7 Tips for First Time Home Buyers | Down Payment & Closing Costs
There are tips for first time home buyers that will help you get started on the search for a dream home. Purchasing a home can be one of the biggest financial decisions in your life and going about it the right way will help with navigating through the purchase process. You may be looking for down payment options, application tips, to learn more about the purchase process, or understanding closing costs for first time home buyer.
7 Tips for First Time Home Buyers
Everyone wants a house, but not a mortgage. The search for a mortgage does not have to be difficult and understanding every option available will help save money and avoid common mistakes.
1st Tip – Down Payment Options
The 1st tip for first time home buyers is to go over down payment options. A lot of mortgage companies have different down payment options such as:
- FHA 3% and 4% grants.
- Conventional 4% and 5% grants.
- 100% financing loans.
- FHA 3.5% down payment.
- Conventional 3% down payment.
- And other options.
It is important to go over the pros and cons with an experienced Loan Originator to determine a down payment option that is right for you.
2nd Tip – Getting Pre-approved the Right Way
The 2nd tip for first time home buyers is to work with a mortgage company that has a solid pre-approval process. The steps to a successful pre-approval should include:
Talking to a licensed Loan Originator to get a list of documents required for underwriting and processing. A lot of the times we see mortgage companies go over verbal information and write pre-approvals, but when it comes to underwriting – they do not verify. You should be asking yourself, “How solid is my pre-approval?”
The Automated Underwriting System (AUS) is a risk based system that analyzes credit, capacity, and collateral. If the information provided is accurate, there should not be a problem during the underwriting process. Some lenders and Loan Originators do not take the time to take this extra step.
A lender can also have something called an overlay, which is an internal guideline on top of agency guidelines – this can make it harder to qualify or a loan having less favorable terms.
3rd Tip – Determining a Comfortable Mortgage Payment
After you receive a pre-approval, a mortgage payment should be calculated on every home that you are interested in before making an offer to make sure you are comfortable with the payment.
The mortgage payment will be different on every home regardless of the purchase price because of taxes, insurance and home owner association dues. Just because you have an approval for a set amount, you should ask yourself, “Is the mortgage payment manageable?”
4th Tip – Keeping Credit Consistent
The 4th tip to a first time home buyer is to pause any new activity once the pre-approval process starts. A debt-to-income ratio is calculated and obtaining any new debt will change the scenario. Avoid opening new credit accounts like auto loans, credit cards, or other types until your loan closes.
Continue to make payments on all accounts. Do not let other lenders pull credit because this can bring your score down and will have to be explained before closing.
5th Tip – Keep Assets Verified Consistent
Try not to move around money or deposit money that cannot be sourced into a bank account. An underwriter will verify large deposits and is required to source the money in the account being used for the purchase. If you are receiving a gift, go over the guidelines for gift funds.
6th Tip – Send Required Documentation in a Timely Fashion
Every day counts during the mortgage purchase process and meeting the purchase deadline is important. Throughout the process, a Loan Originator will ask for additional documentation in order to clear the underwriter’s requests to obtain a clear to close.
7th Tip – Job Stability
The 7th tip for first time home buyers is to keep your job consistent. Do not quit or change jobs during the process because a verbal verification of employment is done right before closing. Changing a job in the same line of work will be ok, but make sure you go over the new job’s income with the Loan Originator before switching.
Closing Costs for First Time Home Buyers
Closing costs vary by lender – some lenders charge borrower paid compensation or receive lender paid compensation. A lender can offer an interest rate that sounds more appealing, but tips for a first time home buyer would be to go over lender closing costs.
Lender closing costs can consist of application fees, underwriting fees, origination fees, processing fees, or other lender closing cost fees. Other mortgage companies offer interest rates with no lender paid closing costs that can be favorable. You can even pick an interest rate that credits you towards closing costs.
A seller credit, also known as seller concession, should be negotiated by the realtor to help pay for closing costs. Every loan program has a different maximum seller concession allowed toward home buying closing costs.
Depending on the state, tax proration also can help pay for closing costs. Every loan program and loan has different closing costs. Understanding closing costs can be difficult to understand until receiving final figures because of rules and regulations. With some case scenarios in states with tax prorations, you may not be required to pay the full down payment at closing.