Buying your first home is one of the most exciting times in life, bringing deeper stability and allowing you to create a space where you can truly feel at home.
If you’re a first-time LGBTQ+ homebuyer, you might face some unique challenges when trying to buy a home. This is especially true for BIPOC individuals buying a home for the first time; for example, Black and African American individuals have the lowest homeownership rates in the country.
Unfortunately, lending discrimination is present in many cities nationwide, which is why finding inclusive and supportive real estate professionals, mortgage lenders, and resources is so important. That way, you can feel safe and heard throughout the home buying process. Today, we’ll walk through a first-time home buyer guide that can ensure you’re ready to sign that loan paperwork and officially take ownership of your brand new house.
Step 1: Assessing Your Financial Readiness
Before starting the home buying process, assess your financial readiness. If you aren’t financially prepared to buy a home, you could set yourself up for disappointment and potentially put yourself in debt.
Credit Scores
Your credit score will greatly affect your home buying experience. If you don’t already have a good credit score, work on improving it before attempting to purchase a home.
Generally, a higher credit score means you will be offered better loan terms and more money. Lower credit scores often yield less flexible loan terms and lower overall loan amounts.
Here are some factors that impact your credit score:
Credit History Length: A longer credit history is preferable in the eyes of lenders. To optimize your credit history, avoid closing old accounts even if you no longer use them.
Payment History: Having a sound payment history increases the likelihood that a lender will accept you as a borrower. Late payments stay on your report for a long time and can drop your score by several points. As often as possible, pay all your bills on time to maintain or improve your credit score.
New Credit Accounts: Be cautious about opening new credit accounts, especially within a short period of time. However, if you don't have an extensive credit history, opening a new line of credit can help diversify your credit profile and improve your credit score.
Credit Usage: Even if you have a really high credit limit, don’t use all of your available credit; keep balances low and pay as much as of the balance as possible every month.
Credit Mix: Having various lines of credit, like credit cards, mortgages, and installment loans, can be good for your credit score.
Budgeting for Your First Home
In addition to your credit score, your budget will determine which homes you can afford and the mortgage rate you will qualify for. Creating a budget will also help you set realistic expectations and allow your agent to show you homes within your price range.
75% of home buyers are between the ages of 25 and 33, and most people in this age range haven’t had much time to save for buying a home. This is why budgeting and financial planning is so important.
Your budget should take the following costs into account:
Closing costs
Down payment
Mortgage Insurance
Taxes
Monthly mortgage payments
Maintenance and utilities
Homeowner’s association (HOA) fees
Saving for a Down Payment
Many people think of down payments as a hindrance to home ownership, but if you start saving early, you can have a significant nest egg ready for your purchase.
In most advice for first-time home buyers, you’re encouraged to provide at least 20% of the purchase price as a down payment amount, as this will eliminate private mortgage insurance and give you the best rates. This can seem insurmountable, especially if you are buying your first house in a very expensive area.
However, some loan options allow first-time buyers to put down only 3% on their home loan. Those using an FHA loan with good credit only need to provide 3.5% upfront, which significantly reduces your burden.
As a first-time homebuyer, you can likely qualify for a number of down payment and closing cost assistance programs that can help you lower the amount you’ll have to pay upfront. We have access to local, state, and national down payment assistance programs that will ease the upfront costs associated with a mortgage loan.
These can include options like a forgivable loan, which you don’t have to pay back as long as you stay in the home for a certain amount of time, and grants, which never have to be paid back.
There are programs specifically for people of color, such as the Homeownership Council of America’s DPA programs meant for BIPOC first-time buyers. The Black Homeownership Collaborative also collects a database of programs meant to assist Black and African Americans who want to own their own home.
Even if you don't pursue down payment assistance, there are practical ways you can save toward a down payment:
Cut back on unnecessary expenses to save money
Set up automatic transfers to your savings
Seek additional income from part-time work or freelancing
Utilize FHA (Federal Housing Administration) loans and other non-conventional mortgages with lower down payment requirements
Step 2: Researching Mortgage Options
Buying a home isn’t just about choosing the first mortgage lender you see. You need to find one that understands your situation, is inclusive, and can help you understand the different types of loans available to you and the best option for your financial situation.
Pride Lending can assist you as you explore mortgage options by assessing your financial health, available funds, and credit history. We’re also happy to provide additional tips for first-time home buyers so you can get the most out of your mortgage.
Types of Mortgage Loans
FHA Loans
FHA loans are government-backed loans. These are a popular choice for homebuyers, particularly first-time homebuyers. Unlike USDA loans, which are only available in certain areas, you can use an FHA loan for a home purchase anywhere in the country.
Pros:
Easier to qualify for
Lower down payments
Assumable
Cons:
Requires private mortgage insurance
Strict property requirements
Conventional Loans
Many homebuyers use something called a conventional loan, which is not backed by the government.
Conventional mortgages can include fixed-rate mortgages, where your monthly payments will always be the same, and adjustable-rate mortgages, which have lower introductory rates that then adjust to the current market rate.
Your decision should be based on how long you intend to stay in your home and your income. For example, if you intend to stay put for a long time and want a predictable house payment, then a fixed rate may be better for you. If you’re not going to be in this home forever or are willing to refinance after a given time frame, then an adjustable-rate can work well for you.
The pros and cons of a conventional loan include the following.
Pros:
More flexible loan terms
Higher loan limits
Faster access to the loan amount
Cons:
Higher credit score requirements
Higher interest rates
VA Loans
VA loans are mortgage loans that veterans can take advantage of through the US Department of Veterans’ Affairs. Like a USDA loan, these loans do not require any down payment, though providing one will help reduce your mortgage payment and may qualify you for a better interest rate.
Pros:
No mortgage insurance required
No down payment required
Low interest rates
Cons:
Only available to veterans
Requires a funding fee
LGBTQ+-Friendly Mortgage Lenders
Finding an LGBTQ+-friendly loan officer is your best bet to avoid dealing with lending discrimination when buying your first home. According to a University of Chicago study of over five million FHA loan applicants, same-sex couples were 73% more likely to be denied a loan than different-sex couples.
This is especially true if you face double discrimination as a BIPOC first-time buyer; 1 in 4 Black buyers are denied a mortgage, and they are more likely to pay higher rates than their white counterparts. Hispanic individuals are also twice as likely to be denied a loan and also pay higher mortgage rates.
Looking for LGBTQ+-friendly lenders like Pride Lending can help you avoid this type of discrimination. We understand that your first time buying a house is challenging enough without worrying about discrimination. As such, we’ll help you compare mortgage rates and ensure that you’re getting the rate you deserve based on your personal finance information.
If you’re not sure how to look for inclusive lenders, you can:
Seek recommendations from other LGBTQ+ individuals
Research reviews online
Ask the lender direct questions about experiences with LGBTQ+ clients
Step 3: Pre-Approval Process
Once you find the right mortgage lender and loan, you will need to go through the pre-approval process. Here’s a look at what the process requires.
Getting Pre-Approved
The mortgage preapproval process happens when a mortgage lender reviews your financial situation to determine whether you will be able to qualify for a loan. This helps them determine how much they’re willing to lend you for your mortgage.
The process involves:
Submitting an application with your personal and financial information
A hard-pull credit report
A review of your financial documentation
Receiving a pre-approval letter
Getting pre-approved will help you better budget for your first home and stand out among other buyers, as a preapproval letter assures sellers that your deal is less likely to fall through.
Documents You’ll Need
You’ll need to provide a lot of documentation during the pre-approval process. Be sure to gather the following documents before submitting your application to a lender:
Proof of income
Authorization for the lender to run a credit report
Employment verification
Debt information
Bank statements
Step 4: Finding the Right Real Estate Agent
A good real estate agent can make all the difference when buying a house for the first time. Especially as someone who’s part of the LGBTQ+ community, you’ll want to choose your real estate agent carefully to ensure they’re inclusive and accepting.
Choosing an Inclusive Real Estate Agent
Finding an inclusive real estate agent is key for LGBTQ+ homebuyers. Real estate agents who are part of the LGBTQ+ community themselves or are well-versed in community rights and issues are ideal.
They will also understand the challenges that LGBTQ+ individuals face and can provide more specific first-time home buyer tips, such as the safest locations for same-sex couples in the area.
Look for agents who:
Have membership in LGBTQ+ real estate organizations
Have gone through diversity and inclusivity training
Have proven experience working with LGBTQ+ individuals
Questions To Ask Potential Real Estate Agents
Once you find a few real estate agents you’re interested in working with, ask them questions like:
Do you have relationships with inclusive professionals like inspectors and lenders?
Can you recommend LGBTQ+-friendly neighborhoods?
Have you participated in inclusivity and diversity training?
How many LGBTQ+ clients have you helped find a home?
Step 5: House Hunting
House hunting requires a lot of planning, like looking for LGBTQ+-friendly neighborhoods and knowing what features you want in a new home. You’ll also want to consider things like property taxes in a given area, the local school district if you have children, and the conditions of the local market.
Here are some house hunting tips to help you navigate the housing market.
Looking for LGBTQ+-Friendly Neighborhoods
Searching for LGBTQ+-friendly neighborhoods is a great way to feel safe and accepted while buying your first home. There are many ways to find these neighborhoods:
Search online via forums and blogs that mention LGBTQ+-friendly neighborhoods.
Attend local LGBTQ+ events to get a better understanding of the community.
Speak with local residents to hear about their living experiences.
Look for local LGBTQ+ community groups.
A great resource to get you started is the Human Rights Campaign’s Municipal Equality Index. It lists major cities in the US and how LGBTQ+-friendly they are based on various factors.
BIPOC individuals will also want to take a look at the demographics of the area to ensure that they will feel included and safe. The US Census Bureau has a map of different areas based on ethnicity so you can better understand who your neighbors might be.
Additionally, hunt for any specific community groups or advocacy groups in the area that can connect you to necessary resources; your local ACLU chapter can be an excellent clearinghouse for local information.
Home Features To Think About
While working with your realtor, you’ll want to mention certain features you want in your first home. Beyond the classic features that any homeowner would want, here are a few features you might want to consider:
Privacy fences or screens
Proximity to LGBTQ+ support services and business
Security systems
Number of bedrooms and bathrooms
Access to yard space if you have children or pets
Step 6: Making an Offer
Once you’ve found your dream home, it’s time to make an offer. This part can be a little stressful, especially if you’re competing with other buyers. Your realtor can help you navigate these waters, but a basic understanding of the offer process will help you manage your expectations.
Negotiating the Home’s Price
When you’re ready to make an offer on a home, you’ll need to know how to negotiate. Negotiating the best purchase price for a home can take time, especially in a competitive market.
The process includes:
Market Research: Understand the local housing market to compare nearby home values.
Initial Offer: Make an offer that’s within your budget and reflects the property’s value.
Counteroffers: The seller might not accept your initial offer. You may need to counteroffer a few times, so don’t max yourself out on your initial offer.
Inclusions and Exclusions: Get clear on what appliances and fixtures are included in the sale, as this may affect what you’re willing to pay.
Understanding the Contract
If your offer is accepted, you’ll move into the final stages of the buying process. This involves signing a sales contract — but make sure you understand the contract fully before you sign, which won’t happen until you close on your home.
Most home sale contracts include:
The purchase price
Any contingencies the seller needs to meet for the sale to move forward
The closing date
A deposit on the home
The inspection period
Read through the contract with your agent to ensure it’s all in order and that you agree to all the terms. This will prevent any misunderstandings and help the sale go smoothly.
Step 7: Home Inspections and Appraisals
A key part of buying property is dealing with home inspections and appraisals. The home inspection makes sure everything is in order, and the appraisal process helps determine the home’s value.
Importance of Home Inspections
The home inspection process is important for three main reasons. The first is ensuring the home is safe and structurally sound. You don’t want to buy a home and immediately have to move out or start costly repairs because something’s wrong with the structure.
The second reason is that you’ll want to ensure no termites or other serious pests are in the home. Third, the inspection will give you negotiation leverage before signing your contract.
The Appraisal Process
A lot of people think inspection and appraisal are the same thing. However, the appraisal process determines the market value while inspections are designed to uncover specific safety and code issues.
The appraisal process involves:
Appraiser Visit: The appraiser will assess the value of the property.
Comparative Analysis: They’ll run a comparative analysis with similar homes in the area.
Appraisal Report: You and the seller will receive a detailed report on the home’s value.
Loan Impact: The appraisal will impact how much you can receive for your loan, ultimately impacting your monthly payment amount.
Step 8: Closing the Deal
Closing the deal is the final step in the homebuying process before moving into your new home. This part involves a final property walkthrough to ensure everything lines up with the inspection and appraisal findings. After the final walkthrough, you’ll begin to pay closing costs and sign the paperwork.
Final Walkthroughs
The final walk-through of the property is your last chance to make any changes to the contract before closing on the home. You’ll go back through the home and contract, ensuring that:
Any agreed-upon repairs have been made
All fixtures and appliances included in the sale are in the home
The property’s in the same condition as when you made your offer
Understanding and Dealing With Closing Costs and Fees
When you sign all the paperwork and formally conclude the mortgage process, you’ll withdraw money and provide it to your lender. Unfortunately, closing costs can add up fast.
They can include:
The appraisal fee
The loan origination fee
Escrow fees
Title insurance
Recording fees
You might also have to pay a portion of your home insurance ahead of time, as the lender will want you to have a policy in place.
To secure your new home, you will need to pay these closing costs at the time of sale. Closing costs are generally between 2-5% of the home’s purchase price, but there are closing cost assistance programs for first-time homebuyers.
Step 9: Moving In
Moving into your new home is both exciting and stressful. Being prepared for the move by knowing what you can do to ease the stress and make things go smoothly will lead to a more seamless transition.
Planning Your Move
To make your moving process easier, consider the following steps:
Hire movers
Set up utilities for your new home before moving in
Start packing well in advance, labeling everything as you go
Pack with unpacking in mind
Complete change of address forms
Getting Settled In
Once you’ve moved into your first home and the movers have left, it’s time to settle in.
Here are some helpful tips for settling in:
Strategically Unpack: Unpack the essential areas first, like your kitchen, bathroom, and bedroom.
Meet Your Neighbors: Start introducing yourself to your neighbors early for safety and to potentially make new friends.
Explore Your Neighborhood: Familiarize yourself with your new neighborhood, such as where the grocery stores are and how to access public transportation.
Secure Your Home: Ensure your home has functioning locks, and install security cameras or other security systems early on if you prefer.
Buying your first home as a member of the LGBTQ+ community brings its own challenges that those outside of the community might not face. From dealing with lending discrimination to realty professionals who aren’t inclusive, things can be extremely difficult — but there are ways to overcome them.
With the right information and support, the homebuying process can be smooth and exciting. Working with an inclusive lender like Pride Lending can help you confidently navigate the homebuying landscape and get into your first home as soon as possible.
If you’re ready to start your next chapter by buying your first home, contact Pride Lending today to learn how we can help you get there.
Our team includes allies and members of minority groups, including LGBTQ+ and BIPOC individuals, who are committed to helping everyone afford the home of their dreams. We’ll match you to programs that meet your needs and help you find assistance that makes homeownership more attainable, such as down payment assistance.
Contact us today at 725-231-0192 to learn how we can assist you in achieving your goals.
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