Buying your first home can be an intimidating process. You’ll encounter industry terminology like down payment, fixed-rate mortgage, closing costs, and more. Becoming a first-time homeowner is a major decision, and you want to make sure you partnered with someone you trust. The following information is just that, information. It’s important to contact us and let us help you navigate your options before you even start looking at houses online or contact a realtor!
Should you walk into your local bank or credit union? Should you go online and put in an application with an online lender? Or, should you work with a mortgage broker? Obviously, we are bias toward the last option, but here is why.
Big banks : are great if you need to be able to walk in and work with someone face to face. However, they are typically higher in rates, and slower in processing. Sure, there are exceptions, but as a whole, they just aren’t good at getting things done efficiently. But, it can be a little more convenient to be able to see your mortgage along with your checking and savings accounts.
Lenders : are often better equipped with more advanced technology, and more types of loan products to fit any client’s situation. However, they are also massive companies that require a lot of overhead, resulting in typically higher rates.
Mortgage brokers : enjoy the best of all worlds. We work on the wholesale side of these online lenders. We get the best of all worlds! Because we work on the wholesale side of things, we have much more control over the rates, and typically much less overhead, and we pass those savings on to our clients. So you get the power of big lenders, better rates, and yet the personalize service of working with just one person from start to finish. We pride ourselves on always being available for questions or concerns, and making sure we are in constant communication to set our client’s minds at ease.
You can throw a rock from just about anywhere and hit a mortgage lender. So how do you pick the right one? Not all lenders are created equal, and one of the most important values at our company is choosing brokers who put their client’s interest first! As brokers, we partner with only the best lenders, giving us flexibility to match up the right lender to each client’s scenario. If you don’t have a good feeling about your lender after the first conversation, including us, move on! You have the freedom to choose the mortgage partner you want, and there are so many to choose from, you should choose one that not only gives you great rates, but also connects with you on a personal level and gives you a good feeling in your gut. Don’t EVER let a lender talk down to you or speak to you like they know everything and you should just listen to them.
Since your credit score is such a huge factor in buying a home, monitoring it is vital. Monitoring your credit shouldn’t only be a priority when you are thinking about purchasing a home; overseeing your credit is something that should be done as soon as you start using and building your credit.
You want to make sure that everything on your credit report belongs to you and installment payments have no late fees.
Keep your credit score from dropping once you apply for a mortgage by not opening new credit accounts such as a credit card or an auto loan until your home loan closes.
Use free websites like creditkarma.com to help!
Sometimes the home buying process is delayed for seemingly minor reasons—missing paperwork is one of them. Having the following documentation on hand can make the process a lot smoother and stress-free.
A good rule of thumb is to save 2 months’ worth of bank statements and thirty days worth of paystubs. Also try to have easy access to the last 2 years of tax returns and W-2s (or 1099s). While it’s not essential, having this documents ahead of time will make the process that much easier once it’s time to get pre-approved.
After following the above tips, your next most important step before thinking about purchasing a home is finding a lender to pre-qualify with. It’s never too early to consult a lender.
If you need to make any corrections on your credit report or gather a little more money for the down payment, you want to make sure you have ample time to do this. The earlier to you get pre-qualified, the more time you have to adjust any of these variables before making an offer on a house.
Purchasing a home is one of the biggest decisions you will make during your lifetime, and you may be feeling anxious and a bit overwhelmed when getting started. This is normal! Here are seven questions to get you focused and make the process even easier and less stressful when applying for a first-time home loan.
Unless you’re paying for your first home in cash, you’ll want to take a look at your credit report before you hit the first open house. You can find a copy of your credit report at annualcreditreport.com at no cost to you, but free access is limited to one request per year. One drawback with this portal is it will not give you a credit score estimate without paying money, which you shouldn’t really need to do. There are some other websites that offer free credit scores. Just keep in mind that these scores are estimates, but they will give you a starting place without having an official inquiry on your report.
It’s also important to be cautious about the websites you use to access your credit. Many will try to trick you into paying for your score. One of the most trusted and truly free websites we like to refer our clients to use is creditkarma.com. It does only link to two of the bureaus, but that’s better than most banks and credit card companies that give score estimates as they typically only link up to one of the three bureaus.
Getting pre-approved for a mortgage is a must before you start looking for a home, and this is where we are here to help you. Our mortgage brokers will determine within 30 minutes (for most clients) whether or not you will qualify for a loan based on some simple information:
Having your pre-approval letter is often a requirement for a Realtor to show you houses or have sellers accept any offers you make.
In any case, a pre-approval can give you an idea of what types of houses may be in your budget before you start shopping.
As a first-time home buyer, you’re probably looking to save wherever possible. While you may think foregoing a realtor will save money, the cost of hiring one is factored into the price of the home and is paid for by the seller. A good Real Estate Agent, on top of helping first-time home buyers through the often complex process, can also negotiate on your behalf and help you save on the final cost of the home.
How much you will need for a down payment depends on the type of mortgage you have.
Here are the minimum down payment requirements for the most common loan programs. This is a percentage of the purchase price of the home:
There are advantages to putting down more than the minimum, like reducing or eliminating all together the monthly mortgage insurance cost.
In addition to the down payment, it’s important to know that there are additional “closing costs” involved in purchasing a home. As a rough estimate, you should figure about 2-3% of the purchase price of the house will be the additional closing costs owed. It’s important to know that some or all of these fees can be paid for by the seller or even the lender under the right circumstances. But it’s best to assume you will have to pay these and have the money available should you need it.
Your debt-to-income ratio (DTI) is your minimum monthly debt obligations as a percentage of your monthly income. The most your DTI should be prior to factoring in a mortgage loan is 28%, while it should not exceed 50% when you include your future mortgage loan. The DTI is one way to measure your ability to pay all of your bills and is often considered by lenders.
Example:
Minimum Credit Card payments = $100/month
Car payment = $350/month
Student Loans = $250/month
Future House Payment (including taxes and insurance) = $1800
Total monthly debt obligation = $2500
Income before taxes = $5500/month
2500 Divided by 5500 = 45.5% DTI
First time home buyers have a few options when it comes to loans. Here are some of the more popular first-time home buyer loans to consider.
Conventional 30 Year Fixed Rate Mortgage
A 30-year fixed rate mortgage offers consistency specific to the interest rate of your loan. The rate will not change throughout the 30-year term of the loan, so it allows you to better estimate and plan your monthly mortgage expenses, which can be very helpful to the first time home buyer. This loan program also allows you to get rid of your mortgage insurance cost after you reach a certain level of equity in the home without refinancing.
VA Loan
A VA loan can be obtained without a down payment and does not require PMI (Private Mortgage Insurance), although it does require payment of a Guarantee Fee unless exempt. This is a great option for veterans who are purchasing their first home.
FHA Loan
FHA loans give the flexibility of buying a home with a lower credit score, which is something first time home buyers can benefit from if they have less than great credit.
USDA Loan
USDA loans are special loans created to encourage buyers in more rural areas. However, you’d be surprised at what is considered “rural” in some areas. If you are thinking you might want to live outside a major city, this loan program allows you the option to put zero down payment. There are income limits, but those are details we can review with you if you are interested.
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