Why Become a First-Time Homebuyer in Pennsylvania?

Introduction

Pennsylvania is a great location for first-time homebuyers because it offers all the perks of living in the Northeast, but at a reasonable price point. The state boasts thriving cities such as Philadelphia and Pittsburgh, as well as plenty of charming small towns. Residents benefit from close proximity to New York, New Jersey, and Washington, D.C., and are just a short drive from world-class national forests, parks, and trails.

Despite the state’s prime location, homes across Pennsylvania are surprisingly affordable. A typical home in Philadelphia is valued around $210,041, in Pittsburgh the average is $201,443, and in Reading, $171,350—all of which are below the national average of $272,446. And if you’re concerned about your ability to afford a home, Pennsylvania offers several loan and down payment assistance programs to residents that can make homeownership more achievable.

As you venture down the path to homeownership, it can help to first get a handle on what to expect out of the home-buying process. Read on to discover how to become a first-time homebuyer in Pennsylvania.

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Pennsylvania First Time Home Buyers Guide-Cover

Chapter 1

What Are the Steps to Buying a Home in Pennsylvania?

The three general steps to buying a home in Pennsylvania are preparing, searching, and purchasing, but these can be broken down into several smaller steps:

Preparing

  1. Assess and improve your financial situation.
  2. Take a homebuyer education class.
  3. Get pre-approved for a mortgage loan.

Searching

  1. Select a location and top neighborhood.
  2. Hire a real estate agent.
  3. Search for a home.

Purchasing

  1. Make an offer.
  2. Complete the official mortgage application.
  3. Have the home inspected.
  4. Get homeowners insurance.
  5. Close on the home.
  6. Move in and enjoy! 

 

Chapter 2

Preparing for the Pennsylvania Home-Buying Process

Before you begin searching for a home, you should take a step back and consider whether now is the best time for you to become a homeowner. If you’re not planning on sticking around for very long or if your financial situation is not ideal, it might be better to hold off, save up, pay off some debt, and work to improve your credit score. Lenders will focus on your debt-to-income ratio and your credit score when determining whether to approve your mortgage loan, so you should make sure you’re strong in both of these areas.

Know Your Credit Score

Lenders consider your credit score because it is a way of determining how big of a risk you are as a borrower. If you’re hoping to get approved for a conventional mortgage loan, aim to have a credit score of 620 or higher. You can still get approved for a mortgage loan with a lower score, but you may pay a higher interest rate. You could also consider a government-backed loan, such as a VA, USDA, or FHA loan, which are better suited to borrowers with lower credit scores.

It’s worth improving your credit score if you can, because the higher your score, the more likely you will secure the lowest possible interest rate, which can save you a significant amount of money over the life of your loan.

If you’re not sure what your credit score is, there are a few different ways to check without lowering your score with a hard credit check. Many banks allow customers to view an estimate of their score through their online platforms, and each of the three major credit agencies offer a free annual credit report:

The reports mentioned above are typically not “hard“ credit checks—those that may impact your credit score.

When requesting a credit report from one of these agencies, be prepared with the following information:

  • Name
  • Date of birth
  • Social Security number
  • Current and previous addresses
  • Telephone number

If you discover that your credit score is less than ideal, there are a few ways to increase your score, such as:

  • Using your credit card less (aim for 30 percent utilization or less) or increase your credit limit.
  • Setting up automatic payments to avoid late payments.
  • Not making any major purchases, such as a new car.
  • Avoiding opening new lines of credit that require hard credit checks.

Calculate Your Debt-to-Income Ratio

In addition to knowing your credit score, you should also calculate your debt-to-income ratio (DTI). To figure out your DTI, add up your monthly debts. This includes things like your credit card minimum payments, student loan payment, car payment, and your future monthly mortgage. Then take that number and divide it by your pre-tax monthly income. 

For example, if you make $4,000 a month and your monthly debts add up to $1,500, then your DTI would be about 38 percent. You should aim for a DTI of 36 percent or less in order to get approved for a conventional mortgage loan. Government-backed loans tend to be a bit more flexible, with FHA loans requiring a DTI of 43 percent or less and VA loans requiring 41 percent or less.

You can certainly get approved for a mortgage loan while carrying debt, but you may want to take some time to pay off a portion of your current debts before adding a mortgage to your plate if you have a high debt-to-income ratio.

Save Up for Down Payment and Closing Costs

Perhaps one of the biggest hurdles to buying a home is saving up enough money to cover a down payment and closing costs. Many people say that you need to put down 20 percent of the home’s purchase price, but first-time homebuyers can actually put as little as three percent down with the purchase of private mortgage insurance. The average home value across Pennsylvania is $217,984, so a typical down payment on a home in the state would range between $6,539-$43,596.

You ideally want to have enough savings left over after the down payment to cover closing costs, as well as any unexpected maintenance expenses or personal emergencies that might arise.

Closing costs typically add up to 2-5 percent of the loan amount, which would range between $4,359-$10,899 for a typical home in Pennsylvania. Closing costs include things like:

  • Application fee: Cost to process your application, including a credit check. Varies by lender.
  • Appraisal fee: Cost of assessing the home’s value to make sure it’s in line with the purchase price.
  • Title fees: Cost to make sure the seller is actually the owner of the property, plus title insurance in case there is an issue.
  • Loan origination fee: Cost of evaluating and preparing your mortgage loan (typically 0.5 percent of the loan amount).
  • Homeowners insurance: Typically required by lenders, but also essential to protect your investment.
  • Home inspection costs: Charge for a full inspection to make sure the home is structurally sound.
  • Property taxes: Typically must pay two months’ worth of property taxes at closing. The average rate in Pennsylvania is 1.5 percent, so annual taxes on a typical home in the state would add up to approximately $3,269.

To better understand how large of a monthly payment you can afford, plug your details into a mortgage calculator.

If you’re looking to better understand your general financial situation, start by making a budget

Take a First-Time Homebuyer Education Class

Once you’ve determined that you’re in a good position to purchase a home, you might want (or need) to sign up for a homebuyers education class. Completion of an approved course is required for most down payment and loan assistance programs, but they’re also helpful for general first-time homebuyers because they offer a crash course on the process.

Here are a few of our favorite first-time homebuyer education classes offered in Pennsylvania:

  • Pennsylvania Housing Finance Agency's (PHFA) Online Homebuyer Education Course: A free online course that covers all major aspects of the home-buying process. Completion of the course is required for PHFA first-time homebuyer program eligibility.

Philadelphia

  • Affordable Housing Centers of PA Homebuyer Workshop: Online interactive workshops held over Zoom that educate prospective first-time homebuyers on the process and help them decide if homeownership is right for them. 
  • Greater Philadelphia Asian Social Service Center First-Time Homebuyer Workshops: Pre-purchase education class that covers the home-buying process, with the option of one-on-one housing counseling after course completion. 
  • Mt. Airy First-Time Homebuyer Workshops: Education classes held over Zoom that cover the home-buying process in Philadelphia, with optional housing counseling after course completion.  

Pittsburgh

  • NeighborWorks Western PA Homebuyer Education Course: Covers the basics of the home-buying process and fulfills requirements of certain assistance programs.  
  • Pittsburgh Housing Development Association First-Time Homebuyer Education Workshop: Two-hour course that covers the basics and fulfills requirements for many assistance programs.  

Allentown

Erie

Reading

  • Neighborhood Housing Services of Greater Berks Homebuyer Education: Eight-hour course that covers the home-buying process and optional guidance for down payment assistance applications. 

Get Pre-Approved for a Mortgage Loan

Before you begin searching for a home, you should meet with a lender and get pre-approved for a mortgage loan. This step is critical because it can help you figure out how much home you can afford and increase your chances of having an offer accepted by a seller.

It’s important to note that prequalification and pre-approval are not the same thing. During prequalification, a lender will take a cursory look at your financial situation and give you a ballpark idea of how much they might be able to lend you. Pre-approval is more solidified and requires a hard credit check and review of your financial information by an underwriter.

If you’re getting pre-approved, be prepared with the following:

  • W2s or 1099 forms from the past two years
  • Two most recent bank statements
  • Pay stubs you’ve received recently
  • Monetary gift letters, if applicable

You should provide your lender with documents proving any taxable income. Unfortunately, any income that is not taxed will not help you get approved for a mortgage loan.

Getting pre-approved for a mortgage loan gives you a competitive edge during the home search, especially in real estate markets with a low supply of homes. It assures sellers that you are a serious buyer and have the funds ready to purchase their home. When you put an offer on a home, your lender will include a pre-approval letter to verify your ability to afford the property. 

Be aware that a pre-approval does have an expiration date. It lasts for 60-90 days, so you only want to go through the pre-approval process when you’re truly ready to search for a home to purchase. Once you have been pre-approved, you’ll want to avoid any activities that could dramatically change your financial standing, such as making major purchases, opening new lines of credit, or quitting your job. 

Chapter 3

Begin the Home Search

Once you’ve been pre-approved, the next step is to hire a good real estate agent. Although it’s not required for buyers to hire an agent in Pennsylvania, their expertise will be invaluable. Plus, an agent won’t cost you anything because they are paid on commission. As you search for a real estate agent, look for someone with years of experience working in the area where you want to buy—and be sure to check recommendations. You can also ask friends and family who have purchased a home before if they recommend anyone.

Once you’ve hired a real estate agent, make a list of everything you want in a home and clearly express what you’re looking for to your agent. To focus your search, try dividing your ideal home traits into two columns: “Must-Haves” and “Nice-to-Haves.” No home will check every one of your boxes, but one is bound to have all of your must-haves and maybe a few nice-to-haves. A few factors to consider when searching for a home include:

  • Location: A home’s location is important for several reasons. You should check crime rates in the area to make sure it’s safe. See what school district it’s located in even if you don’t have kids, because this can affect the home value. And map out the time it will take you to commute to work if you work out of an office. It’s worth walking around the neighborhood, if possible, so you can get a feel for the place and talk with current residents to gauge how they like the area.
  • Price: You should, of course, be looking at homes within your price range, but you should also look at the values of other homes in the neighborhood and determine if they have risen or fallen in value over the past few years to get an idea of whether it’s wise to invest in the area.
  • Size: When deciding on how large of a home you want, consider whether you plan on growing your family in the future and will need to accommodate that.   
  • Home type: There are many different types of homes, including condos, single-family houses, apartments, and duplexes. All of them have their pros and cons. For example, a condo might require less upkeep than a house, but you may also have less privacy.

If you’ve hired a good real estate agent with deep knowledge of the area, they should be able to guide you toward the neighborhoods and properties that best align with what you’re looking for. You can also conduct your search from the comfort of home with online research tools like Zillow, Trulia, and Realtor.com.

Chapter 4

Make an Offer on a Home

Once you’ve found a home that checks all of your boxes, the next step is to submit an offer. Your real estate agent will help you decide what price you should offer for the home based on the values of comparable properties in the neighborhood. In a competitive market, you may need to offer over the asking price, but it sometimes makes sense to offer less than the asking price if you think the property appraisal will come back low. Your agent will also try to get an idea of how many other offers are on the table and take a look at how long the property has been on the market. Sellers who have been trying to sell their home for a while might be more anxious to sell and willing to negotiate.

If you are in a position to negotiate, you should include contingencies in your offer, such as a home inspection or inclusion of existing amenities. However, if you’re in a highly competitive market, you may need to waive any contingencies in order to compete with other offers.

In addition to your price offer, any contingencies, and a pre-approval letter from your lender, you should include a handwritten letter to the homeowner to help set your offer apart. A good offer letter concisely tells the seller a bit about you and expresses what you love about the home.

Have the Home Inspected

Unless you have waived your right to a home inspection, you should hire a licensed inspector to thoroughly check the property, including the foundation, roof, structural components, HVAC, plumbing, and electrical system. You will typically pay the inspector on inspection day, and they will send you a copy of their report within a few days. If they find serious issues with the home, you can rescind your offer at this time. If there are minor issues, you can have your agent renegotiate with the seller’s agent to either fix the problems or lower their asking price.

After the home inspection, your lender will order an appraisal of the property to make sure the home’s value is in line with the purchase price. If the appraisal comes back lower than the price, you may need to ask the seller to lower the price or make a larger down payment so that your monthly mortgage cost aligns with what you had planned for at the lower cost of the home.

Complete Your Official Loan Application

After you’ve signed the purchase contract, you will complete your official mortgage loan application. Note that even if you have been pre-approved by a certain lender, you can select a different lender for your mortgage loan. When selecting a lender, you should aim to secure the lowest possible interest rate, without sacrificing customer service and experience. 

If you didn’t select a loan program during the pre-approval process, now is the time to determine which type of mortgage loan is right for you and whether you’re eligible for any assistance programs. A conventional, 30-year, fixed-rate mortgage typically requires a 20 percent down payment, although first-time homebuyers can put as little as three percent down with the purchase of private mortgage insurance. There are also government-backed loans, including VA, USDA, and FHA loans, that have more flexible requirements and allow qualified applicants to put as little as zero percent down. If you need help covering your down payment or closing costs, there are several assistance programs available to Pennsylvania residents.

Pennsylvania Homebuyer Programs

  • HFA Preferred Loan: Eliminates the requirement that borrowers who put less than 20 percent down have to pay private mortgage insurance.
  • HFA Preferred Risk Sharing: Eliminates the private mortgage insurance requirement for those who put less than 20 percent down, but they may have a slightly higher interest rate.
  • Keystone Home Loan Program: This program is for first-time homebuyers and veterans interested in purchasing a home in designated counties.
  • Keystone Government Loan Program: Government-backed loans offered through PHFA. 
  • Keystone Advantage Assistance Loan Program: Down payment and closing cost assistance in the form of a second mortgage. Borrowers can receive four percent of the home’s price or $6,000, whichever is less.
  • Mortgage Credit Certificate: A tax credit of 20-50 percent of annual mortgage interest, up to $2,000 every year.

After you’ve submitted your mortgage loan application, your lender will provide you with an official loan estimate that will give you a clear idea of your interest rate, monthly mortgage payment, closing costs, and estimated insurance and property taxes. Once everything is processed and approved, your lender will send you a commitment letter, which you can choose to accept and sign.  

Purchase Homeowners Insurance

The purchase of homeowners insurance is typically required by most lenders, but it’s crucial to have regardless. If a natural disaster or accident damages or destroys your home, you will regret not having sufficient insurance to cover the costs. As you shop around for insurance, consider what you need. For example, if the home is located in a flood plain or at risk of wind damage, you might consider getting additional insurance, such as flood insurance. It’s typically recommended to purchase an insurance premium that will cover at least 80 percent of the home’s replacement value. If you’re unclear about what exactly is covered by an insurance option, have your agent or the insurance company talk with you about exclusions.  

Close on the Home

If you’ve made it to closing day, homeownership is within reach. The closing process will involve your lender, real estate agent, and real estate attorney (if you hired one), so as long as you’re working with good people, the day should run smoothly.

On closing day, you will review and sign several documents, including the promissory note (agreement to pay your lender), your deed of trust or mortgage, and a closing disclosure (list of final charges and credits). If you hired a real estate attorney, have them look over everything and explain it to you before you sign.

In addition to signing documents, you might submit your down payment and any remaining closing costs. You might also set up an escrow account to pay homeowners insurance and property taxes.

The closing documents should specify your official move-in date, as well as how you will make your monthly mortgage payments. Once everything has been processed and signed, you will receive the keys to the property. The only thing left to do is move in and enjoy your new home!

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Pennsylvania First Time Home Buyers Guide-Cover

Pennsylvania FAQs

What is the minimum down payment for a house in Pennsylvania?

Although this depends on the loan, most homebuyers can expect to pay at least 3.5 percent on a down payment for a house in Pennsylvania. However, a loan that allows for such a low down payment also requires private mortgage insurance.

Who is considered a first-time homebuyer in Pennsylvania?

A first-time homebuyer is someone who has not owned a principal residence for three years, ending on the purchase date of the new home.

Is it hard to buy a house in Pennsylvania?

Pennsylvania is more affordable than the average American market for home purchases. So long as you meet the required mortgage criteria, it is not difficult to buy a house in Pennsylvania.