Opening Doors for First Time Home Buyer: Mollie loves her new home and the freedom it provides but she wasn’t sure she would ever be able to buy a home for her and her son.
Mollie, a single mom was earnestly looking for a way to escape her current living situation. She was renting a three-bedroom home, which she shared with her son and brother. Mollie says she was “tired of having a roommate and wasting money on a home that would never be [hers].” Certainly, many renters have known the difficulty of feeling stuck in a home, of throwing money away, and of not feeling like there is any other option but to continue renting.
For a first time home buyer, there can be obstacles – obstacles to which Mollie can relate. Her obstacles, she says, were preparing her credit to purchase a home, as well as navigating the legalities and paperwork to become a home owner. Luckily, through her realtor’s recommendation, she found Stockton Mortgage. Incredibly, not only was Stockton Mortgage able to help Mollie secure a loan for the home she wanted, but was able to do so at a 0.25% interest rate.
Mollie is now a happy home owner. “We have lived in our home for almost a year and we love it,” she says. “If I hear of anyone looking to buy a home, I send them to Stockton because I received the utmost respect and was guided through the process,” she says, “Stockton helped me through everything and still helps me to this day if I need it.” Mollie loves her new home and the freedom it affords her – she says that being a home owner allows her to finally have a place to live that’s all hers, and to be able to put a roof over her son’s head, as well as her own.
We Are Here to Guide You; A First Time Home Buyer
The financial terms, the paperwork, the large purchase- we get it, being a first time home buyer can be an overwhelming experience but not with our team of experienced mortgage bankers. We are here to guide you through this process and help you reach your dream of homeownership.
In Mollie’s case (the story above), she was tired of having roommates and pouring money into someone else’s property—she wanted to have a safe, established home for her and her son. This is true for most people, they want to see their kids grow in the same house from year to year. Or even to have a place that they can make their own, their own “home sweet home”, a place that is worthy of the saying, “there’s no place like home”. As humans, we want a home base, a place we feel grounded and connected to, for ourselves, our partner, our kids, and even our pets. This is where the permeance of homeownership comes into play.
No Worry About Rent Increases
There are so many benefits to becoming a home owner. As a renter, you are at the mercy of your landlord. No matter how wonderful your landlord is they are still in the business to make money so rent increases are always a possibility, this is something we certainly have seen take place over the last few years. On the flip side, once you close on your mortgage, your payment will not increase due to demand or inflation. No need to worry about the threat of higher bills every time your lease comes up for renewal.
Control Over Staying in Your Home
Additionally, there is no guarantee that your landlord will stick around or that his/her property will always be available. A rental can often feel like it is your home but the reality of the situation is that it isn’t yours. If your landlord chooses to stop renting it out once your lease is up, there isn’t anything you can do about it, you and your family will have to move. Or they could choose to sell the rental property to someone else, leaving you to acclimate your life to their way of management.
Becoming a homeowner allows you to fully manage your own house, you feel that the restrictions have been lifted! You have the freedom to adopt all the furry friends you would like to! Also, you have the freedom to take on those home improvement projects you have been storing up in your mind. You can paint your walls on a whim, add in that bar top to the counter, or anything else—at the same time increasing the value of your home which will pay off in the long run, something that isn’t possible when renting.
Your Home is an Asset
Unlike with a rental property, the money you put into your home can come back to you, either as you increase value from home improvement projects or simply just in the price appreciation that builds home equity. Be confident knowing that the principle you are paying on your mortgage is like putting money in the bank in terms of equity. Also as a homeowner, you experience tax breaks that others don’t; you are able to deduct your interest payments and possibly other costs associated with purchasing your home.
Living in an apartment or other rental is the reality for many but for most American’s they list homeownership as a future goal they plan to achieve. Check out more benefits of owning your own home, as one of Stockton’s marketing folks talks about her experience with rent vs buy. Typically, we have found that it is contingent on some life event like getting married or getting a promotion but with rental prices increasing, most who can afford rent can also afford a mortgage payment. So, if you can afford your mortgage, what is holding you back from becoming a homeowner? The next section outlines a few things to consider before getting a mortgage; you may find some specific goals you can set to get closer to your dream or find confidence as you realize you are ready to become a homeowner!
Have you decided that you have found the city where you want to reside for at least a few years? Are you ready to be a homeowner? Still not sure? There are some things to consider and steps to take to be a confident first time home buyer!
Make sure you can afford a mortgage payment.
For most cities in our area, a mortgage payment is comparable (or sometimes less) than the cost of renting. Having an idea of how much you can afford to spend a month on your housing will be important when meeting with your mortgage banker. Knowing your budget will help set the range of home prices when you start house hunting.
Be sure you plan to stay in your city.
You don’t have to be committed to the area for decades but you certainly would want to stay in your house for a while; five to seven years is the minimum recommended length to live in a house so you are able to build up equity, making it a better investment than if you sold the house after just a couple of years.
Build and understand your credit history.
Many first time home buyers, don’t have a lot of credit established, don’t fully understand how credit impacts the loan approval, or both. There are many factors found on your credit report that help create your credit score, though some are weighted more heavily than others. While our mortgage bankers are not credit counselors, they can give you an idea of where your credit needs to be approved for a mortgage and help you identify the areas for improvement. For more information on credit, click below.
Establish a savings.
Be aware that the down payment is not going to be the only money you will need to obtain a mortgage. There are costs associated with processing the loan and ensuring the home is a good investment; these costs are the home buyer’s responsibility. The costs are not outrageous but they certainly can add up and if you aren’t prepared for them it can be shocking. The best way to prepare yourself is to have the conversation with your mortgage banker and determine your “out of pocket” expenses including the down payment on the house. For more information on down payment requirements, click below.
Long gone are the days requiring 20% down on a house. So how much is needed for a down payment? That depends on what kind of home loan for which you qualify. The required down payment amount is based on a percentage of the purchase price of the home. It could be as low as 3.5% of the purchase price (think $3,500 on a $100,000 home) or 20% (think $20,000 on a $100,000 home).
There are even home loans that require no down payment. For example, the Veteran Administration has created a home loan for military men and women, including some spouses, that is 100% financing, meaning no down payment is required. Additionally, the USDA has a Rural Housing Service Loan that doesn’t require a down payment for homes purchased in rural areas. These are two examples of loan programs available, if you qualify, that require no down payment. Click here to read more about loans with no down payment requirement.
You may qualify for a loan with no down payment requirement but most do require a specified amount down on the house. To assist home buyers, particularly first-time home buyers, there are some provisions in place. For example, many loan programs allow for gifted funds; meaning, your family members could give you money towards your down payment. Another option are the state sponsored down payment assistance programs, which range from educational courses to grant money dedicated to assisting qualified home buyers. Most states offer programs like these to encourage their residents to move into home ownership. For more information on how much you need for a down payment click here.
Many first time home buyers, don’t have a lot of credit established, don’t fully understand how credit impacts the loan approval, or both. There are many factors found on your credit report that help create your credit score, though some are weighted more heavily than others. Two of those factors which weigh heavily into the equation are payment history and amount of debt.
While the percentages may vary slightly depending on your overall report, nothing is as important as your payment history. Your payment history is comprised of just that: your history of payments on all accounts. It includes information on whether your payments were on time, late or missed. It also includes information on the amount that you paid, whether it was the entire balance, the minimum or less than the minimum. If you have not paid on time and at least the minimum due on your accounts, it will have a negative impact on your score.
The second biggest factor is the amount of debt you currently have. Lenders use a debt-to-income ratio (DTI) which is calculated into a percentage that helps them determine if they should extend credit to you. The more debt you have, the more negatively it will impact your score. Debt includes mortgage loans, credit card payments, car loans, student loan debt, child support and alimony – anything that would present itself on a credit report. Things that you pay monthly, such as subscriptions or membership fees, should not be confused with debts.
The minimum credit requirement will vary based on your lender and on the loan type you are considering. You can read more about different types of loans below, under the Mortgages Explained section. Currently, Stockton Mortgage has loan products available for people with a credit score as low as 580; it should be noted that as requirements from various housing organizations change, this could change as well. It is best that you contact your local Stockton Mortgage banker for updated information on credit requirements but if you would like to read more about building credit check out some helpful information here!
Getting a mortgage can be intimidating but having the right people helping you along the way will give you confidence and relieve some of the pressure. While we do our best to communicate clearly and avoid using industry jargon, the financial terms can sometimes be difficult to navigate; we know this so if you don’t understand something being said, be sure to ask! If you would like to read up on some of the terms you may encounter throughout the loan process check out our glossary.
Did you know that there are several types of mortgages available?
To open the doors for home ownership to people of all circumstances, a variety of home loan programs have been created over the years. Some choose to research all loan programs out there but this is not necessary, our mortgage bankers work with these programs every day and have been for years. By having a conversation with your mortgage banker about your goals, circumstances and type of house you are considering, they can give you the best options available. This is where our provision of having so many different types of loan products is such a benefit. By offering several loan programs we can accommodate a variety of buyers’ circumstances and often can give a first time home buyer a few to choose from—pointing out the benefits of each type of loan.
To give you an idea of the variety of loans available, look over the list below. Please note, not all the information including requirements and benefits of the loan are listed. To understand fully, the options available to you and the benefits of each, please contact your local Stockton Mortgage Banker.
USDA/RHS: For Buyers Considering Housing in a Rural Area
A great option for families with low to moderate income looking to purchase a home in a rural area. With no down payment requirement and a low minimum credit score requirement this loan program opens the way for many of our first time home buyers to qualify for a home loan.
VA: For Active or Veteran Military Families
This program is a benefit for service men and women currently serving, veterans and eligible surviving spouses. This loan does not require a down payment nor monthly mortgage insurance (which some loan programs do require). There are no requirements for the area where the home is purchased, however, the home does need to meet minimum standards set by the Veteran Administration
FHA: For Buyers Needing a Low Down Payment Option
Popular among first time home buyers, there is a minimum requirement of 3.5% down payment which can be gifted by a relative or some qualify for a state sponsored down payment assistance program. The credit score requirement, which allows for no credit and low credit, provides the opportunity for more people to qualify for this home loan. There is a limit on the total amount of the loan, determined by the property’s county.
Construction to Perm: For Buyers Considering Modular Homes
This program is designed to combine the financing for the construction of a modular home and the mortgage, itself, into one loan- saving the buyer time and money. We will take care of paying the builder through disbursements, following the closing of the loan. The builder is given 9 months to complete the project.
FHA 203k or HomeStyle: For Buyers Considering a Home in Need of Improvements
Calling all fixer-upper seekers or those wanting to make a handful of improvements without draining their savings! This program rolls in the cost of the home improvement projects ranging from paint to a room addition into the mortgage. A great option for someone who is having a hard time finding a home that satisfies their needs and desires in the area they want.
Doctor Loan: For Buyers Working in or Entering the Medical Industry
A great option for those working in the medical industry as a medical doctor, dentist, veterinarian or similar certification who are looking to purchase a home—even those with secured employment who have just graduated. This program offers 100% financing and is flexible by offering a variety of loan amounts for the buyer’s future residence.
Conventional Loan: For Buyers with Established Credit and a Down Payment
This is the home loan program that has been around for years, requiring a down payment of 5%, 10%, or 20% depending on the terms of your loan. You may be able to avoid mortgage insurance payments if you meet the other qualifications.
Rural Hobby Farm: For Buyers Considering a Home with Acreage
Whether you are looking to develop the land for a second income, want to lease it for crops or simply want some space for your family to ride four wheelers—this loan may be the best option for you! The loan is available for homes located on a minimum of 5 acres and up to 160 acres. The value of the home must make up at least 30% of the overall value of the property.
Government Sponsored, State Loan Programs
To encourage the residents to put down roots and become home owners, states have put programs in place that can assist by offering less stringent requirements and down payment assistance. These can be offered to a first time home buyer and even those who are purchasing their second or third home, who complete required educational courses on becoming a homeowner. It is often common for a state sponsored program to include a special provision for public servants. To find out what programs are available in your state, contact your local Stockton Mortgage Banker.
The first step in getting a mortgage is deciding to buy a home, knowing what to expect from there and some possible road blocks to anticipate will help you have confidence in navigating the path ahead of you.
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 important because you will know the price range for your home and what kind of interest rate to expect. Plus, it is free, easy and takes less than 24 hours! Find out more about why it’s important to get prequalified. We will need to know the following to get you prequalified:
- Contact and personal information
- Co-applicant’s contact and personal information (if someone is applying with you)
- If you are looking for a specific loan type or certain terms, now is the time we would need to know.
- Financial information (your income and assets)
- Any previous foreclosures, judgements against you, etc…
Using this information and your credit score, we can prequalify you for a loan or let you know what is holding you back from getting a home loan, giving you the opportunity to work on that aspect of your finances.
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. 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.
You can’t find the perfect home without the perfect realtor. Your realtor will take your needs and wants into consideration then search your desired area for your perfect home. You want someone who listens to you and understands your needs.
After you have found the home that you want, you will sign a purchase agreement with your realtor. It will include your offering price, the list of possessions to remain with the house, and your requested closing date.
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)
- Debt verification (information on debts such as car loans, student loans, and credit card debt)
This is a partial list of items that are usually required to begin the mortgage process. Download the full checklist here. It is possible, however, that your mortgage banker may request additional documentation. Once you provide the required information, you’ll receive a Loan Estimate. A Loan Estimate is basically an estimate of the costs of buying your home; it lists all fees paid before closing, closing costs and any escrow costs you will provide when purchasing your home.
Potential Road Block: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 nullify your loan’s approval and you would have to start all over again!
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 appraised value.
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 choose to. You can ask your mortgage banker or Realtor 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. There are situations that cause complication in the documentation phases of loan processing, you should be prepared 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!
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, the timeliness of this phase is largely dependent on your response to your mortgage banker’s documentation requests.
Potential Road Block: Your loan cannot close until you have purchased insurance. Insurance is important for two reasons: it protects your new investment, and it is required by your mortgage banker. If you are happy with your car insurance provider, ask them about adding a homeowner’s policy – bundling can help you save money.
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.
At the closing table you will sign the documents that make you the official owner of your new home and the mortgage documents. You will receive information on how to make your mortgage payments and get the keys to your new 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 can find a downloadable PDF of the First Time Home Buyer guide here. This guide outlines all the steps you have just read through with some additional tips along the way!
Over the years we have gotten a lot of questions from our customers, especially the first time home buyer. Below are a few of our most Frequently Asked Questions.
Why should I buy a home instead of renting one?
As humans, we want a home base, a place we feel grounded and connected to, for ourselves, our partner, our kids, and even our pets. This is where the permanence of home ownership comes into play. You also have the benefit of no rent increases, no threat of needing to move out, control over the paint color and other finishes, the freedom to have the pets you wish and last but not least, your home is a financial asset. With just a click of this link, you can read more about rent vs buy.
How do I pick a lender?
Your home purchase is, likely, the biggest purchase of your life so selecting a mortgage banker who will help you navigate this process is no small matter. Many people ask their family and friends for recommendations but keep in mind, just because a lender was a good fit for someone doesn’t mean they are the best option for you. To get the best feel for possible lenders understanding what they offer and meeting with them are a great way to determine if they are the best option for you. Understanding the mortgage process will allow you to feel confident when you meet with your lender, check out our blog post about what you can expect.
What does my credit score need to be?
One of the things holding potential home buyers, particularly first time home buyers, back from beginning the process are credit concerns. We base lending decisions on several factors, not excluding your credit score. But we also consider your income, your amount of debt, payment history, and assets. So, if your credit score isn’t perfect, don’t let that deter you from talking to us. We offer loan products designed specifically for people with less than ideal credit.
Do I need a down payment?
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. Many first time home buyers have only a small amount saved for a down payment, some even have no money to put down – 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.
Your down payment could be money from a variety of origins – a savings or checking account, a gift from a family member, a 401k, or a Roth IRA. You can feel free to discuss down payment options with your SMC Mortgage Banker.
How much house can I afford?
The first step in finding out the answer to this question is finding out what you prequalify for. Good news it’s free and quick! Contact us to find out how to prequalify today.