Exploring First time Home Buyer options
Buying your first home can seem downright scary or even out of reach for most people. We’re here to help! With our first-time home buyers guide, you can better understand the process and requirements while creating a plan to put yourself in the best position possible when going into what’s possibly the biggest purchase of your life. In this guide we will cover the following topics:
- Benefits of owning your own home
- What qualifies someone as a first-time home buyer
- Responsibilities as a homeowner
- First-time home buyer programs
- The steps to the mortgage process
- Mortgage do’s and dont’s
Benefits Of Owning Your Own Home
History has shown that owning your own home comes with a variety of personal and financial benefits. When you own your own home you don’t have to worry about a landlord raising your monthly payment or putting limits on what you can do with the home. You can paint the walls, update the kitchen, or do whatever you want to put your own personal twist on your place of privacy and comfort. One of the best benefits is that when you make your monthly mortgage payments you’re putting equity back in your home, usually at least a few hundred dollars, which is kind of like a forced savings plan. Over time once you build up enough equity in your home you are able to access it through refinancing your home when and if you ever needed it. Always consult with a tax professional when you file your taxes as you may be eligible for tax breaks as a homeowner.
What Qualifies Someone As Being A First-Time Home Buyer?
A lot of people think that a first-time home buyer is someone who is buying their first home. While this may be true it’s not the only instance in which someone would be considered a first-time home buyer. In the eyes of mortgage financing, a first-time home buyer is anyone who has not owned or had an interest in a home in the past 3 years. You must also take a homeownership education class to better understand the responsibilities and financial obligations that come with owning your own home.
Responsibilities Of A Homeowner
Along with rewarding benefits come a handful of responsibilities for homeowners. The first and biggest responsibility is of course paying the monthly mortgage payment. A typical mortgage payment consists of P.I.T.I or principal, interest, taxes, and insurance. When you own a home you are required to pay an annual property tax that can be split up into installments and included in your mortgage payment. As for property insurance, also known as homeowners insurance, it is required to have a policy when a home is financed in order to protect your and the banks’ investment. Property insurance can be paid annually or split into installments and included in your monthly payments just like property taxes. Finally, you have mortgage insurance and homeowner association dues. Although these are not applicable to every loan or home, it is required to be paid if they are. Lastly, a homeowner has responsibility for any repairs or maintenance needed on the home in order to protect your asset and maintain the home’s value.
First Time Home Buyer Programs
There are amazing programs available to first-time home buyers to help make purchasing a home easier and more in reach to the average person. The Federal Housing Administration (FHA) is a great option for first-time home buyers since they have more relaxed credit and income requirements while only requiring a down payment of 3.5%. FHA requires mortgage insurance on all mortgages to both insure the property against default and to generate money to keep loaning out to first-time home buyers. As for conventional loans, the credit and income requirements are a little tighter to minimize risk but have a smaller down payment for first-time home buyers at only 3% compared to FHA’s 3.5%. Conventional loans also require mortgage insurance but they can be removed once your loan-to-value (LTV) reaches 80%.
The Steps To The Mortgage Process
Here we will go into more detail about each individual step of the mortgage process. Although some aspects may relate to the real estate side of the process, we will focus mainly on the mortgage side of it for this guide.
Getting pre-approved and pre-qualified may sound like the same thing but in fact, they are completely different. When you get pre-qualified for a mortgage you do not actually have someone verify your creditworthiness through the documentation so there’s no real validity as to the discussion. A pre-approval verifies your creditworthiness by analyzing your credit, income, and assets before actually becoming bound to a purchase contract. Pre-approvals are also great tools for buyers when shopping for a home as it shows the seller that you have the capacity to complete the transaction. Although everyone’s situation is different sometimes more documentation is needed than others. The documents that are usually applicable to everyone in order to obtain a pre-approval regardless of the situation go as follows:
- Clear copy of photo I.D.
- Recent 30 days pay stubs for all jobs
- Recent 2 years W2’s or 1099’s
- Recent 2 months’ bank statements for all accounts that funds will be used for the purchase of the home
- Sign a credit authorization form
Documentation will be needed for each individual that will be on the loan and the documentation listed above may not be applicable to everyone.
Getting in Contract
After you and an experienced Real Estate Agent find a home and agree with the seller on the purchase contract it will almost be time to submit the loan to underwriting. Depending on how long it took to get into contract on a home will determine whether or not we need to update the documents listed above. From there we will order fees from the title company and plug in the information from your purchase contract. After we receive fees and analyzed the contract we will present and explain the various options. You can either pay a cost for a lower rate, take the par rate (no cost or credit), or take a higher rate for a credit towards your closing costs. When you decide on the correct rate and term for you we will lock in that interest rate. Now it is time to send out disclosures. Disclosures are forms explaining both the loans terms and the rights you have as a consumer. When you sign disclosures we will submit the loan to underwriting and order third services.
This is when we will order the third-party services such as the appraisal, property insurance, etc. During this time an underwriter will analyze the file to verify the information and documents meet the guidelines before issuing a conditional loan approval. This conditional approval will let us know if we need to provide any additional documentation to help clarify things. Once we have provided all the conditional items asked of us and the appraisal comes in the underwriter will issue a clear-to-close on the file and we can proceed to closing.
We will send you a closing disclosure breaking down the loan, mortgage payment, and fees associated with your home purchase. This will start a mandatory three-day waiting period once you sign so it is important to get this done as early as possible to be ready for the closing. We try to get everything done well before your closing date so you are not rushed at the end. Since we have everything done ahead of time, we are able to accommodate closing when all parties agree (sometimes earlier than the agreed upon date). This will typically be the only time you will need to hand sign loan documents. Title will set up a signing appointment, or schedule you with a mobile notary (who comes to you). The seller(s) will also sign their portion of the loan documents. Finally the title company will provide wiring instructions. THIS IS NEVER done through email and it is extremely important that you CALL the title company to comfirm the wiring instructions are correct. Once you have wired your funds and done the final walk-through of the home with your agent, we are ready to fund the loan and record the deed. Once all parties agree the loan funds and records and you get your keys.
WIRE FRAUD DISCLAIMER: Vision Home Mortgage will NEVER ask you, via email, to wire or send funds to ANYONE, not even a title company. NEVER trust wiring instructions sent via email. Be aware that cyber crime can affect everyone and these emails can be convincing and sophisticated. ALWAYS independently confirm wiring instructions in person or via a telephone call to a trusted and verified phone number. NEVER wire money without double-checking that the wiring instructions are correct.