree, Northstar, East Salem, and Santana Village might be right up your alley.

You’ll have to keep an eye on market trends for up-to-date pricing insights.

Find a Reliable Real Estate Agent

Next, find a Salem-based real estate agent to team up with. Working with a local agent provides access to market expertise, personalized guidance, and valuable insights into neighborhoods and property listings.

You can connect with a qualified real estate agent by getting referrals from friends, family, or trusted professionals. Make a shortlist of candidates and then vet them through online reviews and interviews.

Let the House Hunt Begin!

House hunting allows you to experience properties and their environs firsthand, which is invaluable. Unless you live too far away, visit properties in person whenever possible. Tour homes and cruise through the neighborhoods at various times of the day/week to get a solid sense of each place.

This can get overwhelming, especially if you’re viewing several homes in a short period. Here are some tips to help you house hunt with greater ease:

• Make a wish list of must-haves and deal-breakers when it comes to location, size, layout, features, and community.
• Keep a log (preferably with pictures) of houses you visit so you can readily compare features and winnow down your possibilities. 
• Go through home walk-throughs with a critical eye for potential issues and suitability.
• Do a home tour with your own agent — who has your interests at heart.

Step 6: Make an Offer & Do Your Due Diligence

You’ve found the perfect future first home. It’s time to start the purchasing process!

Submit an Offer & Negotiate

Your agent will help you put together a competitive offer based on market research, comparable sales, and your initial bid. Having your mortgage pre-approved may make your offer stronger.

Once your offer is submitted, you may have to negotiate. Some back and forth between buyers and sellers is normal. Common negotiation strategies include offering earnest money, shortening the closing period, and requesting seller concessions.

Complete Home Inspections

You’ve heard the saying, “Caveat Emptor” or “Buyer Beware.” This definitely applies to homebuying.

First-time buyers need to do their due diligence. This is the surest way to understand the condition and potential problems with the home you’ve made an offer on.

Professional home inspections provide detailed reports that identify any defects or safety concerns. While inspections have a cost, they offer invaluable insights and help buyers make informed decisions. They can give you negotiating points and save you money and frustration down the line.

Step 7: Prepare for Closing & Beyond

If all goes according to plan, your offer is accepted. Next steps might include finalizing your financing, addressing contingencies, doing one last walkthrough, getting insurance, and transferring utilities.

At closing, you’ll review all the documents and make any needed payments. Assuming everything’s in order, you’ll sign the purchase contract and get your keys!

VCU, Helping Make Your Salem Homeownership Dreams Come True

As a first-time homebuyer, you have a lot to learn and do before you can lay out the welcome mat at your new house. Following the steps outlined above will make the overall process easier.

And Valley Credit Union is here to help you navigate the process and provide you with competitive loans to make homeownership more accessible.

About the Author

 Justin Roberts, Vice President of Lending

Justin Roberts is our Vice President of Lending and has been in the financial industry for over 18 years. He is an Oregon State University Graduate and has just completed Western CUNA Management School. When he is not focused on helping the members at Valley, you will find him coaching his two sons and volunteering his time to help develop the youth in our communities through sports.