Buying your first home? Here’s 5 things you need to know.
Posted on July 20, 2022
Congratulations on getting to that point in life where the dream of homeownership looks more like reality. Purchasing a home is truly a difference-maker. It’s both a significant financial investment, and emotional one too. Since the mortgage process can be a bit complicated, it’s important you know what’s going on every step of the way. Here are some tips to ensure the buying of your home feels as good as finding it.
Tip 1: Find Out How Much You Can Afford
Before you even begin your search, find out what you can afford by getting prequalified with a loan officer. They should verify your income, do a credit check, and even look at bank statements to get a more accurate assessment of the loan amount you’d qualify for, taking into consideration your assets and down payment. That due diligence pays off big time, ensuring a smoother process through the underwriting team who will complete the loan preapproval.
Your loan officer will come up with a projected loan amount by calculating your debt-to-income (DTI) ratio, factoring in your gross monthly income (before taxes and other deductions), and subtracting the minimum payments to your credit as reported in your credit report. The DTI is usually capped at about 42% to 45% of your income. From that number, you’ll fit in your new mortgage payment, which will include principle, interest, property taxes, homeowners’ insurance, and private mortgage insurance, if needed.
Keep in mind, there are many daily living expenses not factored into the equation, such as utilities, auto insurance, groceries, cell phone bills, gym membership, clothing, and home maintenance.
“A lot of times if you educate the borrower on that, and show them how it works, they can play around with their own debt-to-income and make sure that there’s affordability there,” said Justin Calheno, Assistant Vice President of Retail Lending for Country Bank. “You have to make a decision as a consumer and make sure that those numbers are affordable.”
Calheno has extensive experience walking customers through the mortgage process—and getting them to closing quickly. Another piece of advice he offers: If you’re shopping for a mortgage, don’t worry about inquiries to your credit report. Pulling your credit will not hurt your score. He thinks that’s probably one of the biggest myths borrowers have.
Tip 2: How to Prepare for the Home Loan Application Process
Once you’re prequalified, you’ll get a letter that’s good for 90 days. Now it’s time to get a real estate agent and shop for your home. Once you find a home and get an accepted offer signed by all parties involved, your loan officer will start the mortgage application. Be sure to hand over all the forms they ask of you—and quickly. Once all the documents are in and appraisal completed, your loan moves to underwriting for final approval, and then to the attorney for closing.
The more organized you are, the faster you’ll move to closing. It’s easier than ever, thanks to the convenience of online applications and electronic signatures. At Country Bank, application approvals are taking about 13 days.
“There is a direct correlation between an approval in two weeks with a borrower who provides the checklist in a day,” Calheno said. “If your file is complete and ready and can be underwritten in an hour, underwriting will grab it and issue your approval. Because it’s a full file, you’re organized, and you have provided everything in a timely manner. They want to get loans through the pipeline. If you can provide all your information in a timely manner, we will get you closed and it’s going to be a much easier process.”
Tip 3: A Quick Guide to Understanding the Various Types of Mortgage Loans
The home you choose says a lot about you. Same with your mortgage. While most mortgages are basic conventional loans, requiring about 5% down, there are other options available based on your specific needs and goals.
If you’re building a home, you’ll likely find your financing fit with a construction-to-permanent loan, which offers many cost-savings. For instance, Country Bank lets customers lock in their rate at the start of the application process and have only one closing. The bank offers up to 90% financing with PMI approval, as well as the option for borrowers to self-contract their own construction at 70% of the total acquisition price. And if you just want to buy some land and hang onto it for a while before building, there’s a land loan.
“Some people aren’t ready to build yet, but that piece of land’s out there and they want to grab it before it gets off the market,” said Jason Mourao, Retail Loan Officer with Country Bank. “They’re able to do that with the land loan. Then, when they go to build and get the construction loan, that land loan will roll into the construction loan itself.”
There are specific loans for borrowers wanting to invest in property, people who have moderate incomes and need down payment assistance, first-time homebuyers, and those who simply want affordable housing in Massachusetts. Whatever your need, you’ll likely find the financing to support you, especially if you partner with a loan officer who takes the time to understand you and go through all your options with you.
Tip 4: How to improve your credit score?
Your credit score is a number that reflects your creditworthiness. Borrowers with strong credit scores (higher the better) are usually offered the lowest interest rates, while those with low scores are offered the most expensive rates. Improving your number means more money in your pocket, literally.
A good rule of thumb: Maintain open lines of credit, make your payments on time, and don’t max out on your debt.
“I always recommend people to get a small credit card or to rotate them every single month, use them for small things like grocery bills or gas or anything like that and just pay it off at the end of the month,” Mourao said. And don’t max out all your cards. “I’ve had borrowers that have never missed a payment, but they’re maxed out on their debt, maxed out on their credit cards. I’ve seen those credit scores lower than a borrower who has missed payments but is not maxed out.”
You can get a free credit report once per year from each of the three major credit bureaus. This is a great way to monitor your credit, spot inaccuracies, detect identity theft early, and qualify for competitive financing terms on your home loan.
Tip 5: How much of a down payment is needed to buy a home?
Your down payment will be determined by the type of loan you choose. First-time homebuyers, for instance, may qualify for just 3% down, land loans 20% down, construction loans 10% down. If you’re purchasing a home in eligible rural areas, you can obtain 100% financing, which means $0 down payment.
It’s important you find a loan officer who wants to learn about your needs, asks questions, finds the right answers for you, and, ultimately, wants you to prosper—not just at the closing, but throughout the life of your mortgage.
Country Bank is an Equal Housing Lender.