First-Time Home Buyer’s Guide to Snohomish County

Buying your first home can feel like a lot. Most first-time buyers I work with have plenty of questions—and often worry about the questions they don't even know to ask yet.

You don't need to become a mortgage expert before buying a home. That's part of my job.

I've lived in Snohomish County for more than 25 years and have watched both the area and the cost of buying a home here change considerably. It's an expensive and often competitive housing market, which makes understanding your financing before you start seriously shopping especially important.

My role is to help you understand the numbers, compare your financing options and get you prepared to make an offer when you find the right home.

Where Do I Start?

For most first-time buyers, the first financing step is getting pre-approved.

Most people who contact me aren't planning to buy five years from now. They're hoping to buy within the next several months and want to know whether they can make the numbers work.

That's what we figure out.

Before you seriously start shopping, you should understand what monthly payment you're comfortable with, approximately how much home you can afford, how much cash you'll need, and which financing options make sense for you.

You'll also need to be prepared when it's time to make an offer. Sellers generally expect an offer involving mortgage financing to include a pre-approval letter.

Getting pre-approved doesn't obligate you to buy a house. Sometimes we run the numbers and someone realizes they're ready to buy now. Other times, they decide another year of renting makes more sense.

Either way, you have real information to make the decision.

Who Does What During the Home-Buying Process?

I handle the financing. I help you understand what you can afford, compare loan options, complete your pre-approval, and manage the mortgage through closing.

Your Realtor handles the real estate transaction. They help you find homes, evaluate properties and market conditions, prepare and negotiate your offer, and guide you through the purchase contract.

Your home inspector evaluates the condition of the home for you as the buyer. Your Realtor will typically help coordinate the inspection.

The appraiser provides an independent opinion of the property's value for the lender and may identify certain property issues required by the loan program.

One important distinction: an appraisal is not a substitute for a home inspection. They serve two very different purposes.

How Much Home Can I Comfortably Afford?

There's an important difference between how much you can qualify for and how much you actually want to spend.

I generally start by asking two questions:

What monthly housing payment are you comfortable with?

How much money do you have available for the purchase?

Then I review your income, existing debts and debt-to-income ratio to determine what the financing guidelines allow.

From there, we can compare:

This is the payment you told me you wanted. This is what you can actually qualify for.

Sometimes you can qualify for considerably more than you want to spend. There's no reason to buy at your maximum simply because a lender says you can.

Other times, the purchase price you have in mind doesn't produce the monthly payment you were expecting. That's useful information too.

The goal is to find a purchase range that works both on paper and in your actual monthly budget.

Does the Type of Home I Buy Matter?

Yes. The type of property you buy can affect both your financing and your monthly housing costs.

A condo, for example, may have a lower purchase price than a single-family home but still have significant monthly HOA dues. Condo financing can also have different pricing than financing a single-family home.

That means a lower purchase price doesn't automatically mean a lower monthly housing expense.

For example, imagine comparing a $650,000 condo with $600 per month in HOA dues to a $700,000 single-family home with no HOA dues.

The condo costs $50,000 less, but that alone doesn't tell us which home is more affordable. We need to compare the financing and the total monthly housing payment for each property.

Condominiums also have another consideration. The lender may need to evaluate the condo project itself in addition to approving you as the borrower.

Townhomes can create some confusion as well. A property that looks like a townhouse may legally be structured as a condominium or as a fee-simple property, and that distinction can affect the financing.

The property matters, not just the price

How Much Cash Do I Really Need?

Your down payment is only part of the money you'll need to buy a home.

You also need to account for closing costs and prepaid expenses. These can include lender and third-party fees, property taxes, homeowners insurance and the initial funding of your escrow account.

Depending on your situation, eligible first-time buyers may have conventional financing available with as little as 3% down. FHA financing can allow a 3.5% down payment.

You do not automatically need 20% down.

The money you use for the purchase also doesn't necessarily have to come entirely from your checking or savings account. Depending on the loan program and your circumstances, eligible funds may come from savings, investment accounts, gift funds from family or certain retirement assets.

That's why I prefer to look at your entire financial picture rather than simply asking how much money you have in the bank.

Your down payment, closing costs and cash needed at closing are related, but they aren't the same thing.

Can the Seller Pay My Closing Costs?

Yes. Depending on the loan program and the terms of your purchase agreement, the seller may be able to pay some or even all of your eligible closing costs and prepaid expenses.

What the seller generally cannot do is pay your required down payment.

Here's a simple example.

Suppose you're buying an $800,000 home with 5% down. Your down payment would be $40,000.

Now suppose your closing costs and prepaid expenses total another $18,000. Without any seller credit, you could be looking at approximately $58,000 between the down payment and those other costs.

If your purchase agreement includes an $18,000 seller credit and the full amount can be applied to eligible costs, your cash requirement could potentially be reduced substantially.

The seller didn't make your $40,000 down payment. The seller helped cover other costs associated with purchasing the home.

Seller credits can also sometimes be used strategically, such as toward the cost of lowering the interest rate. The amount a seller can contribute and how those funds can be used depends on the loan program and the individual transaction.

How Much Money Should I Have Left After Closing?

Buying a home shouldn't necessarily mean emptying your bank account.

Homeownership comes with expenses you may not have had as a renter. Moving costs, furniture, appliances, maintenance and repairs can add up quickly. And sooner or later, something unexpected will need to be fixed.

As a general rule of thumb, I like the idea of having approximately six months of reserves after closing. But I don't apply the same rule to every buyer.

I prefer to look at the whole financial picture.

Someone with stable salaried income and substantial retirement or investment assets is in a different position from someone with variable income from commissions, bonuses or self-employment and limited additional savings.

We'll look at how much cash you'll have remaining after closing, your retirement and investment assets, the stability of your income, your existing monthly obligations and your overall financial cushion.

Sometimes putting more money down makes sense. Other times, keeping more money available after closing may be the better financial decision.

Do I Really Need 20% Down?

No. This is one of the biggest misconceptions I hear from first-time home buyers.

Putting 20% down on a conventional mortgage generally allows you to avoid private mortgage insurance, or PMI. If you comfortably have 20% available and can still maintain a good financial cushion after closing, avoiding PMI generally makes sense.

But that doesn't mean you should automatically delay buying a home until you've saved 20%.

Consider an $850,000 home.

5% down = $42,500
10% down = $85,000
15% down = $127,500
20% down = $170,000

A buyer who already has $85,000 available for a 10% down payment would need to save another $85,000 just to reach 20%.

And that's before accounting for closing costs and the money I'd like to see you retain after closing.

Waiting can also make the 20% goal a moving target.

For example, if that $850,000 home appreciated at an average of 3% per year, after two years it would cost approximately $901,765. A 20% down payment would then be approximately $180,353.

That's more than $10,000 higher than today's 20% down payment requirement.

This is only an example. A 3% appreciation rate isn't a prediction, and home values can increase or decrease.

The point isn't that you should always buy now. It's that “I'll just keep saving until I have 20% down” isn't always as simple as it sounds.

I prefer to compare the actual numbers and help you decide whether buying sooner or continuing to save makes more sense for your situation.

What About Mortgage Insurance?

Private mortgage insurance, or PMI, isn't something you want to pay unnecessarily. If you comfortably have 20% down and using it still leaves you in a good financial position, avoiding PMI generally makes sense.

But if you don't have 20% down, don't assume mortgage insurance automatically makes buying a home a bad idea.

PMI can be much more reasonably priced than many first-time buyers expect, particularly for borrowers with good credit. The cost can also change significantly depending on how much you put down.

For example, the PMI on a loan with 5% down may be considerably different from the PMI with 10% or 15% down. That's why it's worth comparing the actual numbers rather than simply trying to avoid PMI at all costs.

Conventional PMI also isn't necessarily permanent. As you pay down your mortgage and build equity, you may be able to have the mortgage insurance removed. Generally, you can request cancellation once your loan reaches 80% of the home's original value, subject to applicable requirements, and PMI generally terminates automatically when the scheduled loan balance reaches 78% if the loan is current.

FHA mortgage insurance works differently and has different rules for how long it remains on the loan.

The important thing is to understand what mortgage insurance actually costs you and compare that cost with your other options before making a decision.

Are There First-Time Home Buyer Incentives?

Yes. But a first-time home buyer incentive doesn't necessarily mean down payment assistance.

One of the biggest potential benefits is available through conventional financing. Fannie Mae and Freddie Mac provide favorable pricing treatment for certain qualifying first-time home buyers within applicable income limits.

Depending on your qualifying income and the area median income where you're buying, certain loan-level pricing adjustments, commonly called LLPAs, may be waived. These are pricing adjustments that can affect the interest rate or cost of a conventional mortgage, so having them waived can make a meaningful difference.

Another important option is the ability for eligible first-time home buyers to purchase with as little as 3% down using conventional financing.

Many buyers assume conventional financing requires at least 5%, 10% or even 20% down. That's not always the case.

Income limits, eligibility requirements and loan guidelines can change, so I always evaluate the programs and incentives available when you're actually ready to buy.

Down payment assistance programs are also available in Washington, but Dundon Mortgage does not currently offer those programs, so they aren't the focus here.

Where Can My Down Payment Come From?

Your down payment doesn't necessarily have to come entirely from money you've saved in a checking or savings account.

Depending on the loan program and your situation, eligible funds may come from savings, investment accounts, gift funds from family, or certain retirement assets.

Gift funds from eligible family members can often be used toward a home purchase. If someone is planning to help you, it's best to discuss it before money starts moving between accounts so we can make sure everything is properly documented.

Retirement accounts can also be part of the conversation. A 401(k), IRA or other retirement account may help demonstrate financial reserves, and depending on the account and your circumstances, there may be options for accessing some of those funds.

That doesn't automatically mean you should use retirement money to buy a home.

A 401(k) loan, retirement withdrawal and IRA distribution can have very different financial and tax consequences. I can help you understand how using those funds may affect your mortgage, while tax or investment questions should be discussed with the appropriate financial or tax professional.

This is another reason I prefer looking at your entire financial picture before deciding how much you should put down and how much cash you should keep available after closing.

FHA, Conventional or VA: Which Is Better?

There isn't one loan program that's best for every first-time home buyer.

When more than one financing option is available, I prefer to compare the actual numbers. The right choice can depend on your down payment, credit score, debt-to-income ratio, cash reserves, interest rate, mortgage insurance and overall financial situation.

FHA isn't simply a loan for buyers with lower credit scores. FHA financing can also be very competitive for buyers making a smaller down payment. FHA interest rates are often lower than comparable conventional rates, which can result in a very competitive monthly payment even after accounting for FHA mortgage insurance.

Conventional financing may be the better option in other situations, particularly when a buyer has strong credit, more money available for a down payment, or qualifies for first-time home buyer conventional pricing incentives.

If you're an eligible veteran, active-duty service member or qualifying surviving spouse, VA financing should also be part of the conversation. VA loans can offer significant benefits, including the ability to purchase with no down payment in many situations and no monthly mortgage insurance. VA interest rates can also be lower than comparable conventional rates, which can make VA financing especially attractive when you're eligible.

This is why I don't like choosing a loan program based on a rule of thumb. We can compare the interest rate, APR, mortgage insurance, monthly payment, cash needed at closing and long-term costs of each option.

The answer is in the numbers, not the name of the loan program.

How Does Pre-Approval Work?

My pre-approval process is designed to make sure we've actually reviewed your financing before you start making offers.

The first step is completing an online loan application. From there, I pull and review your credit, review your income and asset documentation, and determine which financing options make the most sense for your situation.

I then run the loan through an automated underwriting system, commonly referred to as AUS. This gives us an automated underwriting decision based on the information we've reviewed and the proposed financing.

If there's something that needs to be addressed, I'd much rather find it during the pre-approval process than after you've signed a contract to buy a home.

Once you're pre-approved, your Realtor can take the lead on finding the right property. When you're ready to make an offer, your Realtor will typically contact me with the property address and proposed offer price.

I'll then prepare a property-specific pre-approval letter for your Realtor to submit with the offer.

This is why getting the financing work done upfront matters. When you find the right home, you're prepared to make an offer.

Your Offer Was Accepted. What Happens Next?

Once you have a fully signed purchase contract with an agreed-upon purchase price and closing date, we can move forward with the actual purchase loan.

This is also when we can lock your interest rate. Your rate generally isn't locked while you're pre-approved and shopping for a home. Mortgage rates can change during that time, so we'll update the numbers when you have an accepted offer.

Once the rate is locked, we'll move through the loan process, including disclosures, appraisal, underwriting, final approval and closing.

With Dundon Mortgage, the appraisal fee is generally the only mortgage-related expense you'll pay upfront before closing.

If you choose to have a home inspection, you'll typically pay the inspector separately. Your Realtor generally coordinates that part of the transaction.

Remember, the inspection and appraisal serve different purposes. The home inspection is for you as the buyer and focuses on the condition of the property. The appraisal is primarily for the lender and provides an independent opinion of the property's value.

I'll keep you updated throughout the process and let you know what I need from you as we work toward closing.

What Happens During Underwriting?

Even though we've already reviewed your credit, income, assets and financing during pre-approval, your loan still goes through formal underwriting once you're under contract.

It's normal for an underwriter to request additional documentation or clarification. That doesn't necessarily mean there's a problem with your loan.

It could be something as simple as a deposit or recurring debit on a bank statement, an updated paystub, or information identified by the lender's fraud-detection system.

Those systems have access to information that I don't have during the initial pre-approval process and can occasionally flag records that aren't actually related to you. This is especially common for borrowers with common names and is usually something we can clear up with additional information or documentation.

A thorough pre-approval helps eliminate many surprises, but it's normal to have a few additional items to address during underwriting.

While your loan is in process, it's also important to talk with me before making any significant financial changes. Opening new credit, financing a vehicle or furniture, changing jobs, making large deposits or moving significant amounts of money between accounts can potentially affect your loan.

When in doubt, ask me before making the change. It's much easier to answer the question beforehand than try to fix an unexpected issue later.

Buying Your First Home in Snohomish County

I've lived in Snohomish County for more than 25 years, so I've seen firsthand how much the area—and the cost of buying a home here—has changed.

It's an expensive and often competitive housing market. That makes understanding your financing before you start seriously shopping especially important.

My role isn't to tell you which city, neighborhood or school district you should choose. That's where your Realtor's expertise comes in.

My job is to make sure you understand the financing.

We'll determine what monthly payment you're comfortable with, what you can qualify for, how much cash you'll need, how much you should consider keeping in reserve, and which financing strategy makes the most sense for your situation.

Then, when you and your Realtor find the right home, you're prepared to make an informed and competitive offer.

Your First Step Doesn't Have to Be an Application

If you're thinking about buying your first home in the next several months, you don't need to have everything figured out before contacting me.

In fact, I'd rather talk with you first.

Tell me what you're hoping to buy, what you'd like your monthly payment to be, approximately how much you have available and what questions are on your mind.

We'll talk through the numbers and determine whether buying now looks realistic.

If you're ready to move forward, I'll send you the online application and we'll complete the pre-approval.

And if the numbers tell us waiting makes more sense, that's useful information too.

The goal isn't to talk you into buying a house. It's to give you enough information to make a good decision.