Shannon Aguillon is looking to invest in her first home. A Bay Area native, Aguillon came to Reno to attend UNR, studying public health and dance. Now, she works at The Goddard School in Reno as the infant program coordinator and lead teacher in the infant room.
“I have a solid job here. I don’t plan on moving anytime soon. I feel like it’ll be a good investment to start putting money into something I could own instead of just renting out,” Aguillon said as she toured two condos in west Reno with her real estate agent, Kathleen Bolotin, on a recent Friday.
Aguillon met Bolotin through Bolotin’s daughter, who was a classmate in the college dance program. When Aguillon decided she was ready to move closer to her work in a more permanent place, she called Bolotin and the two chatted over coffee. Bolotin set Aguillon up with a lender and got her up to speed on everything she needed to know.
One condo they toured was a fixer-upper. If she moved in, Aguillon would install new floors with the help of her family, which owns a flooring business. Because the condo was cheaper and a single-bedroom unit, Aguillon wouldn’t have to find a roommate.
The second condo Aguillon toured was more move-in ready — it still smelled like new carpet. However, that unit was more expensive and had two bedrooms, meaning she would likely need to find someone willing to split the cost with her.
Aguillon said there were many factors to consider when choosing a new home and though it could be daunting, she was determined to push through.
“It’s kind of an internal battle but I’m going to do it,” she said.
Aguillon isn’t alone in viewing home buying as an “internal battle.”
“It’s a process that’s daunting if you’re not used to doing it, and most people aren’t,” said Nevada Realtors President Thomas Blanchard. “It’s not something that we do every single day.”
However, Blanchard said real estate is something many people should consider purchasing earlier than they do.
“The first issue is people don’t think they can buy a home,” Blanchard said about the biggest misconception among first-time homebuyers. “There are so many programs out there that assist in getting over that hurdle of having that down payment. That’s probably one of the biggest things people overlook and stop themselves.”
Nevada’s real estate landscape is now in a “balanced market,” meaning buying a house doesn’t favor either the buyer or the seller. Though it is unclear how long the balanced market will last, Las Vegas Realtors President Lee Barrett said there is a trend to the cycle of who the market benefits.
“Historically, one to three months [of inventory] is a seller’s market. Four to six months is a balanced market. Anything above six months would become a buyer’s market,” Barrett said. “It’s a perfect time for buyers, but they lack the confidence because they’re concerned about the interest rates … but the interest rates fluctuate.”
Another thing that stops first-time homebuyers from beginning the process is their desire to buy a home similar to what they might have grown up in – one their parents likely had to save for decades to afford, Blanchard said.
“A lot of first-time homebuyers … they want to sometimes start off where their parents are now. [But] it’s a great opportunity for buyers to get into townhomes and condos and start their equity, ” Barrett said. “It’s not as sexy as having a bigger house, but boy, it gives them an opportunity to get into [real estate].”
So where does a first-time homebuyer start? What do terms like “equity build up” and “down payment” mean? How does one find the right loans and Realtor?
Here is a deeper look at the home-buying process:
Buying a home starts with financial knowledge
“We like to see homebuyer counseling, because what we find is that typically those borrowers are more successful in terms of sustainable homeownership,” said Teresa Bryce Bazemore, CEO of Federal Home Loan Bank of San Francisco.
Housing counseling can help determine what kinds of loans a person may need and what homeownership might be like. Bazemore said some people buy a home without considering the cost of maintenance — pipes break, furnaces need to be replaced.
The Department of Housing and Urban Development (HUD) provides this type of financial counseling for free. The Nevada Housing Division also offers free online courses to help first-time home buyers educate themselves on the home-buying process.
Finding a Realtor
There are a couple of key differences between a real estate agent and a Realtor, Blanchard said. Realtor is a trademarked term for people who have obtained specific licensing not required for many real estate agents.
Realtors must abide by a code of ethics that real estate agents do not necessarily have to follow.
Typically the seller pays the 6 percent commission to the real estate agents involved in the transaction — the buyer’s and seller’s agents get around 3 percent each — but commissions can be negotiated between the seller and the agents, according to Redfin.
Blanchard said it is important for the buyer to find a Realtor or real estate agent they trust because that person will be by their side throughout the home-buying process. Most of his clients find him through referrals from friends or family, similar to how people find physicians or dentists.
Which step to take first — getting finances in order or finding a Realtor – depends on the person. A Realtor can help a buyer find the right lender, for example. If a buyer finds their own lender or other people to work with, it could gum up the process if the Realtor is not used to working with them.
However, if a buyer is able to get their finances in order and acquire pre-approval for a mortgage — basically a lender telling a Realtor that the buyer is already approved for the loan — the process of finding a house moves much faster, Blanchard said.
Finding a lender
After a homebuyer has found the right Realtor or real estate agent, they will likely be recommended to a Realtor’s preferred lender who is familiar with the area. The lender will help the homebuyer get their financial affairs in order, including finding the right down payment plan, mortgage and available grants.
When it comes to finding the right lender — similar to finding a Realtor — people the buyer respects and trusts are the best resource.
Jordan Bedard with Guild Mortgage in Las Vegas said buyers should also use their intuition when looking for a lender. There are a lot of online lenders that seem like great deals, but there may be a slew of caveats.
“Trust your Spidey senses,” Bedard said.
At the end of the day, if a mortgage seems too good to be true, it probably is, Bedard said. He also said to watch out for people who seem like they are just reading off a script or don’t know what they are talking about.
Sam Britt with iServe Residential Lending LLC said having a local lender is also invaluable. Not only do local lenders usually know more about grants available to first-time borrowers, but they also know about the area’s housing market because they live and work there.
“That’s part of the reason you’ve probably heard [Realtors] don’t like using online lending because online lenders don’t know those programs. That’s why you start off with a real estate agent to help you get somebody local that knows the market,” Britt said.
During the home-buying process, it is important that the buyer does not make any other big purchases because it could negatively affect their credit score at a crucial moment, according to the Sierra Nevada Realtors.
A credit score is “a prediction of your credit behavior, such as how likely you are to pay a loan back on time, based on information from your credit reports,” according to the Consumer Financial Protection Bureau. Credit scores can affect how likely a homebuyer is to receive a loan and what mortgage interest rate they may get.
Typically, credit scores range from 300 to 850 and take into account how much credit a person is using, the amount and type of loans they have, bill payment history and any current unpaid debt.
Credit scores are not set numbers and can be different for the same person — changing sometimes from one day to the next — depending on how and when the score is calculated.
Down payment
Most people save their money for a down payment, though about 32 percent of first-time homebuyers receive assistance from family. However, debts such as student and car loans or medical bills can stop people from saving up for a down payment.
Though it is possible to buy a home with no money down — or get a loan without paying part of the cost upfront — most people will need to make a down payment.
A down payment is typically 3.5 percent to 20 percent of the final home price to be paid at the time of sale, according to Greater Nevada Mortgage. Factors such as monthly income and savings affect how much money a buyer decides to put down.
Though it is possible to pay less than 20 percent for a down payment, doing so will require a homebuyer to obtain private mortgage insurance, or PMI, which costs around $30 to $70 a month for every $100,000 borrowed, according to Freddie Mac. In 2019, the median down payment was 12 percent for all buyers, 6 percent for first-time buyers and 16 percent for repeat buyers.
In December 2022, the median home price in Southern Nevada was $425,000 and $519,950 in Northern Nevada, according to Las Vegas Realtors and the Reno-Sparks Association of Realtors. That means putting a 20 percent down payment on a median-priced home would amount to $85,000 in Southern Nevada and $103,990 in Northern Nevada — that’s as much as $38,000 more than Nevada’s median household annual income.
“The prices in Nevada have continued to increase and wages … haven’t necessarily kept up with them. So the median income might not be quite enough to buy the median-price home,” Bazemore said.
That has created a greater need for down payment assistance, including programs through credit unions, banks and government entities such as the Nevada Housing Division. People who may qualify for down payment assistance through the Nevada Housing Division include those who earn less than $105,000 annually and are looking to buy a home less than $548,000. There are also adjusted interest rates for veterans, grants for teachers and other assistance for people looking for homes in rural Nevada.
These programs are funded by federal grants, but also through local governments.
“I think it’s always been important for many first-time homebuyers, but it’s continued to become more important, particularly as the cost of homes has escalated,” Bazemore said.
Once someone is considered eligible for assistance, there are several avenues of receiving it.
Grants provide first-time homeowners with financial assistance that — unlike mortgage loans — don’t need to be repaid to the lender, according to Greater Nevada Mortgage. Low-interest loans provide financial assistance with a lower-than-average interest rate, creating less of a burden on a homebuyer’s monthly budget.
Zero-interest forgivable loans are better for people looking to stay in their home for a significant amount of time, according to Greater Nevada Mortgage, because these loans are usually forgiven after someone has stayed in their home for five to 20 years.
Zero-interest deferred payment loans are the riskiest of the four popular assistance avenues. Though these loans can postpone the need for a monthly payment, they usually are never forgiven and will need to be repaid even if the person decides to move.
If this sounds complicated, it’s because it is. Knowing the resources available to first-time homebuyers can help, and the Nevada Housing Division has resources throughout the process from education to finding a lender and everything in between.
Bazemore emphasized the need for financial education and homebuyer counseling before thinking about taking out a loan.
Mortgage
A mortgage is an agreement between a homebuyer and a lender that says the homebuyer will repay the loan the lender is giving them. If the homebuyer does not repay the money, the lender has the right to take the homebuyer’s property, according to the Consumer Financial Protection Bureau.
“That’s the collateral that the person is going to secure the home loan to. It’s an instrument that is good faith that states, ‘Hey, I’m going to pay this mortgage right back to you in monthly installments, if you give me the loan,’” Britt said.
An affordable mortgage is generally 28 percent of your monthly income, according to Chase. If a homebuyer makes the median monthly household income in Nevada of almost $5,500, an affordable mortgage would be $1,540 a month.
It is important to note the monthly costs associated with owning a home — homeowners association fees, amenities associated with condos, insurance and property taxes — should also fit within this 28 percent budget, not just the principal and interest, according to the Consumer Financial Protection Bureau.
Borrowers can choose from fixed-rate mortgages and adjustable-rate mortgages (ARMs). Through a fixed-rate mortgage the monthly payment stays the same, but an ARM changes, usually (though not always) starting at a lower interest rate and increasing as time goes on. If a homebuyer decides to have an ARM, it is important to fully understand all the loan does — the maximum and minimum rates, if the the maximum rate is affordable and how frequently the rate could adjust.
Homebuyers can look into getting a preapproval letter from their lender stating they are expected to receive a loan up to a certain amount. Getting preapproved for a mortgage can help move the home-buying process along faster, but prospective buyers should first gather two years of tax returns, their two most recent pay stubs and two months of recent bank statements.
“You sit down with a mortgage adviser … and you’ll sit there for a good 30 minutes to an hour and they’ll go over all your personal financial information, create a budget for you, figure out if there’s any roadblocks,” Blanchard said. “Once you are approved, there’s a preapproval letter that he would give to the real estate agent.”
The home-buying process is more complicated for those who are noncitizens because they may not be in the same systems as a U.S. citizen, such as Social Security, or have their financial history reflected in the same kind of credit system.
As a result, an immigrant will likely have a more expensive down payment or have a better banking history than someone who has lived in the U.S. their entire life, Bedard said.
Home loan
One of the decisions a homebuyer must make is whether they want a conventional home loan or a government-backed home loan.
A conventional loan is usually given by a bank or credit union and is given without insurance from the government. However, this type of loan can be supported by government-backed companies Fannie Mae or Freddie Mac — both created by Congress to provide a more stable housing market.
Because they are not backed by the government, conventional loans are harder to receive, requiring higher credit scores, a more expensive down payment and a lower debt-to-income ratio.
Though government-backed loans have fewer barriers because the lender has the security of knowing the loan is government approved, they have their own qualifications. For example, Veterans Affairs loans are only applicable to veterans and United States Department of Agriculture loans are only available to people buying a home in a rural area.
Ultimately, a trusted lender will be the best resource to find out what kind of home loan is right for a homebuyer.
There are also government resources available to find a loan. Last year, 658 people received loans through the Nevada Housing Division. All but 2 percent were first-time homebuyers and 60 percent of those were for single-unit detached homes.
Picking out a home
Where a homebuyer decides to live is one of the important decisions in life.
Though it may be tempting to look at online home-selling sites, Blanchard said the information on these sites isn’t always accurate.
“Everybody gets so excited and they call ‘I found this house on this site!’” Blanchard said. “There’s usually something that’s missing, whether it’s been misclassified or it’s old data or something like that. So they end up spending a lot of time trying to buy with their eyes and not sticking within the parameters the research professional has provided them.”
Realtors use the Multiple Listing Service (MLS) that compiles current data on houses in an area. It’s online now, but Blanchard remembers when it was printed and sent in a big catalog to Realtors every week.
Once a homebuyer has their finances in order, knows what neighborhood they want to live in and what kind of home they want, the Realtor will begin the search and narrow down what they think the best homes options are for their client.
Buying a house
Once a home has been picked out and a homebuyer has seen the place in person and decided it is what they want, it is time to make an offer to the seller.
After both parties negotiate and agree on a deal, they can start the process of transferring ownership. A title company acts as a third party and uses an escrow account to hold the money and legal documents from the buyer while the property is fully inspected.
When it is time for a home inspection, a company — recommended by anyone from the buyer’s Realtor to a trusted friend — will send an employee to examine the property and find any damages or concerns that may not have been immediately obvious.
The inspection can reveal anything from pipe problems to certain water rights associated with the property to a failing water heater. Once the inspection is complete, an inspection report — which is typically around 40 pages — will be made and given to the buyer.
Though not every lender requires a home inspection before approval, they are required for some military and other federal loans, according to Zillow.
An appraisal is then scheduled to inspect the home and assure the buyer is getting what they are paying for. Unlike inspections that look into larger systems that may need repairs, appraisals look at the property’s location, extra features and anything else that may contribute to the value of a home. Typically, the buyer is required to pay for the appraisal, which can take up to two weeks and cost around $300 to $600.
Most lenders require an appraisal that meets the sales price of the property before they will approve a loan to cover the full cost.
If the home’s value is more expensive than expected, the buyer can rejoice in getting a better deal than expected; but if it is lower, the buyer may have to cover the difference between the appraised value and the sales price that is not covered by the mortgage
The appraisal is not seen by the seller before the price is agreed upon, so there are no worries about the price going up after the appraisal, according to Sierra Nevada Realtors.
After the inspection and appraisal are complete, there is a cooling off period for the buyer to make sure they are getting what they want.
Blanchard said after first seeing the house “you get excited. And then a couple of days later, probably thinking stuff like ‘this isn’t really what I really wanted’ … you gotta get through that. Make sure that you’re OK with moving forward.”
Once the homebuyer is absolutely sure they are ready to move forward, the deal is made. The title is signed, the financial agreements finalized with the lender and the homebuyer, after a long and complicated process, is given the keys to their new home.