Tyler Godlewski, a Dearborn Heights native, and his fiancee, Jacqueline Miller, a St. Clair Shores native,  purchased their first home in Newport, Michigan, last December.

Tyler Godlewski, a Dearborn Heights native, and his fiancee, Jacqueline Miller, a St. Clair Shores native, purchased their first home in Newport, Michigan, last December.

Photo provided by Tyler Godlewski

Rising rates and seasonal taxes: What first-time homebuyers should know

By: Jonathan Szczepaniak | Metro | Published October 26, 2022


METRO DETROIT — It seems like a long time ago that mortgage rates were extremely low.

With interest rates sitting at 7.24% for a 30-year fixed mortgage and at 6.39% for a 15-year fixed mortgage, according to Bankrate.com at the time of writing, it’s a challenging time to purchase, especially for first-time homebuyers.

As first-time homebuyers prepare to make life-changing decisions, it’s important that they’re aware of what to watch out for when making their big purchases.

Alex Klott, a Realtor at the Keller Williams Platinum Chesterfield Township branch for six years, said that the interest rate hikes have taken a toll on first-time buyers.

“There’s been people that have been pushed out of the market because of the interest rate hikes,” Klott said.

Previously, the 3.5% interest rate for first-time buyers who made a 10% down payment on a $200,000 home might have resulted in a monthly mortgage payment of $1,275, but now the same price and down payment might result in a payment of $1,664 a month.

First-time buyers should understand that it’s important to field offers from multiple lenders on rates and what they’re approved for.

“I would shop around and not just go to two or three lenders,” Klott said.

It may not be a significant difference with how inflated interest rates have become, but it’s an important step nonetheless to make sure that a first-time homebuyer is receiving the best rate possible.

First-time buyers should then transition to finding a reliable, licensed real estate agent.

“You want someone that’s in your court that specifically does this,” Klott said.

A strong real estate agent is important, as homes for sale are seeing less competition and fewer offers.

An experienced real estate agent will be able to guide first-time buyers in the right direction, whether it’s walking away from a negotiation because the seller isn’t flexible or determining what would be a competitive bid.

Tyler Godlewski, a Dearborn Heights native, experienced this during his homebuying experience with his fiancée, Jacqueline Miller, a St. Clair Shores native, in December of last year before purchasing a home in Newport, Michigan.

“It really surprised me how upset you can get from getting an offer rejected; we submitted offers on two homes before our current one,” Godlewski said. “The second offer would have really stretched myself financially, and though I loved the home, I’m glad I didn’t get it.”

Klott said first-time buyers shouldn’t focus on what’s popular and new, but rather something established. Updated fixtures and tile may look nice, but a quick flip could have used cheaper updates.

“Don’t go for the shiny and bright house, but go for the grandma and grandpa’s house,” Klott said.

First-time homebuyers have the option, if applicable to them, to use a Federal Housing Administration loan when purchasing. Conventional loans have typically been favored over FHA loans in bidding wars, but both are viable options for buyers.

“If you can get the conventional loan, then do it, but regardless of FHA or conventional, I’d recommend a 30-year fixed mortgage,” Klott said.

When purchasing, it’s crucial to lock down an inspection and final walk-through before signing. Home inspections have been in the $400 average price range, while appraisals sit typically in the $450 area.

“Outside of doing your home inspection, I’d recommend a sewer company to come out and inspect the sewer line out to the street,” Klott said. “If you’re buying a house outside of Macomb County, do a septic inspection. It’ll be an additional fee on top of the inspection.”

A major consideration with purchasing a house is how much money a buyer should have on hand. While first-time buyers typically put down a lesser amount than others, Nico Gianakopoulos, owner and mortgage broker at First Team Lending in Troy, said it’s important to have at least six months of the initial monthly payment in reserve due to fluctuating costs at closing and after purchasing.

“Closing costs are a big thing that people just really don’t understand,” Gianakopoulos said. “Most closing costs are out of a lender’s control, so most things are just from an estimate about taxes, titles. It’s always good to have an extra thousand or more on hand.”

Gianakopoulos has been a loan officer for seven years and is licensed in both Michigan and Florida. He has extensive experience with first-time home buyers and the issues they might come across.

A major issue can occur when the first seasonal property tax comes in the mail with a number that isn’t matching up with what the buyer has in the bank, and a first-time homebuyer may not have a strong escrow account if they had a small down payment. An escrow account is a third-party receiver and distributor of the homeowner’s money used toward property taxes and homeowner’s insurance, but it can also protect a buyer’s deposit when purchasing a house. With a large enough down payment, usually 20%, a lender might waive the need for an escrow account.

“A lot of questions I get from first-time homebuyers is usually with taxes, about whether you should pay them in full or not,” Gianakopoulos said.

If the money isn’t on hand with what is due for taxes and the homeowner’s escrow account isn’t enough to cover the taxes, it’s nothing to stress about. Buyers will experience a larger monthly payment in order to build back their escrow account and cover taxes; it’s a more viable option than paying a large sum up front, especially with other expenses incoming for first-time buyers.

“I was really surprised by how fast money can go out the door,” Godlewski said. “It is not the easiest thing to be a homeowner, but at times, random issues can occur; it’s a wake-up call when you’re young and would much rather spend money on hobbies.”

In terms of any suspicious mail received after purchasing, Klott said first-time buyers should contact their real estate agents or lenders if they receive any mail regarding taxes or titles.

“There’s a lot of scams out there, as well, so when you get a mortgage, everything is basically public record,” Klott said.