Purchasing your first home is an important milestone, but it can also be stressful. To help you prepare yourself for the homebuying process, Muncy Bank is sharing the seven essential steps you'll need to take in order to buy your new home with confidence.

A Guide for First-Time Homebuyers in Central PA

Buying your first home is one of the most exciting moments in your life. It can also be one of the most daunting. It’s a lifelong goal that leads you to the purchase of what will most likely be the most expensive thing you ever own. Owning a piece of the American Dream involves a significant investment in time, preparation, and financial resources. Doing your research in advance will lessen the anxiety of the process and potentially save you money. The time to start your research on buying a home is well before you take the plunge. Learn how to get yourself into financial shape to purchase your first home and find the home lender that’s right for you with this step-by-step guide. 


From initial research to creating a budget, learn which steps you need to take to buy your first home with confidence!


Step 1: Evaluate Your Finances

As with any major purchase, you have to know how much you can afford before beginning the home buying process. Many oversimplify the cost of owning a home by proclaiming that whatever you afford to pay in rent you can put towards a mortgage. The reality is more complicated--and more expensive. Even if your eventual home has the same monthly mortgage payment as your rent, rent is a fixed cost that includes property maintenance. That is not the case with a mortgage.

To obtain a full picture of your finances, determine the amount of money you have coming in and what you are paying out. After reviewing monthly expenses like rent, utilities, food, student loans, and transportation, consider what is left over. What costs can be reduced or eliminated to increase your monthly savings?

Next, determine your debt to income ratio, a key indicator used by mortgage lenders. This calculation looks at your gross monthly income and compares it with your monthly debt payments, including credit cards, car payments, and student loans. Lenders like to see a number below 28% before a mortgage and 43% with a mortgage included. If your current ratio is above 28%, consider ways to address and reduce your level of overall debt.

Now it’s time to create a monthly budget and be clear on your savings goals. Ideally, you will save enough to put a 20% down payment on your home, as well as have cash reserves to cover related costs. For a $200,000 home, that means at least $40,000. In order to get you to that goal, take a long, hard look at your wallet. Set aside any “extra” money that comes in, including tax refunds and work bonuses, and apply it to your savings. You may also wish to consider having money automatically deducted from your paycheck and put directly into a savings account. 


Buying a home is one of the biggest financial decisions you'll make. Consult with a lender to learn more about your financial options.


Step 2: Consider the Costs of Home Ownership

Owning a home involves a more significant financial commitment than just paying your mortgage each month. There are costs for maintenance and home repair, property taxes, homeowner's insurance, utilities, and HOA fees.   These expenses can add up to thousands of dollars each year. Consider these costs in your budget and create your plan to save. While the down payment is a large sum, it is only the beginning of the money involved in buying and owning a home.

A word on PMI:  Private mortgage insurance (PMI) is required for buyers who do not put a 15 percent down payment on their home to protect lenders. It is a recurring monthly payment that will be made until you have 20 percent equity in your home. 


Being prepared financially for homeownership also means considering future expenses. It is recommended that you set aside 1-3% of your home’s selling price to account for maintenance and repairs.


Step 3: Know How Much You Can Afford

After assessing your finances and created a budget, you can determine how much money you can afford for a home. Financial institutions like Muncy Bank provide online calculators to help you set this amount. Know your home buying budget before you begin house shopping in order to avoid frustration and disappointment down the line. Know what you can afford so that you only consider homes within your budget. Read more in "How Much Mortgage Can I Afford?"

Step 4: Understand Your Credit


Purchasing a home involves taking on a massive loan to cover the cost of the house.  It’s not every day that you ask to borrow hundreds of thousands of dollars, so you need to be prepared for when that day arrives.  Lenders want to minimize their risk, so it’s critical that you are familiar with your credit history and address any potential issues ahead of time.  Your credit determines whether you are approved for a mortgage, as well as the interest rate available to you.


Your debt-to-income ratio and credit score are useful metrics determine your financial health before buying a home.


Order a copy of your credit report, then review it carefully to ensure that the information featured is accurate. If any errors are featured, you will need to dispute them before pursuing a mortgage. Take steps to understand your credit history well before committing to buying a home. The Housing Coalition of Lycoming County offers Consumer Credit Counseling Service which provides counseling on home purchase readiness to assist you in this journey. After applying for a mortgage, be aware that you should not take out additional accounts, such as new credit cards or car loans until you have closed on your home. 


Step 5: Get Pre-Qualified

As you near the starting line for looking for your first home, get pre-qualified for a mortgage. This is critical because it will show you how much money you may be approved for when you apply for your loan. It also shows sellers that you will likely be approved for a mortgage when you make an offer on their home.

It is important to understand that this process does not tell you how much you can afford. You should get pre-qualified for the highest amount you are comfortable paying, but that does not mean viewing the upper end of the figure as your target purchase range. Buying a home that’s on the high end of your pre-qualified amount will put you under financial strain for years to come. Do your financial legwork long before entering the home buying process, know your budget, and stick to it.


Step 6: Shop for Your Home


Beginning to look for a home is the fun part of all of your efforts! Be sure to prepare yourself to avoid frustration and confusion. Before choosing a real estate agent, educate yourself as much as possible on the home buying process.  There are excellent books, articles, and videos to use as additional resources.


Central Pennsylvania features a variety of  urban neighborhoods, small towns, and rural areas.


While learning as much as you can about the home buying process is imperative, you can’t know everything unless it is what you do daily. That’s why you’ll want to find an agent who works to educate you in addition to showing you houses. If you have questions about the mortgage process, speak with a lender, or consult these frequently-asked questions about the home loan process!

The right agent for you will also respect your budget. A “harmless” look at a few homes above your price range can skew your expectations and needlessly frustrate your search. Keep an open mind when looking for your first home. Don’t overlook a house that may be a great fit for your needs due to minor, fixable flaws like unfortunate paint color. The house you end up buying may not tick off every box on your checklist but can still be a great fit for your family.


Step 7: Apply for A Mortgage Loan

You’ve educated yourself on the home buying process, you’ve done the tough work of analyzing your finances and living on a budget, and you are finally ready to purchase a home. Congratulations! When considering a mortgage, you’ll want to consider the term of the loan. 30-year mortgages are the most popular and provide the lowest monthly payment options, but shorter terms are also available. Mortgages are offered with fixed or adjustable interest rates. Which is the best option for you?

At Muncy Bank, we offer a variety of mortgage loan options for homebuyers in Lycoming, Northumberland and Clinton Counties, including loans for new home construction, lot financing, and much more. Learn more about our mortgage loan options or contact us to discuss your options with one of our mortgage lenders.

Now it’s time to find a lender to provide first-time home loans in Central PA. When considering a bank to work with, find one that values the work that you have already put into the process and the long partnership you are about to enter. Local financial institutions like Muncy Bank have a history of knowledge and dedication to the community as a mortgage lender in Central PA. We also have a nuanced understanding of the local real estate market that’s not possible with a national bank.

Using a local lender also means faster turnaround times and more flexibility with financing. Muncy Bank’s experienced mortgage specialists understand the excitement and stress of this process and provide personal attention to provide the best service and put your mind at ease. Contact us or visit one of our locations in Muncy, Clarkstown, Hughesville, Dewart, Montoursville, Linden or Avis discuss your mortgage needs today and turn your homeownership dreams into a reality!

Speak with a mortgage specialist at Muncy Bank to learn more about your home financing options.