Welcome First Time Home Buyers to your step by step guide to buying your first home. First and foremost, congratulations on your decision to quit paying someone else’s mortgage and start building wealth (REAL wealth) for yourself! One of our core beliefs at the Wilcock Team is “Education”. We believe that educated consumers make smarter financial decisions and ultimately have a higher degree of satisfaction with their home buying experience. Our goal at The Wilcock Team is to be your #1 source of information during your first home buying experience. We at the Wilcock Team will carefully walk you through every step of buying your first home, and we will ensure you understand every aspect of the mortgage you are getting. Here are some great first time home buyer tips to help get you started.
Prepare a Monthly Budget
Our objective at the Wilcock Team is to ensure you don’t bite off more house than you can afford, and this could not be more true for First Time Home Buyers. Being pre-approved for a mortgage and being comfortable with the monthly payment are two different worlds. Just because you are pre-approved for a certain price range does not mean you have to go all the way up to that amount. At the end of the day, only you will be able to determine what you are comfortable with. We want you to get the home that you love, AND still have room for other goals and fun in life.
We always recommend that you start off by tracking your monthly living expenses on a spreadsheet, napkin, or whatever works for you! When budgeting for your new home purchase, don’t forget to account for things like property taxes, homeowner’s insurance, utilities, maintenance on the home, and mortgage insurance (when applicable).
If the monthly mortgage payment is looking a little higher than you anticipated, consider a lifestyle change. To do this, take out your past two bank statements and credit card statements and highlight all of the discretionary/impulse expenses you spent money on. Over the two month period, how much are you spending on items like eating out, clothes, and online shopping? Not to say you can’t still have fun, but how much home could you afford if you reduced your discretionary budget by 50%?
Save, Save Save!
Too many times have we consulted with First Time Home Buyers that came to us with good intentions. Sometimes, it may not be in your best interest to payoff debts in an attempt to boost your score, and other times it might be. One thing we know for sure, is we can not use unsecured borrowed funds to purchase a home (you can not use a credit card for your down payment, earnest money, or closing costs). When you payoff debts before consulting with a member of team, you are liquidating your hard-earned savings to payoff debts that otherwise may not need to be paid off. In some cases, paying off old collection accounts can actually result in a score drop! Contact us first, before you payoff any consumer debts.
You DO NOT need 20% Down to Buy a House!
There are many loans available that will help you purchase a home for much less than 20% down! Conventional loans require a 3% or 5% down payment, and FHA only requires a 3.5% down payment. For qualified veterans and armed forces, down payments can be as low as 0% down! In fact the only reason an individual would want to put 20% or more down is to avoid paying mortgage insurance. Sure, mortgage insurance adds an extra expense to your cost of borrowing, but in most cases, the benefits of paying mortgage insurance greatly outweigh the opportunity cost of waiting to save 20% to put down on a house. If it takes you 5 years to save 20% to put down on a house, what will home prices be at that point? What about interest rates? Don’t delay purchasing a home forever just because you don’t have 20% to put down. There are so many ways to make the dream of homeownership a reality sooner than later. You work hard for your money, let us show you how to make your money work hard for you!
Down Payment Assistance
Speaking of not needing 20% down to buy a house, Down Payment Assistance programs can be a great fit for qualified borrowers. Most Down Payment Assistance programs today are grant money that you don’t need to pay back, and in fact, most down payment assistance programs no longer require you to be a first time home buyer! The good news about down payment assistance is that you get money to supplement your down payment and lower your out of pocket investment to buy a home. There are a few caveats to down payment assistance that you should be aware of, however. Down payment assistance loans are usually associated with higher interest rates and fees, but if a lower upfront cost helps you purchase a home today, there may be an opportunity to refinance into a lower rate later on down the road.
What To Expect (What Do Mortgage Lenders Look For?)
Mortgage lenders look for four main categories with underwriting today. They are as follows:
The first category is “credit”. Credit scores and credit history tell lenders a lot about your past performance when it comes to borrowing money and ultimately is a large factor to determining credit-worthiness. Credit score and credit history requirements vary by program and it is always best to consult with a loan officer at the Wilcock Team if you have questions. Trust us, we see it all. Even if you are concerned about your credit and unsure of what to do, we will provide you with a free step-by-step game plan to improve your credit if you need help.
The second category is “income”. Lenders need to know how much income you have to ensure you can afford the payment and that you will be able to repay the loan. Not only do lenders look at how much money you make, lenders also need to pay attention to how you make your money. Job stability & history is just as important as how much you earn.
The third category is “assets” or down payment. Whether you’re putting 3.5% down or 20% down, lenders today are tasked to ensure we know where the money is coming from. Lenders need to account for any large miscellaneous deposits into your accounts, gift funds, and anything else that is being used to purchase a home, so hold off on depositing that mattress money until you speak with us.
The fourth and final category is “collateral” or “property”. Since the mortgage will be secured against the property you are buying (aka collateral), lenders need to ensure that the property meets certain requirements. An appraisal will be ordered to ensure you are not over paying for the home, and properties like condos have additional requirements that need to be met to ensure the HOA is in sound financial status.
All of these areas will be carefully reviewed during your mortgage experience. Ultimately, these federal guidelines are in place to protect you (the consumer), and ensure that lenders are being responsible in mortgage lending. Don’t worry! We will work together as a team and before you know it you will own your first house and have a wonderful story that you can brag to all your friends about.
Ready to get your loan on?
Call us, email us, reach out on social media, or complete a secure online loan application. We at the Wilcock Team LOVE questions and are looking forward to hearing from you! We can not wait to see your smiling face at the closing table while you hold your first set of house keys in your hand.