Tips for First-time Home Buyers
Competitive Rates. Affordable Options
Purchasing your first home? Congratulations on your decision!
Finding and purchasing a home can seem like a daunting task to any buyer but especially for the first-time buyer. However, learning about the process and being well prepared can make buying a home feel less overwhelming. Many people have done it before, and you can do it too!
There are many important things to consider throughout the process, especially if you're a first-time home buyer. In preparation for your new home purchase, we have provided steps required during your journey to homeownership. We're here to help you with your home loan journey.
Set your budget
Determine how much house you can afford. You can start with an online calculator. For a more accurate figure, ask to be pre-approved by a lender, who will look at your income, debt and credit to determine a loan you can afford. The rule of thumb is to aim for a home that costs about two-and-a-half times your gross annual salary. If you have significant financial obligations and/or other sources on income, they may be considered in calculating your qualified loan amount.
Another general rule of thumb: All your monthly home payments should not exceed 36% of your gross monthly income. Also, the size of your down payment will determine how much you can afford.
Down Payment & Other Cost
You'll need to come up with cash for your down payment and closing costs. Lenders like to see 20% of the home's price as a down payment. If you can put down more than that, the lender may be willing to approve a larger loan. Typically closing cost are approximately 10% of the loan balance. Funds should be held in a financial institution account for at least 2 months to be seasoned. There are other funds allowed for your down payment such as gift funds, a 401K withdrawal, etc. These funds must be seasoned which means you must submit a statement of these deposits. In addition to your local cities, counties and states, various private and public agencies including Fannie Mae, Freddie Mac, the Federal Housing Administration and the Department of Veterans Affairs provide low down payment mortgages through financial institutions and mortgage companies. If you qualify, it's possible to pay as little as 3% up front. Bear in mind, with a down payment under 20%, you will probably wind up having to pay for private mortgage insurance (PMI), a safety net protecting the financial institution in case you fail to make payments. PMI adds about 0.5% of the total loan amount to your mortgage payments for the year.
Credit reports are kept by the three major credit agencies, Experian , Equifax and TransUnion. They show whether you are habitually late with payments and whether you have run into serious credit problems in the past. A credit score is a number calculated from a formula created by Fair Isaac based on the information in your credit report. It's not unusual to have a different score at each agency. Credit scores range from as low as 300 to a high score of 850, of course the higher the better. A low credit score may hurt your chances for getting the best interest rate, or getting financing at all. Request a copy of your reports as part of your home buying plan and review your credit scores and the contents. You can request a free copy of your credit report from each agency annually by visiting the websites above. The minimum credit score allowed by most mortgage lenders is 620. Check your credit score at least 60 days before applying. Errors are common on credit reports. If you find any discrepancies, contact the agencies directly to correct them, which may take 30 to 60 days resolve. If the report is accurate but shows past problems, be prepared to explain them to your loan officer.
Securing a loan is an important part of knowing your shopping power. Contact Water and Power Community Credit Union experienced loan specialists and move quickly to get pre-approved and know your qualification amount, potential payment and loan program before you make an offer. Expect to pay $50 to $75 for a credit check at this point, and another $480, on average to $800 for an appraisal of the home. Most other fees will be due at the closing. Loan Programs include Fixed Rate and Adjustable Rate Mortgage (ARM) loans.
Find an agent
It’s better to work with an "exclusive buyer agent." Buyers’ agents split the commission that the seller's agent gets upon sale by the sellers. A buyer's representative has the same access to homes for sale that a seller's agent does, but his or her allegiance is supposed to be only to you. In your search for an Agent ask for referrals from family members and close friends and ensure the agent is familiar with the area you are interested in. Most sellers list their homes through an agent but those agents work for the seller, not you. They're paid based on a percentage, usually 3% to 6% of the purchase price, so their interest will be in getting you to pay more.
Search for your new home
In beginning your search, determine what is affordable within your budget. As mentioned earlier, create your budget to see what you can afford. Calculate all housing cost along with the expected loan payment. Next, determine what city or neighborhood you want to live in. Look for signs of economic vitality: a mixture of young families and older couples, low unemployment and income status. Analyze the real estate market in the area. For example, if homes are selling close to or even above the asking price, that shows the area is desirable. Decide what features you want, such as the following:
- Number of bedrooms
- Number of bathrooms
- Style of home
- Outdoor living space
Preparing for the future, you should also pay special attention to districts with good schools, even if you don't have school-age children. When it comes time to sell, you'll find that a strong school system is a major advantage in helping your home retain or gain value.
Once you find the house you want, move quickly to make your bid. If you're working with a buyer's broker, then get advice from him or her on an initial offer. If you're working with a seller's agent, devise the strategy yourself. Once you reach a mutually acceptable price, the seller's agent will draw up an offer to purchase that includes an estimated closing date (usually 30 to 45 days from acceptance of the offer).
Now that you have entered into a contract, have your agent review this document to make sure the deal is contingent upon:
- Your obtaining a mortgage
- Notify and periodically check in with the lender
- Home inspection that shows no significant defects, negotiate if defects are found
- Shop for and purchase home insurance
- Do not take on any additional debt
- Decided how you want to hold title of the property
- Tenancy by entirety
- Joint tenancy
- Tenancy in common
- Conduct a final walk-through inspection 24 hours before closing
Review your final HUD Settlement Statement from your lender and verify all the charges you can expect to pay at closing, such as title insurance that protects you and the lender from any claims someone may make regarding ownership of your property. The cost of title insurance varies greatly from state to state but usually comes in at less than 1% of the home's price. Talk to your lender if the closing cost vastly differs from the fees shown on your loan estimate.
You will sign your loan and escrow documents, which includes the mortgage note, mortgage Deed of Trust, closing loan disclosures and various affidavits. After the recording of your Deed of Trust, you will receive your keys and move into your new home.
After closing you may be able to take advantage of the following tax deductions:
- Mortgage interest
- Property Taxes
We urge you to discuss your tax options with a licensed tax professional during your loan process.
Water and Power Community Credit Union will never request sensitive information such as Social Security numbers, Online Banking PINs, passwords, or account numbers by email or text message. Please beware of solicitors who ask for sensitive information. If you receive an email or text message or any other forms of solicitation requesting this type of information, please contact Water and Power Community Credit Union immediately: 800-300-9728