Guide for First Time Home Buyers
If you’re a first-time homebuyer – congratulations! It’s truly an exciting time. However, it can also be an intimidating process with a lot of unanswered questions:
“What price range should I be looking at?”
“How can I improve my chances of getting a better interest rate?”
“What kind of loan should I choose?”
At Ethos Lending, we strive to take special care of our first-time home buyers because we understand that buying your first home can be overwhelming. Below are some important things you should know as you embark on your journey to becoming a homeowner.
How to Choose the Right Loan for Your Unique Situation
The first step in the home buying process is to choose the type of loan product that fits your needs. The most common loan is the 30-year fixed-rate mortgage. It’s highly popular because it offers a fixed payment for the entirety of the 30-year term, and because your loan payments are spread over a longer time period they will also be lower than the 10, 15, and 20-year fixed-rate options. However, the longer term also means it would take more time to fully pay off your mortgage, thus you’ll end up paying more in interest overall. Learn more about the 30-year fixed loan option here to see if it’s right for you.
In addition to the fixed-rate loan options, there are adjustable-rate mortgages (ARMs). With an ARM, you can get a lower rate at the beginning of your term which can change after a specified number of years. For example, with a 5/1 ARM your rate will remain locked for the first 5 years, but after that can change every year. Check out this article to learn more about ARMs and if they may be the right option for you.
Other options include Jumbo loans used for high priced properties, VA loans for veterans and military members, and more. Check out the full list of options offered at Ethos Lending here.
Make sure to study up on the pros and cons of each loan option to find the best fit for your goals and financial situation. Our loan officers are happy to help 7 days a week if you need advice on which loan option to choose.
Why it’s Important to Get Pre-Approved
Once you find your desired loan option, you’ll want to get pre-approved for your mortgage loan. Though this process won’t outright secure your loan or lock in your rate, it will tell you if a lender thinks you’re a good candidate for a loan – and, if so, the maximum amount they’ll give you.
To get pre-approved, you’ll need to answer some basic questions about your financial history, income and monthly costs, and the lender will need to run your credit. If you meet the minimum requirements, they’ll pre-approve you for a loan and tell you exactly how much you qualify for.
Pre-approval is vital for two major reasons:
1) It gives you an idea of what price range you should be looking in when searching for a home. Keep in mind you don’t have to use the full amount the lender is willing to give you; this is simply a maximum amount.
2) It gives you a leg up on other buyers in the market. Because you already have the stamp of approval from a lender, you’re a safer bet to a seller – and in a bidding war, it could help you get the property over other bidders who weren’t pre-approved.
Applying for Your Mortgage
Once you found a home in the price range you were pre-approved for, it’s time to apply and secure your loan.
1) You’ll need to submit a number of documents to your loan officer, including:
- Tax returns
- Pay stubs
- Bank statements and details on your debts and credit card balances
- Savings accounts
If your spouse is applying as a co-borrower, the lender will need this same information from them as well. Your lender will also need to verify your income and employment. They will submit a form to your employer asking them for verification that you are employed and have a steady income.
2) Your lender will order an appraisal of your property to ensure it’s worth the value of the loan they’re giving you. If there is a discrepancy between your offer and the appraiser’s valuation, you have two options: negotiate with the seller to accept the lower offer or make up the difference out of pocket.
3) Finally, all your information will be sent to an underwriter, who will finalize your loan package and approve you for closing.
Closing day is when you’ll sign all your paperwork, pay your down payment and closing costs, and get the keys to your home. Typically, this is done on-site at the title company your lender has chosen, though it can also be done via mobile notary or power of attorney as well. This is common if you’ve bought a home out of state or somewhere far away.
When you come to closing, you’ll need to bring a cashier’s check for your closing costs and your down payment. It should be made payable to the title or closing company. You’ll also need your driver’s license or state-issued ID, proof of homeowner’s insurance and any outstanding paperwork or documents the title company hasn’t yet received. Individual cases may vary – to get a complete list please consult with your loan officer.
Common First Time Home Buyer FAQ
How much will my mortgage payment be?
Your mortgage payment will depend on many factors, such as your loan product, your credit and financial history, your interest rate, your down payment, the price of the home you’re purchasing, and more. Once you’ve been pre-approved for a loan, you should be able to use a mortgage calculator to estimate how much your monthly payment will be. This won’t be entirely accurate until you’ve finalized your application, though.
How much will I need for my down payment?
This depends on your loan product. Some loans require only 3.5 percent of the sales price down, while others (like jumbo loans), require 20 percent or more. It’s important to note that the more you put down, the lower your monthly payment – and the remaining loan balance – will be.
What is PMI?
PMI stands for Private Mortgage Insurance and is required on most loans, unless you’ve put a full 20 percent down. Think of PMI like homeowner’s insurance, except for your lender. It protects them in the event you fail to pay your mortgage and subsequently default on the loan. PMI costs anywhere from $50 to $150 per month but may be canceled once you’ve paid down your mortgage balance to 80 percent.
What are points?
Also known as discount points, these are optional fees you pay directly to your lender at closing. Essentially, it’s like paying interest up front, ahead of time. By doing this, you can lower your loan’s interest rate and enjoy lower interest costs, as well as monthly payments, for the life of the loan.