Thinking about buying your first home? What to know before your home-buying journey begins

Buying a home is one of the biggest decisions a person or family can make. It's a huge responsibility that comes with lots of payments and lots of work.

Buying a home can also be a very complicated undertaking for those who aren't familiar with the process.

Considering buying your first home, but aren't sure where to begin? We talked with two Memphis-area Realtors, and here's what they said you should know before getting started on your home-buying journey.

Get preapproved for a mortgage

Mortgage preapproval should always be the first step buyers take before even looking at homes. Preapproval is the process in which a lender determines how much a buyer can borrow. If the buyer already has a home in mind, preapproval can help determine how much they could pay each month, including interest. That cost will also be determined based on the length of the mortgage, such as 15 years or 30 years.

Jay McMiller, a Realtor with RE/MAX Realty Group in Hernando, said that while a few lenders accept a 580 credit score, he recommends a 630 or 640 minimum. Getting roughly $5,000-$10,000 saved up and having the lowest debt-to-income ratio possible are important as well.

Know the types of loans available for homebuyers

Two of the most common mortgage options for homebuyers are FHA loans and conventional loans. FHA loans are insured by the Federal Housing Administration, while conventional loans are not backed by a government program.

Qualification requirements for the two types of loans vary, and prospective first-time homebuyers should closely examine the differences. In general, FHA loans are easier to qualify for, as they allow for a lower credit score and higher debt-to-income ratio. A down payment of at least 3.5% is required. Conventional loans typically require higher credit scores and lower debt-to-income ratios, and may allow for lower down payments.

FHA loans and conventional loans can both have either a fixed or adjustable interest rate, which can be a major factor in the cost of a mortgage over time.

With a fixed rate loan, the interest will not change over the length of the mortgage, regardless of fluctuations in the market. But if interest rates drop, refinancing would be necessary to get a lower rate, and that comes with fees.

An adjustable rate loan is the opposite — the interest rate will shift depending on the market. There's some risk going with this one as they usually have lower interest at first, but it can increase drastically and ultimately cost more than a fixed rate over the length of the mortgage.

Determine your down payment

The "ideal" down payment amount varies wildly depending on the buyer.

"I would say that it's a mix across the board," said Alex Turner, a Realtor with Hobson Realtors in East Memphis. "I bet it averages out to about 10% down, and then once they once they get up to 20% paid into their home, they drop the PMI (private mortgage insurance)."

PMI is an extra fee for buyers who take out conventional loans and put down less than 20%.

Be aware of additional fees

There's a mountain of additional fees that comes during the buying process. McMiller estimated the total additional cost, when including expenses like home inspection, appraisal, agent fees, a termite inspection and everything in between, could get up to around $2,000.

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Of course, that's nothing compared to closing costs. These fees can be anywhere from 2%-6% of a home's price, meaning a $300,000 home could come with closing costs of anywhere between $6,000 and $18,000. Make sure your Realtor negotiates seller concessions, which can potentially transfer some closing costs to the seller.

Hire an inspector

It may be tempting to skip getting an inspection, but both Realtors emphasized how essential they are. Turner said a termite inspection is especially important to do in this part of the country, as well as a drain line inspection. "Make sure there aren't trees growing in [the pipes]," Turner said, "or that there isn't a problem where you're going to have to dig up the entire front yard and have that replaced."

"At the end of the day, you know, humans are building the house," McMiller said. "I have been in a new construction they had inspected where the AC vents had been covered up, or there's no insulation in this wall, or not in the ceilings. Always, always, always do one."

Get an agent who represents your best interests

It's important to find an agent who puts your own needs and wants first above those of the seller.

"It's always good for a buyer to have their own representation," McMiller said. "A lot of people will go straight to the listing agent, and what people don't understand is that listing agent does not primarily work for you. They work for the seller."

McMiller also tells buyers not to let themselves be pressured into making a decision by an agent.

"Don't feel pressured or rushed that you have to buy something," he said. "It's a big decision — even if you're working with an agent that's pressing you with time and saying, 'Hey you need to do this, you need to do that...' Just be patient. Don't just settle, make sure it's the right fit for you and your family."

Popular or affordable neighborhoods in the Memphis area

Turner said the area of Normal Station, south of the University of Memphis, has been a particularly popular neighborhood the last three or four years. She's also seen the neighborhoods north of Rhodes College get bought up and/or torn down for new single-family homes. Binghampton has also become wildly popular in the last half-decade.

"It all comes down to where [people] feel comfortable," she said.

As for DeSoto County, McMiller said homes in Southaven's Pinewood housing development would be considered starter houses. New constructions can start out around $305,000-$310,000. McMiller said that while that's around $35,000 more than before the COVID-19 pandemic, on average homes in DeSoto will still cost less than in Shelby County, mostly due to Tennessee's higher taxes.

Make sure you're ready to buy a home

Oftentimes Turner helps individuals or young families who want to invest in a home, but simply aren't ready, either for the responsibility of it or the financial burden. She said most in this category quit during the preapproval process, but for those who want to buy but remain nervous, Turner recommends a different path.

"Sometimes I suggest going the route of a condo, which is what I did the first time I bought a house," she said. "And I'm glad now that's what I did so at least I eased into home maintenance, before I took on the day-to-day expenses that come with a full home ownership."

Is buying a home in your 20s or 30s even realistic?

As home prices continue to increase, it's easy for prospective first-time buyers to get discouraged. But for those who do their best to save and build credit, Turner said home ownership is "absolutely" achievable. You may just need to start out somewhere you didn't originally expect.

"You got to start thinking, 'Where can I afford and where will I feel safe?' There are areas, but it may not be exactly what you you'd originally intended," she said. "The great part about homeownership is that you can go ahead and invest where you can get in the market, wait a few years, turn it over, and move on to the next step when you're ready to get to the next place. In the meantime, you're building equity."

Jacob Wilt is a reporter for The Commercial Appeal. You can reach him at jacob.wilt@commercialappeal.com.

This article originally appeared on Memphis Commercial Appeal: Tips for first-time homebuyers in Memphis: Nine things you should know