FOR FUTURE SIOUX FALLS HOMEOWNERS
The Ultimate First-Time Home Buyer's Guide
I provide specialized guidance for first-time home buyers in the Sioux Falls area, making your journey to ownership clear and confident.
Why Do You Want to Buy a Home?
Buying a home isn't just about owning property—it’s about aligning your decision with your personal and financial goals.
The Emotional Why
- Stability: You’re in control. You decide how long you stay and how you use the property.
- Freedom: Make it truly yours. Want to paint the kitchen bright yellow? Nobody’s stopping you.
- Legacy: A home is an asset you can pass down to build generational wealth.
The Financial Why
- Building Equity: Every mortgage payment is like depositing money into a savings account, increasing your net worth.
- Appreciation: Homes tend to increase in value over time, creating potential profit.
- Tax Benefits: Perks like mortgage interest deductions can save you thousands of dollars a year.
Assessing Your Financial Readiness and Navigating Loans
Achieving financial readiness goes beyond understanding basic credit scores; it requires defining your borrowing capacity and understanding the various factors that influence your final loan terms.
Key Financial Metrics
Credit Score
Lenders consider a score above 740 excellent. Scores below 620 may present challenges.
Debt-to-Income (DTI)
Lenders prefer a DTI of 36% or lower for conventional loans, though some accept up to 45%. FHA loans can go as high as 57%.
Down Payment
A 20% down payment avoids PMI. On a $350,000 home in the Sioux Falls area, that's $70,000. However, FHA loans allow as low as 3.5% down.
The Down Payment: Factors and Influence
Saving for the down payment is often reported as the single biggest challenge for first-time home buyers. While a 20% down payment avoids Private Mortgage Insurance (PMI), the amount required depends on up to ten critical factors. The down payment can be anywhere from 3.5% to 20% or more of the home's purchase price.
Finding Your Team & Navigating Mortgages
Assemble a team of experts and secure your financing to demonstrate you are a serious buyer.
Find a Savvy Local Agent
A local agent is invaluable for understanding regional factors. Their role is to assemble and manage a strong team of specialists to ensure a successful transaction. This includes coordinating professionals such as lenders, inspectors, title experts, attorneys, and contractors. The lender and realtor are the two most important players on your team.
The Essential First Step: Defining Your Borrowing Capacity
The smartest move is to talk to a mortgage lender before looking at any houses. A common mistake is for buyers to miscalculate their buying power and get emotionally excited about homes they ultimately cannot afford.
Pre-Qualification
A simple initial process to determine if you will qualify for a mortgage and establish a borrowing capacity.
Info Needed: Name, SSN, income, assets, debts.
Pre-Approval
The lender verifies all information provided and requests supporting documentation. Valid for 60-90 days.
Info Needed: All pre-qualification info is verified with documents.
Detailed National Loan Program Eligibility
The following programs are popular because they make homeownership possible for people with less-than-perfect credit and limited savings.
| Loan Type | Down Payment | Key Requirements & Details |
|---|---|---|
| FHA Loans | 3.5% (credit ≥ 580), 10% (credit 500-579) | One of the easiest mortgages to qualify for. Mortgage Insurance is required for the life of the loan. |
| VA Loans | 0% | For military members, veterans, and surviving spouses. No Private Mortgage Insurance (PMI) required. A funding fee of 1.25–2.4% applies. |
| USDA Loans | 0% | For properties in rural or semi-rural communities. Income cannot be higher than 115% of the U.S. median income. |
| Fannie Mae / Freddie Mac | Very low | Offer options for individuals with limited down payment cash or low credit scores. Unlike FHA, they offer options with cancelable PMI. |
Down Payment & Closing Cost Assistance
Discover programs that make homeownership more accessible in South Dakota.
South Dakota Housing Development Authority (SDHDA)
SDHDA offers powerful resources, including down payment and closing cost assistance available to all eligible South Dakota homebuyers. You could significantly reduce your out-of-pocket contribution.
Fixed Rate Plus Loan
Provides up to 3-5% of the mortgage amount as a gift that does not need to be repaid. Available to repeat and first-time homebuyers.
First-time Homebuyer Loan
Offers a below-market interest rate to qualifying first-time homebuyers, making monthly payments more affordable.
The Hunt: Finding Your Home
Find a property that fits your needs, budget, and long-term goals while considering local factors.
- 1
Define Must-Haves
Separate your "needs" (e.g., close to work) from your "wants" (e.g., a pool) to stay focused.
- 2
Location Strategy
The most desirable neighborhoods usually come at a premium. A good Realtor can help you find niche neighborhoods that border "hot" areas. Remember the axiom: "It’s better to be the cheapest house in the most expensive neighborhood than the most expensive house in a cheap neighborhood."
- 3
Patience is Key
Most home buyers take between 8 and 10 weeks to find the home they ultimately buy. Persistence goes a long way.
- 4
Always Get an Inspection
A home inspection uncovers hidden problems. In South Dakota, inspectors should check for regional issues like foundation stability due to soil movement and proper insulation for cold winters.
Offers, Inspections, and Advanced Due Diligence
This section covers the essential contractual components, legal reviews, and strategic planning required once a home is identified.
Preparing a Competitive Offer: Components Beyond Price
A formal offer includes several financial and strategic components beyond the purchase price. In a competitive market, you may need to offer above asking.
- Earnest Money: A deposit (usually 1–2% of the purchase price) made when the offer is accepted to show you're a serious buyer.
- Prepaids and Escrow: You will need to pay for items like taxes and homeowners insurance. An escrow account holds these funds.
- Home Warranty: Buyers often ask the seller to purchase a one-year home warranty to cover major systems like the furnace and water heater.
Due Diligence is Key: Managing Risk
The Due Diligence phase is your chance to thoroughly investigate the property. Do not waive these contingencies lightly.
- Appraisals: The lender will order an appraisal to confirm the home's value. If it doesn't appraise for the purchase price, the lender won't make the loan. It is often best to walk away if appraisal issues arise.
- Legal and Covenant Review: Review the title work for claims or abnormalities. If the home is in an HOA, it is crucial to understand the covenants.
The Crucial Loan Estimate Review
Within three business days of applying for a mortgage, you will receive a Loan Estimate (LE). Review it carefully to ensure everything matches your expectations before moving forward.
Get Ready for Closing Day!
On closing day, you must bring "real funds" (cashier’s check or wire transfer) and a valid ID. You will sign a large stack of documents, and you may get to meet the seller.
The Sioux Falls Area Real Estate Market
A tale of many neighborhoods: Get a snapshot of the local real estate landscape.
While specific data points vary, the overall trend in Sioux Falls is one of a competitive market with appreciating values. This highlights the importance of local expertise.
| Neighborhood | Median Sale Price | Avg. Days on Market |
|---|---|---|
| Sioux Falls | ~$350,000 | 30 |
| McKennan Park | ~$475,000 | 21 |
| All Saints | ~$380,000 | 25 |
| Terrace Park | ~$350,000 | 28 |
| Prairie Tree | ~$750,000+ | 40 |
| Cathedral District | ~$450,000 | 35 |
| Southern Pines | ~$500,000 | 30 |
Life in Sioux Falls: Beyond the Home Purchase
Understanding the long-term financial and lifestyle picture.
- Cost of Living: South Dakota's cost of living is about 5% lower than the national average, with no state income tax, which significantly boosts your purchasing power.
- Schools: The region boasts highly-rated school districts like Harrisburg and Brandon Valley, along with excellent private school options.
- Economy: A diverse and robust economy with major employers in healthcare (Sanford Health, Avera Health), finance, and manufacturing.
- Important Environmental & Tax Considerations: Sioux Falls has a "minor" flood risk, but it's still wise to investigate your property's specific risk. Property taxes are reasonable, but rapid growth may impact public services and future tax rates.
Common Mistakes to Avoid
Learn from others to ensure a smooth home buying journey.
Overextending Your Budget
Don’t become "house poor." Just because a lender approves you for a certain amount doesn't mean you should spend it all. A comfortable budget leaves room for maintenance, future plans, and life's surprises. I'll help you find a home that fits your life, not just your loan.
Skipping the Home Inspection
Waiving an inspection is a costly gamble. For a few hundred dollars, an inspector can uncover thousands of dollars in hidden issues, giving you negotiation leverage and critical peace of mind. It's the single best investment you can make during the buying process.
Ignoring Creative Financing
Don't assume a traditional mortgage is your only path. Options like "Subject-To" (taking over a seller's existing mortgage) or seller financing can sometimes offer better terms and lower down payments. I can connect you with experts who understand these powerful strategies.
Looking at Homes Too Soon
Falling in love with a home you can't afford is an emotional rollercoaster. The most critical first step is getting pre-approved by a lender. This defines your true budget and turns you into a serious, credible buyer, empowering a targeted and successful home search.
Explore Our Communities In-Depth
Now that you know the process, let us help you find the perfect first home in a community you'll love. Select a location to learn more.