The Foyer First-Time Homebuyer’s Guide

Are you dreaming of buying your first home? There is no one-size-fits-all approach to buying your first home and every Foyer member is on their own unique journey. We're here to help prepare you in the best, most confident way possible, and that’s exactly why we prepared this guide.

Think of us like your co-pilot in navigating the process of buying your first home. As a Foyer member, you can always reach out to hello@foyersavings.com with any questions you have about your own journey. If you are not already a Foyer member, sign up to get started!

Step 1. Start where you are

The first step in the path to homeownership is to understand your current position relative to where you want to be when you are ready to transact. This comes in the form of financial preparedness, emotional and lifestyle readiness, and most importantly, having a sound understanding of what you can and cannot afford.

1.1 Setting your Home Goal

Calculating Your Budget

Start by evaluating your income, expenses and existing debt, and existing savings. At Foyer, we believe in basing home affordability targets on your Debt to Income ratio. (otherwise known as DTI ratio - we’ll learn more about this when we start talking about mortgages) 

Use your Foyer app to calculate your DTI ratio at different home prices. We generally recommend picking a home price that puts your DTI ratio below 36%. If you work in an industry where your income tends to be more variable by quarter or year, you may want to choose a more conservative DTI. If you’re combining finances with a partner or expecting your buying power to increase meaningfully in the near term, you may want consider a more aggressive DTI target for your home price.

Your monthly payment can change quite drastically depending on your mortgage interest rate and the percent that you put down, so explore the down payment and interest rate sliders in the mortgage calculator feature in your Foyer app to influence your home price target.

We monitor mortgage rates and share them with Foyer members on a weekly basis. We’ll always inform you of any notable changes so that you can take them into consideration when making updates to your budget or homebuying timeline.

1.2 First Time Homebuyer Finances

Down Payment Savings 

Saving for a down payment is typically the longest and most difficult part of the buying journey for aspiring homeowners. The down payment is a portion of the purchase price that you pay upfront when buying a house. For most conventional and FHA loans, this can range from 3% to 20% of the home price. The average down payment for first time homebuyers is 6%. The delta between your down payment and the home price will be the amount you will need to borrow through your mortgage.

Putting down more than 3% can get you more favorable loan terms and save you money on PMI (private mortgage insurance), but the amount you put down is really a personal decision.

Closing costs are the fees that come up when finalizing the purchase of and closing on a home. These costs are paid in full at the closing meeting, which is when the property officially changes hands from the seller to the buyer.

Typical closing costs include:

• Origination Fees: Fees charged by the lender for processing the loan application.
• Appraisal Fees: Cost for an appraisal to determine the home's value.
• Title Insurance: Insurance that protects against any legal issues related to the property’s title.
• Inspection Fees: Costs for home inspections to check for issues or necessary repairs.
• Attorney Fees: Fees for legal services if applicable in your geography.
• Property Taxes: A prorated amount of property taxes that may be due at closing.
• Homeowner’s Insurance: Insurance coverage for the property, often required to be paid upfront.
• Escrow Fees: Fees for managing the escrow account where funds are held during the transaction process.
• Recording Fees: Charges for recording the property transfer with the local government.

Closing costs typically range from 2% to 5% of the purchase price of the home. These costs can vary based on location, lender, and the specifics of the transaction, and your lender and agent will help you determine what this final number will look like.

There are many ways to save on your down payment closing costs, including down payment assistance programs, Foyer member benefits like closing cost credits, and first time homebuyer grants, so be sure to take these into consideration when coming up with your savings target! Foyer can help direct you to programs that will help maximize your buying power.

Additional Savings and Emergency Funds

We actually recommend that Foyer members don’t spend all of their savings on their down payments. Keeping a separate emergency fund will help cover unexpected expenses that arise during homeownership, such as repairs or job loss. Saving diligently now will help you feel more secure and prepared for the future.

Understanding Your Credit Score

Your credit score will play a crucial role in determining your mortgage rates and loan approval. A higher credit score can lead to better loan terms, while a lower score might limit your options. Credit scores below 580 typically won’t be approved for a mortgage. Credit scores between 580 and 620 will likely be eligible for an FHA loan, which is a mortgage type that is geared towards applicants with moderate credit scores.

The first step is to understand where you are today - obtain a copy of your credit report and review it for any errors. Take steps to improve your credit score by paying down existing debts, making timely payments, and avoiding new credit inquiries.

1.2 Personal and Lifestyle Readiness

Assessing Long-Term Plans and Goals

Consider your long-term goals, such as career plans, family planning, and lifestyle preferences. Are you on a temporary contract out of state? Are you marrying someone from another city or country? How does that impact your timeline and home savings goals? Make sure that buying a home aligns with these goals and the timeline you have in mind and fits into your overall life plan.

Step 2. Save for your home goal  

Saving with Foyer

Depending on your existing savings, your cash target, and your timeline needs, this may be a short process, or this may take you a year or two. Foyer has a designed tools for first time homebuyers to help make saving for their down payment faster and easier. 

Earn interest on your deposits 

Foyer offers an industry-leading APY, paid out monthly, so that your cash grows faster. 

‍Earn the Foyer Match and Foyer Rewards

Foyer matches your deposits at 2% - meaning for every $100 you contribute, we’ll add an additional $2 to your account, up to $10,000 in contributions or $200 in match value per year. 

We also offer ample opportunities to earn additional Foyer rewards through actions that get you closer to your home goal, like by talking to our partner agents and lenders or setting up automated transfers.

You can cash out your rewards to use towards your down payment and closing costs by uploading a valid, signed purchase contract in the app. 

‍Join Foyer+ for faster savings

For Foyer members who are looking for an accelerated path towards more buying power, we created Foyer+! Foyer+ benefits include: 

• 5% deposit match, up to $10,000 in savings or $500 in match value per year
• Faster transfers
• On demand, 1-on-1 sessions with a Foyer Home Advisor 

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Step 3. Plan for your purchase

3.1 Pick your Real Estate Partners: 

Picking a Real Estate Agent

We recommend that you start interviewing agents when you think you are around 6 months away from actually buying your home. Choosing your agent early on in your process will help you learn as much as possible about your local market and ensure that when the right opportunity comes up, you and your agent are ready to move.

71% of homebuyers only interview one agent. Foyer has a vetted network of top agents around the country who are excited to help Foyer members find their first home and are even offering special closing cost concessions and cash back for working with them. 

When you're ready to move onto the interview step, head to the Buy tab in your Foyer app to request an agent introduction. You can interview as many as you’d like until you find one who fits your needs. Look for a real estate agent with experience in the local market and a strong track record of helping first-time buyers. You have no obligation to any real estate agent until you sign a Buyer's Representation Agreement.

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The Role of the Agent in the Buying Process

A good real estate agent will advocate for you throughout the entire sale process. Look for an agent who can offer you assistance with: 

1. Expert guidance: Real estate agents bring a wealth of knowledge about your local real estate market and about the homebuying process. They will help you understand the current market, evaluate property values, and advocate for you throughout the process. 

2. Finding your dream home: Agents use their networks and resources to find and share properties that match your criteria. They can access listings that aren't listed to the public online.

3. Negotiation and representation: A skilled agent negotiates on your behalf to get the best possible deal. They handle offers, counteroffers, and contractual details, ensuring you get favorable terms on the biggest purchase of your life. 

4. Managing the process: From scheduling viewings to managing contracts, agents coordinate all the steps of of the homebuying process. 

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Picking a Mortgage Lender

Around the same time you start interviewing agents, we recommend you set up a call with a lener to get a deeper understanding of what you qualify for, the strengths and weaknesses of your financial profile as a loan applicant, and to get a pre-approval to prepare you for your home search.

You are welcome to have as many conversations as you want this early in the process, but a pre-approval is not a committal process and is meant to validate your goals and help equip you for the shopping process. Shopping rates isn’t necessary until you find a home you want to buy. Foyer has a network of top lenders around the country who can help you quickly and easily get pre-approved. Open the Buy tab in your app when you’re ready to meet a lender!

The Pre-Approval Process

Getting pre-approved for a mortgage involves providing your lender with financial documentation, such as income statements, credit history, and asset information. A pre-approval letter gives you a clear idea of your budget and strengthens your position when making an offer on a home.

3.2 Prepare for your conversations

To feel confident and empowered stepping into any partner conversations, here are a few tips about navigating the mortgage industry: 

‍Different types of Mortgages:

Fixed-Rate vs. Adjustable-Rate Mortgages

Fixed-rate mortgages offer stability with consistent monthly payments throughout the loan term. Adjustable-rate mortgages (ARMs) have interest rates that can change periodically, which might lead to lower initial payments but can fluctuate over time. Assess your financial situation and risk tolerance to choose the best option for you.

FHA, VA, and USDA Loans

Explore different loan programs to find one that suits your needs. FHA loans are backed by the Federal Housing Administration and are ideal for first-time buyers with moderate and lower credit scores (above 580 but below 620). VA loans are available for veterans and active military personnel, offering favorable terms with as little as $0 down payments. USDA loans are designed for rural homebuyers with low to moderate incomes and offer $0 down payment options as well.

Different types of Lenders: 

Credit unions are non-profit generating financial institutions that have a membership structure whereby members can borrow against and deposit to a pool of money at interest rates set by the credit unions. Credit unions tend to have lower borrowing rates, but also typically have fewer mortgage types, are typically less tech-enabled, and are limited to members in specific local geographies.

Banks are for-profit financial institutions that act as intermediaries between depositors and borrowers. Banks may have more stringent eligibility requirements than credit unions and mortgage brokers but will also have the benefit of national coverage, in-person branches, and app-based support and payment solutions. 

Direct non-bank lenders are mortgage lenders that operate independently from banks that originate, process, and fund mortgage loans directly to the borrower. Mortgage lenders will typically have the highest variety of loan options and are typically more open to negotiations than banks, but will not have in person branches like credit unions and banks.

Step 4. Shop for Your Home

This is what we believe is the most exciting part of your homebuying experience. Every member’s journey is different - you may find a house you love which will kick off your homebuying process, or you may be saving diligently against a target move-in date or target down payment savings goal that will guide when and how you start to shop. 

Once you have chosen an agent, you’ll want to work through some of the following questions with them:

4.1 Identifying Your Needs and Wants

Must-Haves vs. Nice-to-Haves

Create a list of essential features for your new home (e.g., number of bedrooms, proximity to work) and desirable extras (e.g., a pool, finished basement). This will help you narrow down your search and focus on homes that meet your core requirements.

Considerations for Location, Size, and Amenities

Think about the location, size, and amenities that best suit your lifestyle. Consider factors such as school districts, commute times, and neighborhood features.

Planning Your Search: Clearly defining your needs and preferences helps streamline your home search and ensures you find a property that fits your lifestyle.

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4.3 House Hunting Tips

What to Look for During Viewings

Pay attention to the home’s condition, layout, and potential issues. Look beyond cosmetic details to assess the overall structure and functionality.

Questions to Ask Sellers

Inquire about the home’s history, any recent repairs or renovations, and neighborhood details. This information can help you make an informed decision and avoid potential issues.

Planning Your Search: A thorough and methodical approach to house hunting can help you find the right home and make a more confident purchase decision.

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Step 5. Make an Offer

5.1 Crafting Your Offer

How to Determine a Fair Offer Price

Your agent will be your #1 resource in crafting your offer. Consider the market value of similar homes in the area, the home’s condition, and your budget. 

Contingencies and Clauses

Your agent will also include contingencies in your offer, such as a home inspection or financing contingency, to protect yourself from potential issues.

5.2 Negotiations

Common Negotiation Strategies

Be prepared to negotiate the offer price, closing date, and other terms. Flexibility and clear communication can help you reach a mutually beneficial agreement.

Handling Counteroffers

If the seller makes a counteroffer, review it carefully and decide whether to accept, reject, or propose a new offer. Your agent will assist you in negotiating terms.

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Step 6. Go Under Contract

Congratulations! You’re buying a house. As soon as you go under contract, let us know so that we can update your account settings to move into the closing status. 

6.1 What It Means to Go Under Contract

When you go under contract, you and the seller have agreed on the terms of the sale, and a legally binding agreement is in place. This step signifies that both parties are committed to completing the transaction, though the deal is still contingent on fulfilling various conditions and contingencies outlined in the contract.

6.2 Key Components of the Contract

Offer Acceptance

Once your offer is accepted, the seller signs the purchase agreement, and you become officially under contract. This document includes crucial details such as the purchase price, closing date, and any agreed-upon terms and conditions.

Contingencies

Contingencies are conditions that must be met for the sale to proceed. Common contingencies include:

• Home Inspection Contingency: Allows you to have the home inspected and negotiate repairs or request a price adjustment based on findings.
• Financing Contingency: Protects you in case your mortgage application is denied or if you’re unable to secure the necessary funds.
• Appraisal Contingency: Ensures the home appraises at or above the purchase price. If the appraisal is lower, you may need to renegotiate or cover the difference.

Earnest Money Deposit

This deposit is a show of good faith, typically 1-3% of the purchase price, and is held in escrow. If you back out of the contract without a valid reason, you risk losing this deposit. However, if the deal falls through due to contingencies, you generally receive the deposit back.

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6.3 Responsibilities During the Contract Period

Home Inspection

Schedule a home inspection after going under contract. This step allows you to identify any potential issues with the home and address them before finalizing the purchase. If problems arise, work with your agent to negotiate repairs or adjustments with the seller.

Appraisal

Your lender will arrange for an appraisal to determine the home’s value. Ensure the appraisal meets or exceeds the purchase price. If the appraisal comes in low, you may need to renegotiate with the seller or make up the difference with additional funds.

Title Search and Insurance

A title search verifies that the seller has legal ownership of the property and that there are no liens or claims against it. Title insurance protects you against any issues that might arise with the property’s title after closing. Your lender typically requires title insurance as part of the loan process.

6.4 Potential Issues and Solutions

Negotiating Repairs or Credits

If the home inspection reveals issues, negotiate with the seller to address repairs or provide a credit towards the closing costs. Your agent can help facilitate these discussions and ensure any agreements are documented in an amendment to the contract.

Contingency Deadlines

Be mindful of deadlines associated with each contingency. Failure to meet these deadlines could jeopardize your ability to cancel the contract and may result in losing your earnest money deposit.

Contract Amendments

If any terms of the contract need to be adjusted (e.g., extension of closing date, changes to contingencies), both parties must agree to the amendments in writing. Work with your agent and attorney to ensure all modifications are properly documented.

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Step 7. Finalize Your Mortgage

Finalizing your mortgage is a critical step in the home-buying process. This phase involves securing your loan and ensuring all financial and legal requirements are met before you can officially close on your new home. Here’s a detailed guide to help you navigate this important stage:

7.1 Shop Rates

Have you ever heard the term “shop rates”? NOW is the time to do it. Get quotes from different lenders and different types of lenders to see what kinds of rates and terms you can get.

Submitting Documentation

After your offer is accepted and you’re under contract, you’ll need to provide your lender with various documents to complete your mortgage application. Commonly required documents include:

• Proof of Income: Pay stubs, tax returns, or W-2 forms.
• Proof of Assets: Bank statements, retirement account statements, or proof of any other assets.
• Credit Documentation: Authorization to pull your credit report.

Ensure you provide accurate and up-to-date information to avoid delays in the approval process.

Reviewing Loan Terms

Carefully review the terms of your loan, including the interest rate, loan term (e.g., 15 or 30 years), and any fees or points. Make sure you understand how these terms will impact your monthly payments and overall financial commitment.

7.2 Securing Your Interest Rate

Locking in Your Rate

Interest rates can fluctuate, so you may have the option to lock in your rate at a specific point in time. A rate lock guarantees that your interest rate will remain the same for a set period, often until closing. Discuss with your lender whether a rate lock is beneficial and how long it should last.

Understanding Rate Locks and Floats

• Rate Lock: Secures your current interest rate for a specified period, protecting you from rate increases.
• Rate Float: Allows you to wait and see if interest rates drop before locking in. However, this can be risky if rates rise.

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Step 8. Prepare for Closing Day

8.1 The Closing Process

Congratulations! You are officially a homeowner! Closing day is the final step in the homebuying process where ownership of the property is officially transferred from the seller to you. 

Prepare Your Funds

You will need to bring the funds required for closing, which typically include:

• Down Payment: The portion of the purchase price you’re paying out-of-pocket.
• Closing Costs: Fees associated with the transaction, such as title insurance, appraisal fees, and escrow fees. These are detailed in the Closing Disclosure.

Most often, these funds need to be provided in the form of a certified or cashier’s check, or by wire transfer. Confirm the payment method with your closing agent ahead of time.

Bring Necessary Identification

Bring a valid photo ID (such as a driver’s license or passport) to the closing. This is required to verify your identity when signing documents.

8.2 What to Expect on Closing Day

Meeting with the Closing Agent

You’ll meet with the closing agent (or escrow officer) who will facilitate the closing process. This person ensures that all documents are signed correctly, funds are transferred, and legal requirements are met.

Signing the Documents

You’ll be required to sign several documents, including:

• Deed of Trust or Mortgage: This document secures your loan by placing a lien on the property.
• Promissory Note: This is your formal promise to repay the mortgage according to the agreed terms.
• Closing Disclosure: Confirming you’ve received and reviewed the final terms and costs of the loan.

Read each document carefully before signing. If you have any questions, don’t hesitate to ask the closing agent for clarification.

8.3 Completing the Financial Transactions

Paying Closing Costs

You’ll provide the funds for closing costs and your down payment. These will be distributed to various parties involved in the transaction, such as the seller, real estate agents, and the title company.

Reviewing and Disbursing Funds

The closing agent will review and verify that all funds are properly accounted for. They will then disburse the funds to the appropriate parties, including paying off the seller’s existing mortgage and transferring the net proceeds to the seller.

8.4 Transferring Ownership

Receiving the Keys

Once all documents are signed and funds are disbursed, you’ll receive the keys to your new home. Congratulations, you are now officially a homeowner!

Recording the Deed

The closing agent will record the deed with the local county or city office, officially transferring ownership of the property to you. This is a public record that confirms you are the legal owner of the home.

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