First-Time Homebuyer

Everything You Need To Know To Buy Your Dream Home!

Mortgage-General-Awareness_Dec18_Blog

First-Time Homebuyers

Buying a home is exciting and it is indeed a big step! For most people, it will be the largest financial transaction you’ll ever make. There’s a lot to do to prepare.

Emerald Home Loans is here to help guide you throughout the process with valuable information to keep you informed!

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Pre-Qualified vs. Pre-Approved: What's the Difference?

They sound the same. But the difference is key if you're buying a home! 

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Getting Pre-Qualified

The first step in the mortgage process

Getting pre-qualified is important if you are just looking around, thinking about buying a house. 

Why is a Home Loan Pre-Qualification Useful?

Home loan pre-qualification helps you get a better idea of what size and type of mortgage you might qualify for in advance of submitting your actual mortgage application. With this information in hand, you can better plan and prepare financially for meeting your home ownership goals.

Once you have an idea of your borrowing power and what type of mortgage you may qualify for, you’ll have a better sense of what size monthly mortgage payment you can afford.  Having this knowledge is essential when determining your budget, which will help you in your home search.

How Does Pre-Qualification Work?

When getting pre-qualified, you will provide EHL with a picture of your financial situation (debt, income and assets) and we will use that information to give you an idea of what size mortgage you may qualify for. It’s that simple.

While pre-qualification is different from submitting a full mortgage application and doesn’t guarantee you will be approved for a loan, it is an extremely useful tool in the home buying preparation process. Pre-qualification can be done over the phone or online, and there’s usually no cost involved. It's that easy!

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Mortgage Pre-Approval

Why should you get pre-approved?

Getting pre-approved is the next step. It's the real deal, especially when you are serious about purchasing a home. A pre-approval letter is a statement from the lender that you qualify for a specific mortgage amount based on an underwriter's review of all of your financing information ( credit report, pay stubs, bank statement, assets, salary, etc).

Having that pre-approval letter puts you at an advantage when dealing with a potential seller, as he or she will know you're ONE step closer to getting an actual mortgage. An article from, Keeping Current Matters, also explains why pre-approval should always be your first step.

Bottom Line

While pre-qualification can be helpful in determining how much a lender is willing to give you, a pre-approval letter will make a stronger impression on sellers and let them know you have the cash to back up an offer. 

What Do You Need For A Pre-Approval? 

In order to get you pre-approved we need the documentation below. All of this and more will be needed once your loan is in process so might as well pull it together now.

  • Pay stubs – last 30 days
  • W2s – last 2 years
  • Federal tax returns – last 2 years, all pages and schedules
  • Bank statements – Last 2 months, all pages
  • Realtor and attorney contact info
  • Copy of photo ID – must be legible

 

Get Your FREE Pre-Approval Letter Now >>

 

 

DETERMINE HOW MUCH HOUSE

YOU CAN AFFORD

 

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It's an important step to determine how much house you will be able to afford.

With that said, there is a general rule of thumb that says your total monthly debt – mortgage payments, car payments, credit cards, gas, utilities, etc. – should not exceed 36 percent of your gross monthly income. Lenders typically follow a similar guideline when a qualifying a borrower for a mortgage, although the exact criteria depends on the lender, the borrower and the mortgage program.

The lender qualifies a borrower for a maximum monthly payment that they can afford based on the borrower’s current financial situation, as well as the down payment amount. Remember, your monthly mortgage payment includes PITI – principle, interest, taxes and insurance. 

Second, just because you qualify for a certain monthly payment, that doesn’t mean you should purchase a home that puts you right at that limit or anything close to it.  “But wait,” you say. “I’ve crunched the numbers in my monthly budget and I have no doubt that I can swing that payment with plenty left to spare!”

Are you sure about that?

Do you plan to have kids? Will they go in daycare? If you plan to stay home with your kids, how much income will you lose? Will you start saving for their education? Do you plan to buy a car within the next five years? Would you like to go on vacation? Will this home you’ve fallen in love with require any improvements?  In other words, if these or other life events add significantly to your monthly expenses, will you still be able to swing that mortgage payment?

Many first-time home buyers become house poor because they buy based on today and fail to consider where they’ll stand tomorrow. Their lifestyle tends to suffer, and they often struggle to meet their financial obligations. If an unexpected life change occurs, they could be in real trouble.

On the other hand, if significant money will be coming off the books within a few years, you may determine that it’s worth it to make sacrifices in the short-term to own the kind of house you really want.

The Better Question to Ask

First-time buyers constantly come to us and say, “How much house can I afford?” Unfortunately, we can’t answer that question with any certainty. We can only tell you how much of a monthly payment you qualify for.

The better question to ask is, “How much should I buy?” Again, the lender can’t answer that question. That’s a personal decision you have to make based on your income, lifestyle, family situation, and priorities, both now and in the future.

For a lot of first-time home buyers, mortgage qualification is a reality check. They experience payment shock when they come from paying a low mortgage for an apartment-like condo, low rent for a small apartment, or no rent from living with parents.

Common sense tells us that upgrading to a home with more rooms, more square footage, and outside property will result in higher living expenses.

Resetting Expectations
You may find that you can’t afford the kind of home you want in the exact town you want. But you still have options.

  • Would you be satisfied with a smaller house in the same town?
  • Would you be satisfied with the same house in a different neighborhood or town where prices are lower?

Location is important. Location affects property taxes, home and auto insurance, commute times and expenses, traffic, social life, quality of schools, public services and more. Choosing how much home you can afford requires you to determine the importance of these and other factors. In any of these scenarios, you have to look at how your decisions will affect your lifestyle.

  • Would you be willing to compromise now and then move to a new home in the future?
  • Is it best to live at home or rent for another year, save money, and look for ways to increase your income?
  • Do you feel confident enough to pull the trigger right now on the home you really want, even if it’s a little more than you want to pay?

There is no mathematical formula that tells you exactly how much home you could afford. Emerald Home Loans will take the time to discuss these issues with you instead of simply approving you for a mortgage and wishing you luck.

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BUDGETING FOR YOUR DREAM HOME 

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Home buying is much more than just a mortgage payment, so you’ll want to consider all the potential costs (including property taxes, homeowners insurance) and the other monthly expenses you’ll incur, like utilities and maintenance expense. 

 Yes, we know that it's not fun, glamorous, or enjoyable, but creating a budget is  a necessary part of life and is essentially the first step towards financial stability. Having a working budget in place will help you identify exactly where you stand with your finances.

It can often be difficult to figure out exactly how much money you spend each month. Creating a budget can help you plan ahead to learn how you save money for important things  (like buying your very first home).

So how do you do it? How do you budget for a house? How do you begin saving for a home? How do you go from renting and living paycheck-to-paycheck to saving for your first down payment?  

The first thing you'll need to get a grasp of is your income. Income is the money you expect to receive every month. Make sure you include take-home pay and any other sources of income such as interest, social security benefits, pension payments, alimony, child support, etc. Keep in mind, if your earnings are irregular, it’s better to underestimate than overestimate your income.

From here, you will want to keep track of your monthly expenses. Some expenses stay the same (rent/mortgage payment) from month to month and other expenses will vary (food, gas, clothing).  

We’ve created a FREE Monthly Budget Template to help you get started. You’ll find that it is much easier to see everything once it is written down as it allows you to see if there are any drastic changes in your monthly bills. In the end, a budget can help you spend more mindfully allowing you to save up for your dream home!

Wondering what your house payment each month could be?

We've made it easy to gauge what your payment could be!

Check it out here:

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UNDERSTANDING YOUR CREDIT SCORE

& WHY IT'S IMPORTANT

 

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A credit score is a number that lenders use, along with other information, to determine if someone will qualify for a loan. An algorithm uses data in your credit report to calculate your credit score. Your credit report shows how much you owe, the length of your credit history, your payment history, new credit inquiries, and what kinds of credit you hold, such as mortgages, auto loans, credit cards and lines of credit.

Each of these factors carries a certain weight when calculating your credit score. Once the numbers are crunched, you end up with a credit score between 300 and 850. The higher the number, the lower the risk, and the more likely you are to qualify for a loan and a lower interest rate.

Why Is My Credit Score So Important?

Mortgage lenders will pull your credit score when you apply for a loan. We use your credit score to predict risk. In other words, your credit score will help tell us how likely you are to continue to make your mortgage payment on time.

There are no universal standards for what qualifies as a good or bad credit score, or a minimum score for qualification. Lenders such as EHL  offer a number of loan programs to cover as many types of borrowers and scenarios as possible. These loan programs are issued by a variety of investors, who set guidelines that are used when loan applications are reviewed.

How Can I Find Out My Credit Score?

Consumers can request one free credit report per year from each of the three major credit reporting bureaus – Equifax, Experian and TransUnion. The bureaus will issue a credit score for a free. However, there is not one universal credit score.

Different lenders use different credit scoring models for different borrowing purposes even though the information within the report is the same. That means you could get different credit scores from a credit card company and a mortgage lender.

Should I Review My Credit Report?

It’s a good idea to take advantage of your ability to receive free credit reports. This allows you to go over your credit data in detail and look for errors, which can be caused by everything from security breaches to data entry mistakes. Any inaccuracies in your credit report could affect your credit score and your ability to qualify for a loan.

 

Breaking-Down-Your-Credit-Score-mortgage-infographicTake a look at this article which explains the break down of your credit score.

It will help you easily understand how the FICO credit score is calculated and revels credit-related facts like the average national credit score!

Need some tips for improving your credit score? We've got you covered. Our latest article provides you with the best tips! Click here.

 

 

 

THE MORTGAGE PROCESS

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The first step of being involved is becoming educated about the five general stages of the mortgage process. Here’s a high-level explanation of what you can expect from beginning to end.

1. Pre-Approval

During this critical stage, we’ll determine your purchasing power based on your income, credit profile, and financial assets. However, it’s important to keep in mind that just because you’re pre-approved for a $300,000 mortgage, it doesn’t mean you should borrow $300,000. We’ll go over other costs to consider, both upfront and over the life of your loan.

2. Application

This is when you complete and submit a formal application for a mortgage loan. We’ll collect all relevant information, fill out the application and make sure all disclosures are issued and signed.

After you apply for the loan you’ll receive a Loan Estimate, which provides an approximation of your closing costs and a summary of how your loan will be repaid.

3. Processing

Processing involves preparation of your file by the mortgage company for underwriting. During this step, we do a lot of verifying. We validate all documentation and information you’ve provided, including your employment. We order an appraisal to confirm the property’s market value. We order your credit report to verify your ability and willingness to pay debts.

4.Underwriting

During underwriting, we determine whether you’ll be eligible for a mortgage. The characteristics of your loan file are reviewed to make sure they fit Emerald Home Loans’s guidelines and all work done during the processing phase is reviewed and validated. Once approved, a mortgage commitment will then be issued.

5. Closing

People who have been through this process might tell you that you’ll feel like you’re signing your life away. While that may be an exaggeration, there’s no getting around the fact that mortgages involve a lot of paperwork. That’s why we always recommend hiring an experienced real estate attorney to explain every document. The lender will put together the closing package, and the settlement agent will handle the closing of title and disbursement of funds.

 

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 Explore the complete Loan Process from our infographic! Click here! 

Wrapping your head around the mortgage process can be overwhelming, which is why our team at EHL upholds a pledge to simplify it for our clients. If you have any questions, don't hesitate to reach out at any time!

We are here to help guide you through the entire process to make it EASY! (833) EHL-1234

 

 

 

 

 

 PROGRAMS FOR THE FIRST-TIME HOMEBUYER

There are a number of loan programs available that are suitable for first time home buyers.
At EHL, we are proud to offer many conventional home loans that are tailored to you based on your current finances. We also offer special government loan program options to help you get into your new home.


FEDERAL HOUSING ADMINISTRATION (FHA) LOANS
These are government-insured loans from the US Department of Housing and Urban Development
(HUD) that offer low down payments, making them especially attractive to first time
home buyers who are looking to save where they can. The rates on these loans are often lower than conventional products and have less stringent credit requirements. FHA loans are also often assumable, meaning you can take over the loan from the previous owner, and pass it on to someone else if you decide to move. Learn More.


VETERANS AFFAIRS (VA) LOANS
VA loans are offered by the government to veterans of the armed forces, as well as those
currently on active duty, and widows or widowers of veterans. VA loans have less strict requirements
and require no down payment. Learn More.


UNITED STATES DEPARTMENT OF AGRICULTURE (USDA) LOANS
For would-be home owners living in smaller towns or rural areas, USDA loans are a great
option for fulfilling their dreams of buying a home. Like VA loans, they require no down payment
but are subject to USDA eligibility maps. Learn More.

 

Ask us about our other First-Time Homebuyer Assistance Programs today! Contact us here for more information!