Congratulations on deciding to become a homeowner! Buying a home is, undoubtedly, one of the biggest decisions – and purchases – you will ever make. As a first time home buyer, you want to feel like you know what you are doing before you begin the process.
Luckily, Stockton Mortgage Corporation is here to help you. Our expertise and exceptional customer service will make your first time home buying experience an enjoyable one.
This guide will prepare you and allow you to feel confident when purchasing your first home. It will provide you with a step-by-step overview of the mortgage process, including average costs and the documentation that will be required for each step. You will learn how much time to allot for each step, and find plenty of tips to help protect you and your new investment.
Before We Begin…
At this point you might feel like you have more questions than answers. To get started, we’ll answer a few frequently asked questions that will be addressed the further you read into this guide!
What does my credit score have to be?
One of the biggest dissuasions potential homebuyers have about beginning the process are credit concerns. Stockton Mortgage Corporation bases lending decisions on a number of factors. Not excluding your credit score, we also take a look at your income, your amount of debt, payment history, and assets, to come up with a potential loan amount and interest payment. So if your credit score isn’t perfect, don’t let that deter you from seeing what programs are available to you. SMC also has a number of loan products designed specifically for people with less than ideal credit.
Do I need a down payment?
Many first time home buyers have only a small amount saved for a down payment, some even have no money to put down – luckily, your Stockton Mortgage Banker can work with you and get you into your dream home, no matter your circumstance. Having a down payment can be useful on your pursuit of owning your own home, but it’s not always a necessity to buying home. Some loan products require no down payment, while other loan products offer down payment assistance. Knowing what products are available is a great way to start a dialogue with your Stockton Mortgage Banker about your options.
Your down payment could be money from a variety of origins – a savings or checking account, a gift from a family member, a 401k, a Roth IRA, or it could come from a number of other places. You can feel free to discuss down payment options with your SMC Mortgage Banker. Contrary to popular belief, there is no amount considered an average down payment. It depends on what kind of loan you choose and your financial situation.
Tip: Your final down payment isn’t due until your actual closing, and is considered as part of your cash to close.
How much house can I afford?
The first step in finding out the answer to this question and the previous questions, along with others you probably have, begins with finding out what you prequalify for.
Before you begin searching for your home, you will want to call, go to smcapproved.com or visit your local Stockton Mortgage office to prequalify for a loan. This process is free, easy and takes less than 24 hours!
Here’s what we need to know:
- Contact and personal information
- Co-applicant information (if you someone is applying with you)
- Loan information (what type of loan you’re looking for and specific loan terms, if any)
- Financial information (your income and assets)
- Declarations (judgements, previous foreclosures, etc.)
Using this information and your credit score, we can determine whether or not you prequalify for a loan. Once you are pre-qualified for a loan, you will know a few things:
- A price range for your home
- What kind of interest rate you can get on your loan
With this information, you and your realtor will begin the search for your dream home!
Now that you’ve been pre-qualified, it’s time to decide what kind of home you want and where you’d like it to be located. It is rare to find a home with everything that you want, so make a list of desirable features and search for homes with those things in mind.
Realtor – You can’t find the perfect home without the perfect realtor. Your realtor will take all of your needs, wants and desirable features, and search the area for your perfect home. You want someone who listens to you and understands your needs, and who is as passionate about finding your dream home as you are.
Things to consider:
- Type of home (single-family home, condo, etc.) & neighborhood – your realtor will be able to give you a good idea about what’s available in your price range and desired location
- Schools – if you have kids or are planning on having kids, school districts may play into your home buying decision
- Safety – talk to your real estate agent about area crime rates
So what kind of home do you want? A starter home with hardwood floors to accommodate your new puppy? Or a vintage three bedroom, nestled in a safe neighborhood, for your growing family? Think not only of your current life situation, but of the potential life changes that could cause you to relocate – consider the resale of the home.
Purchase Agreement – After you have found the home that you want, you will sign a purchase agreement with your realtor. It will include your offering price, what possessions will remain with the house and your requested closing date.
Note: It’s not a bad idea to turn in all of your Loan Application documents before you begin house shopping. It isn’t required of you, but it could help speed up the loan process and reduce the risk of rate lock extension fees.
Once you have signed your purchase agreement, you will return to your mortgage banker and complete your loan application. If you haven’t already, you may want to begin organizing some important documents that your mortgage banker will soon need. Some of the basic documents that your mortgage banker will need include:
- Tax returns from the past two years
- Two most recent pay statements from your employer (at least 30 days of earnings)
- Bank statements from the last two months
- Driver’s license and other form of identification (ex. Social security card)
- Asset verification (bank account numbers and balances, bank statements for two to three months)
- Debt verification (information on debts such as car loans, student loans, and credit card debt)
This is a sample list of items that are usually required to begin the mortgage process, however, your mortgage banker may request additional documentation such as cancelled rent or utility checks. Once you provide the required information along with the specifics on your dream home, you’ll receive a Loan Estimate.
What is a Loan Estimate?
A Loan Estimate is an estimate that lists all fees paid before closing, closing costs and any escrow costs you will provide when purchasing your home. Your mortgage banker is required to supply you with this document with this document three days before the completed loan application. This will allow you to make an accurate judgement when you are shopping for your loan. Contact your mortgage banker for all of your Loan Estimate purposes. For more information on understanding your Loan Estimate, check out our TRID guide.
After you get approved for a loan, it is important that you do not apply for any new credit or allow anyone to pull your credit report. Prior to your closing, Stockton Mortgage will pull your credit again to ensure it meets your lender’s requirements; because of this, any new credit inquiries could result in revocation of your loan’s approval.
Note: You will not receive an official Loan Estimate until you have an accepted offer on a property.
Home Appraisals & Inspections
An appraisal is a mandatory part of buying a home. This process is usually complete in less than ten days. The appraisal will inform you and your mortgage banker of the home’s current value and your mortgage banker will base your loan amount on the lesser of the sales price or appraisal. If the appraisal value is less than the sales price, you may want to re-negotiate with the seller.
Your appraisal will help you understand the amount of equity in your home. Equity is the difference between the amount your home is worth and the current balance, excluding interest, of your mortgage, which means that every time you make a payment on your mortgage, you are increasing the equity in your home. Stockton Mortgage will order your appraisal.
Inspections – Home Inspections are optional and only you can determine if the report is worth the cost. Home inspections generally include:
- Roof: age, wear, potential damage and chimney
- Exterior: doors, siding and entryways
- Interior: windows, stairs, appliances and insulation
- Plumbing: pipes and hot water tank
- Electrical: switches, outlets, covers
- HVAC: heating capability up to 50 degrees
In addition to the basic inspection, you may also purchase additional pest, carbon monoxide and mold inspections, if you chose to. You can ask your mortgage banker to provide you with recommendations for inspectors to ensure that you find reputable ones for your new home.
The main duty of a processor is to organize and validate your loan documents to ensure they meet the lender’s standards, and that no additional documents are required for the underwriting process.
The length of this step varies widely and is contingent upon your situation. As a first time homebuyer, you usually have the advantage of having a fairly uncomplicated loan process. However, because there are situations that cause complication in the documentation phases of loan processing, you should be prepare to provide additional documentation.
It is important to be prompt in supplying additional documentation, as this will often determine the amount of time this process will take!
The Underwriting Process
After your documents are processed, the underwriter will take an in-depth look at the documents to assess your qualifications. They will look at your employment record, your sources of income and your assets and analyze your detailed credit report.
This is the final documentation phase, so your mortgage banker may ask you to provide additional documents. Like processing, this phase’s timeliness is largely dependent on your response to your mortgage banker’s documentation requests.
Insure Your Investment
You cannot complete your mortgage process without first purchasing homeowner’s insurance. Insurance is important for two reasons: it protects your new investment, and it is required by your mortgage banker.
Note: Your loan cannot close until you have purchased insurance. If you are happy with your car insurance provider, ask them about adding a homeowner’s policy – bundling can help you save money.
Stockton Mortgage can provide you with the contact information for local insurance companies if you are having trouble selecting one. Keep in mind that if you are purchasing a home in a flood zone, you must purchase flood insurance as well. Stockton Mortgage will obtain a flood determination, which will inform you if your home is in a flood zone.
Closing & Settlement
Three days before your official closing, you’ll receive a Closing Disclosure that will detail your final closing costs – so there should be no surprises when you make it to the closing table.
Don’t be intimidated at the closing table because of the number of people in attendance – on the contrary, closing is a reason to celebrate! Everyone at the closing table is there to support you, as you have completed all the necessary steps in buying your first home. In a basic closing, the attendees will be you and your mortgage banker, the seller, your real estate agent and the closing attorney.
- You will sign documents that make you the official owner of your new home
- You will sign your mortgage loan documents
- You will get information on how to make your mortgage payments
- Stockton Mortgage will pay the seller for you
- You will get the keys to your new home!
- You may decide to start planning your house warming party…
Closing costs – Your closing costs include any closing or lender fees and are separate from your down payment. There is no general amount of closing costs because they differ so widely by state and lender.
Prepaids – Your prepaid costs include costs such as flood and hazard/home owner’s insurance, property taxes and odd day’s interest. The total of the prepaids, less the odd day’s interest, is used to create an escrow account. Odd day’s interest, or interim interest, is paid when a mortgage begins in the middle of a month.
Cash to Close – This term refers to the actual amount of cash you will need to bring to the closing table. Cash to close is the sum of the down payment, closing costs and prepaids. This information and more will be provided to you in your Closing Disclosure, but you will likely have discussed these details with your SMC mortgage banker before this point.
You are now fully prepared to purchase your first home with confidence. If you would like to learn about different loan types that can help you purchase, refinance or renovate a home, check out our next guide – Loan Products, Features and Options.
Find your nearest Stockton Office and give us a call to schedule an appointment with one of our mortgage bankers.
We would love to hear about how our First Time Home Buyer’s Guide helped you, and we hope that you will call us and share any questions or comments you may have. Call us toll free 1(888)914-2276.
We love educating home buyers and we hope you’ll share our guides with your family and friends.