995Hope - First Time Homeowner

For many families, homeownership is an American dream worth pursuing. For the first time homebuyer, preparing to buy a house and understanding everything involved can make finding one a little easier.

Times are especially challenging for first-time homebuyers in the midst of record-breaking home values and uncertainties related to mortgage rates.

Even with a tough home buying process when you have a plan things can go a bit easier. Fortunately, there are advantages for buyers that will work in your favor. Let’s talk about how to prepare and what to expect.

Long before you get to sign on the dotted line — even before you start going to open houses — there are steps you can take to prepare. The process can seem daunting as a home buyer, but it is easier than you might think. If you feel overwhelmed, educate yourself and get help, if you need it. 995Hope is here to help.

Our HUD-certified counselors can begin a conversation about where you are today. Take the first step and call.

Long before you get to sign on the dotted line — even before you start going to open houses — there are steps you can take to prepare. The process can seem daunting as a home buyer, but it is easier than you might think. If you feel overwhelmed, educate yourself and get help, if you need it. 995Hope is here to help.

What do new homeowners need to keep in mind when preparing to buy a home?

The market for buying a house is competitive. Prices across the country are skyrocketing and many people are paying a premium to get into the type of home they want. So, how do you get ahead when the market is so hot, especially if you are a first-time homebuyer? The key to this question is simple – preparation.

The sooner you prepare, the easier it will be to walk into your dream home. Here are some things to keep in mind:

  • Understand what is in your credit history and clean up any errors or mistakes.
  • Know how much home you can afford – 995Hope offers free and convenient calculators to give you a better idea of what you can afford. It can give you an idea of how much money you should borrow based on your income, debt and other expenses; how much interest you might expect to pay; what your monthly payment might be; and how much money you need to save to afford your ideal home.
  • Shop around for a mortgage lender – There are a lot of companies advertising for your business. Connect with several lenders to compare what rates and terms they offer. Then, as a home buyer you can make a more educated selection.
  • Secure pre-qualification and pre-approval (Learn more on these below)- Once you find a mortgage lender, you should get pre-approved for a loan. This will show sellers you are a serious home buyer.
  • Save money for a down payment – A goal should be 20-percent of the value of the home you hope to buy. There are special programs available to help first time homebuyers get into a house. While 20-percent is ideal, there are alternatives offering lower down payment options and help.
  • Don’t go it alone – Find a realtor to help navigate the homebuying process. They are professionals – trained to represent buyers and sellers to make sure the transaction runs smoothly.

Our HUD-certified counselors can begin a conversation about where you are today. Take the first step and call.

What steps do I take to prequalify for a mortgage?

In preparing to buy a house, one of the most helpful steps is getting pre-qualified with a lender. This can help make the process run smoothly. When applying for a loan, lenders analyze basic financial information about you to determine your eligibility.

Pre-qualification doesn’t guarantee you’ll receive your loan. Once your application is complete, your request is considered based on:

  • The information you provided
  • Your credit history
  • Your credit score

Through prequalification, lenders provide you with preliminary, non-binding information like a potential loan amount, estimated interest rate, and estimated loan terms. During the pre-qualification process, this information is provided to you, without affecting your credit score to check loan eligibility before the full application process actually begins. Prequalification utilizes a “soft pull” of your credit score.

A soft pull doesn’t affect your actual score. It’s important to remember that your credit can be “soft pulled’ without you even knowing it. On the other hand, a hard pull is a credit inquiry where a lender, bank, or creditor is checking your credit score to determine if you are creditworthy, and eligible for the credit you are applying for. A hard credit pull is one that you authorize and results in a small decrease in your credit score, but for a short period of time – up to two years.

Both hard and soft inquiries provide information about you, but they are used differently in the initial lending process. It is important you understand the difference and how they affect your credit score and your ability to be approved. The inquiries are generated when someone accesses your credit report.

As mentioned earlier, being prequalified for a loan doesn’t guarantee you’ll be approved. It is a good start, but it is not the same. During the formal application process, the lender will conduct a hard pull of your credit. A lender may discover information during the formal application process that may change your eligibility or the terms of the loan you are offered.

Why is Credit History important when looking to finance a house?

Credit history shows whether you pay your bills on time. It is also a good indicator of how much of your available credit you use – this is also known as your credit utilization. If you use a large percentage of your available credit, it shows you may not be able to consistently make your monthly mortgage payments. It’s important to stay on top of what you owe as you prepare to buy a home. Your credit history is one of the major factors lenders use as they decide whether to finance your home purchase or not.

How much home can I afford?

Even as home prices continue to rise, more people are considering a move. At the same time, they are trying to figure out whether they can afford to pay the mortgage on the home they want to buy, cover the cost of their utilities and their other monthly bills.

A standard monthly mortgage payment includes your mortgage principal, the interest paid on the loan, property taxes, and insurance. When these items are added up, it equals your mortgage payment.

In general, a first time homebuyer will look for homes in the price range a lender is willing to approve, which may be higher than they can actually afford. What that loan amount is not considering is other expenses. Not considering additional monthly expenses can set a buyer up for potential financial hardship, if they can’t afford the monthly payment.

There are also additional factors people need to consider. The amount of mortgage you should be borrowing, at what rate, and how long you plan to stay in your home are all dependent on your overall strategy for buying.

Along with several other factors, one of the things lenders look at is your monthly, (not annual) income. For additional clarification as you budget, take advantage of the free mortgage calculator provided by 995Hope.

How does the home buying process work?

As you can see here, there are many elements that go into buying a home. You may wonder how long the entire process takes from starting the process, to being handed the keys to your dream home.

The timeline for buying a home can depend on many variables. Experts estimate the average time for the home buying process to be between 40 and 60 days. It’s important to keep this in mind as a buyer because it means you have to plan ahead for the end of a lease, the children’s school year, selling of an existing home, or beginning a new job. All of this requires time and preparation – you can’t rush it. Here is an approximate timeline for buying a home:

  • Pre-qualification / Mortgage pre-approval: One week or less
  • Home search: Up to 10 weeks
  • Making an offer on a home: 1–3 days
  • Mortgage application process: One day
  • Loan processing: Up to one month – In this phase, your lender will provide you a list of documents and ask for information to verify everything you provided in your application.
  • Appraisal: Up to one week – This is to determine how much it’s really worth.
  • Inspection: Up to one week – A home inspection is a review of the condition of a home. Depending on what’s found, you may decide to request repairs, renegotiate, or cancel the purchase agreement altogether.
  • Title search and title insurance: Up to two weeks – A title shows the legal ownership of the home. The title search ensures that the seller can legally transfer ownership to you free and clear.
  • Underwriting: Up to two weeks – Your lender will thoroughly review all the information you provided to verify that it is accurate. They’ll also determine the risk level of approving you for the loan.
  • Closing disclosure: One day – Three days before closing, your lender must provide you a document known as a “closing disclosure.” This is time for you to compare your final terms and costs to what was estimated at the beginning of the process.
  • Final walkthrough: 1–4 hours – This is a chance to confirm the home is in satisfactory condition since your offer was first accepted.
  • Home closing: One day
  • You get the keys and move into your dream home.

What costs are involved with putting an offer in on a home?

Once you have your finances in order and have found a home, you can make a decision on what you want to offer a seller. Making an offer is about more than just telling the seller or their real estate agent how much you’re willing to pay. In today’s market, be prepared to move fast. In some areas, homes go on the market and are sold within one or two days. To protect yourself, consider making offers on more than one home.

When it comes to making an offer, this is where your pre-approval from your lender comes in. This provides proof you’re able to pay the amount you are offering.

The next step is to establish a closing date and show how additional costs will be covered (i.e., closing costs). It is also important to let the seller know what you expect leading up to closing. Are there any repairs that need to be made that you both have agreed to? Are there items that will remain in the house after the deal is closed? Your realtor can help here to make sure you aren’t missing anything.

When you are submitting an offer, be ready to provide earnest money with the offer. Earnest money is a “good faith” amount that shows, in addition to your pre-approval, that you are serious about your interest in the property. An earnest money deposit can range from $500 up to 10% of the agreed-upon price for a house.

For the seasoned and first-time homebuyer there are a lot of details and information to understand. As you are preparing to buy a house – make a plan, get your financial house in order, and then access help when you need it. Reach out to 995Hope for tools and valuable information to get you ready for your big purchase.