Excited at the thought of buying your first home? Whether you’re considering being a part of the tiny house movement or have your sights set on a more elaborate homestead (complete with master bedroom suite), first time home buying can be both thrilling and a bit overwhelming at the same time.
But it doesn’t have to be.
We’ve asked our Mortgage Loan Officer Jodi Martin to answer your most common First-Time Home Buyer questions to help walk you through the key steps of buying a house and getting the best Mortgage Loan:
1. What’s the best first step to homeownership?
You can start with a consultation with one of our experienced Mortgage Loan Officers who will sit down with you and review your personal needs. For example, what type of home are you looking to buy? Do you have funds for a down payment? What is your credit history?
The next step is to get pre-approved. A loan officer can review your credit, income, and any money you’ve potentially saved towards a home purchase.
2. What should I consider when choosing a mortgage?
First, you’ll want to decide who you trust with one of the largest financial transactions you’ll ever make. Do you prefer working with a local lender? Do you like having someone readily available for questions? Most members enjoy working with someone they know and can believe in. Mortgage loans can be similar, so the level of service you receive can play a big part in making your decision of who to work with.
You’ll also want to think about what you want in a house (and the mortgage that comes with that decision). We can help you do the math, considering your household income and current debt (and to an extent – your acceptable level of risk) in determining how much house you can afford. Do you want to spend the maximum amount you’ve been approved for or are you more conservative? Most of us are somewhere in between.
Next, are you looking for a short or longer repayment term? Your loan officer can help to review your options and provide payment comparisons. Much will depend on how long you plan to stay in your home. If you plan to move soon, you may prefer a shorter term or perhaps an adjustable rate mortgage.
Other factors to consider are how much you’ve saved for a down payment, current mortgage rates, and how much you need for prepaids and closing costs.
3. What are closing costs? How are closing costs different from a down payment?
Closing costs are the fees associated in obtaining a mortgage. They may include an application fee, credit report, title search, and other administrative costs. At Advia, we work to keep your out-of-pocket costs as low as possible and closing costs to a minimum.
A down payment, on the other hand, is money that is applied directly toward reducing your total loan amount. A down payment is usually based on a percentage of the total sales price and the amount is usually determined early in the loan application process with your lender. Down payments can vary from 3.5 percent for an FHA loan to upward of 20 percent for some conventional loans. At the closing, both the down payment and closing costs are required and are lumped into one large payment.
4. How much house can I afford? (Is there a formula?)
Your mortgage should not be more than 43% of your total household debt. That’s not to suggest you should spend your limit on buying a home. It’s a personal choice. And home ownership is more than being able to make payments and pay a tax bill. Upkeep and cash flow for other bills and pursuits are important, too. You don’t want to be “house poor,” which is allocating too much of your budget to housing and leaving little money for the fun things like shopping, going to the movies, or a dinner out.
5. Before applying, what three things should I have?
Job stability, some savings, and good credit are at the top of the list. At Advia, if you’re not quite there, we can help you to strengthen some of these areas.
6. How important is my credit history in qualifying?
EXTREMELY. You’ll want to show that you can make your payments on time. We typically look for a credit score of 640 or higher; if you’ve made payments on active credit lines or loans within the last 12 months; and, have been working two years at your job. Of course, added savings (sometimes called “reserves”) is a plus. Your debt ratio (how much debt you have compared to total income) should also be 43% or below. Here’s some additional information on the topic of boosting your credit score.
7. How can I improve my credit? Should I do this first?
There are many key factors to improving your score, with one of the most important being to make your payments on time each month. You also need to keep your revolving credit balances within 50% of your available limits which means don’t max out your credit cards. The length of your credit history is also a factor, but not as essential.
8. Can I purchase a home with a low or no down payment?
Many lenders offer mortgages with little or no down payment. At Advia, for example, we offer conventional terms with as little as 3% down, FHA financing with 3.5% down, as well as Rural Development loans available with zero down. All have varying guidelines and unique benefits.
9. How can I make my offer more attractive to the seller?
You can easily put your offer to the top of the list. For instance, paying your own closing costs is a plus, as is having a strong credit score and being pre-approved for your mortgage. How important it is for you to sell yourself as a potential buyer can also depend on your local housing market. For example, if it’s a sellers’ market, you’ll want to take more steps to position yourself as the best buyer available.
10. Does a pre-qualification letter matter?
Yes, most realtors require this before they will show a home and gives you credibility as a buyer. A pre-qualification letter is provided by your lender and typically states an amount you’ve been approved for and at what interest rate. It will also include the contact information of your loan officer (Note: You don’t necessarily want the seller to know the maximum amount you’ve been pre-approved for, so ask for a letter based on the specific offer you want to make.)
You can achieve your dream of homeownership!
At Advia, we’re committed to being your financial partner for life. From buying your first home to building your dream home or downsizing to tiny living, we have the financing you need. Learn more about the home buying process or get started on your application!
Advia and Mortgage Center are Equal Housing Opportunity Lenders. All loans are subject to approval. Mortgage Center NMLS #282701.