First Time Home Buyer Guide

Some Things to Consider

Before you get started seeking a mortgage option, there are some important aspects that you should consider and evaluate beforehand.

Your Home Search

Make a list of what factors constitute your ideal location. Commute time? Local schools? Recreational facilities? Your real estate agent can help you identify neighborhoods based on your priorities.

Investigate! Drive through the neighborhoods at various times of the day. Do your regular commute from the property you are considering. Even if you do not have kids, the school district and high school affect your home's resale value, so check them out as well. We recommend you create a home wish list of what factors constitute your ideal. How many bedrooms and bathrooms do you need? Is a basement necessary? Commute time? Local schools? Recreational facilities?

Your Financial Situation

If you are doing a cash-out refinance, or refinancing to shorten the life of your loan, you may end up with a higher monthly payment than under your current mortgage. One of your first steps should be determining whether you can handle that increase.

Your Income

Determine your monthly income, including salary, interest, or any other income sources. Do you have any funds in accounts that you will be able to draw on and how long would they last?

Your Expenses

Also determine your monthly expenses, including utilities and medical bills. Do you have other outstanding debts such as a car loan or student loans? And of course, consider your current mortgage payment and what kind of changes the refinance would have on your overall financial picture.

The Future

What kind of expenses are you likely to face in the future? Will you be paying for your children’s college tuition or an older relative’s long-term care? Have you made allowances for unexpected future expenses such as home repairs or medical bills?

The Term

The life of a home loan usually amounts to 15 or 30 years. A short-term loan will give you higher monthly payments, but less money in interest payments over the life of the loan. With a long-term loan, you are in debt longer, but your monthly payments are lower.

Rates

You can choose between a “fixed rate” and “adjustable rate” mortgage. Which one is best for your situation will depend on how long you intend to occupy your current home.

Fixed rate mortgage

The payment stays the same for the duration of the loan. If you intend to stay in the same place for the life of the loan, you may be better off with a fixed rate mortgage because you will be protected against rate increases.

Adjustable rate loan

For three, five or seven years, the rate remains fixed. Then it fluctuates based on market interest rates. You will not be protected from market fluctuations after that, but the rate for the initial fixed term is usually lower. So, if you think you will be moving on to a new home after a few years, an adjustable rate may be your best bet.

Professional Aid

Will you need a real estate agent? We would highly recommend it, especially if you are buying a home for the first time or shopping for a home in an unfamiliar area. A good real estate agent will be familiar with the available housing in each area, have experience with negotiating for the best price, and be able to help you navigate through the documentation related to a home sale. If you do not have a real estate agent in mind, we would be happy to recommend one.

Your Credit Score

Your credit score will have an impact not only on the loan amount, but on what type of loan you may be eligible to get. So, it is a great idea to find out what your score is before you get the process started. You will want to make sure there are no problems with your credit record that you should be straightening out. You can also dispute any inaccurate items in your report.

By law, each of the credit reporting agencies must provide you with a free copy of your credit report once every 12 months, if you request it. For more information, go to the Annual Credit Report or call 1-877-322-8228

Stages of a Loan

Prequalification

Your licensed mortgage originator can get you a prequalification letter that says how much house you are qualified to buy. You will need to put together some paperwork including two years of tax returns and W-2 forms verifying your employment and income. This step will make the home buying process easier as most real estate professionals will not show homes until they get a copy of the letter.

Preapproval

A pre-approval goes further than a pre-qualification and can be an enormous advantage when you are looking for a home. It means that a mortgage lender has done a thorough examination of your finances, including your income, debts, and assets, and has determined you are qualified to borrow a certain loan amount at a certain rate. While it is not an actual guarantee that the lender will approve the loan, it still gives you substantial advantages when you are shopping for a home.

After you are pre-approved, you will have a better idea of what kind of price range you can afford.

Buyers who are pre-approved for a home loan have an enormous advantage over potential buyers who have not taken the appropriate initial steps. Real estate agents will take you more seriously knowing that you are likely to be able to make the home payments.

Application

Your licensed mortgage originator will help you through the application process, much of which consists of gathering and reviewing documents. Those documents will include:

• Recent W-2s
• Recent pay stubs
• Recent bank statements
• Your lender will provide you with a loan estimate that includes fees and closing costs, including:
• Mortgage application fee
• Loan origination and document preparation fee

Processing

Your licensed mortgage originator will organize all the paperwork and send the information to the processor, who will in turn send all the information to you so you can review it and make sure it is accurate.

Your processor will begin processing your loan. They will gather everything up in a neat little package to hand off to the underwriter.

While all this is happening, your property will be appraised to safeguard you against spending more than the home is worth.

Underwriting

Underwriting will verify all the information you provided. The underwriter is responsible for analyzing and validating your income, assets, credit history, and home appraisal. The first thing they will do is compile and review your documentation to see your full financial picture. Next, they will reconstruct your loan scenario to ensure it meets all qualification guidelines and that it is the best loan to fit your financial needs. Finally, your underwriter will take steps to verify that your information is accurate and meets the ever-changing mortgage guidelines. You may be asked to provide additional documentation, depending on the requirements of your loan.

Closing

Once your loan has been approved, we will schedule your closing. This is a straightforward process and can be done from the convenience of your home. For refinance, it can be done at your home and will only take a short while for you to sign some paperwork.

What to Avoid

There are a few things you should avoid while your refinance is being processed:

• DON’T dispute any item on your credit report once you’ve begun the loan process.
• DON’T co-sign another loan
• DON’T let credit card accounts run past due, even if it’s just by a day. Your credit card company may offer you a grace period when it comes to payments, but it still registers as past-due on your credit report.
• DON’T max out or overcharge on credit cards. Try to avoid using credit cards at all while a loan is being processed.
• DON’T consolidate your debt onto one or two credit cards. It doesn’t matter if the overall amount you owe is the same, or if you’re paying better rates. The ratio between balance and spending limit on any individual card affects your score, and a big balance lowers it. Keep balances as low as possible, and definitely don’t allow them to go over 30 percent of the available credit limit if you’re trying to buy a home.
• DON’T change the name or address on file with the credit reporting bureaus.
• DON’T apply for new credit of any kind.
• DON’T pay off collections or charge offs while the loan is being processed. Wait until closing.
• DON’T close credit card accounts. Though this might seem like a good idea, it will actually have the effect of taking away some of your available credit.