Buying a Home for the First Time doesn't need to be complicated!
Congratulations! Your decision to become a first time homebuyer was the very first step. Now, it's time to take the next step, Educate Yourself. Borrowers who have a very positive experience buying their first home tend to be the ones who take the time to learn the basics.
Fortunately, you have come to the right place, Poli Mortgage Group, Inc. can guide you through the entire process.
Whether your searching for a home in Boston, Hartford, Providence, Manchester, Philadelphia, Baltimore, Richmond, Charlotte, Atlanta, Fort Lauderdale; Poli Mortgage Group, Inc. has all the programs and all the necessary tools to ensure a smooth process and a great experience.
We offer numerous online resources that will give you a ton of information however, there is nothing like talking to a highly experienced Mortgage Professional who can take you by the hand and walk you through the Home Buying Process, step by step.
If you would prefer that type of personal service, give us a call and we'll show you what has made us a Top Rated Direct Mortgage Lender for the last 10 years.
Preparing to Buy Your First Home
Prior to your initial contact with Lenders & Realtors, you should take the time to evaluate and understand your personal situation. Your emotional readiness is included in this phase of the process. You may have been considering purchasing your first home for a while, maybe you have even been saving for the down payment.
But, are you emotionally ready? Have you carefully chosen a community where you'd like to live? How entrenched are you in your current community? Are you prepared to move? Once you can answer these types of questions, without reservation, you'll be ready to move full steam ahead.
The next step in your preparation is to determine whether you are financially ready. Evaluating your readiness in the following area may indicate you are ready to move forward to the next step. Considerations include:
- Do you have a steady source of income?
- Do you have good credit history?
- Do you have sufficient funds for your down payment or do you have another source for down payment funds (family gift)?
- Do you have sufficient funds for your closing costs and reserves? (if required)
- Have you considered your total home expenses into the equation?
A Poli Mortgage Loan Officer can provide you with additional information that will help determine your readiness in those areas.
Your Down Payment
Purchasing your new home will, in the majority of cases, require a down payment. The reason lenders traditionally require a down payment is to show that you are invested financially.
Poli Mortgage has a number of first time home buyer programs available that offer down payment options from 0% to 20%.
You can learn about our various First Time Home Buyer Programs at our company blog:
FNMA and FHLMC - Fannie Mae and Freddie Mac Mortgage Programs
Purchasing a Home vs. Renting
In today’s economy with home prices lower than years past, it may be more affordable for you to purchase a home vs. renting.
Financial advantages of homeownership include:
- Build equity over time
- Tax Deductions (Mortgage interest and property taxes, check with your tax professional for all available deductions)
- You will be paying your own mortgage as opposed to paying someone else’s mortgage
Other advantages include:
- Member of a community, giving feelings of inclusion and stability
- Pride of home ownership
- Freedom to make internal and external design choices
- Homes are traditionally offer more living space than apartments
How Much Can you Afford?
It is important to determine what size mortgage you can afford. Your monthly housing expense should be between 28%-36% of your gross monthly income. In the mortgage industry this is known as the front end ratio.
You can use our handy Mortgage Calculators to learn more about the numbers.
Your monthly housing payment includes your principal, interest, taxes and insurance (PITI).
- $2,000 (PITI) /$6000 (monthly income) = 33%
Additionally, your housing expense and additional debt should not exceed 45% of your gross monthly income (and sometimes up to 50% debt to income is accepted). This ratio is known as the back end ratio.
- $2,000 (PITI) + $600 Monthly Debt/$6000 (monthly income) = 43%
Preparing your Credit Score to Buy a Home
A good credit score is an integral piece of information that is required for you to qualify for your home loan. During the preparation phase if you do not know what your credit score is, contact a Poli Mortgage Loan Officer and request a FREE credit report.
Credit Scores, typically known as FICO scores, are monitored by 3 national credit bureaus. Scores range from 300-850, with the best score being 850. The higher your credit score is, the more likely the lender will approve your loan. As important, the higher your score, the lower your interest rate may be. Most minimum FICO requirements to qualify for a home mortgage is a score of 640, however, there are a few programs that may accept a score below 640.
The 3 credit bureaus most often determine your score based on the following criteria:
- Your payment history
- The length of time your credit accounts have been open
- The number of accounts you have open and their balances
- The number of credit inquiries
- The types of credit used
Some Credit Do's and Don'ts when planning your purchase
- Pay all bills on time.
- Keep your account balances below 30% of your total credit limit
- Limit credit inquiries
DON'TS (during the loan process or as you shop for your home)
- Do not take any cash advances for down payment
- Do not consolidate your debt
- Do not co-sign for others
- Do not make any major purchases
- Do not open any new accounts
- Do not close unused credit accounts
If you have little credit history or no credit history, you will need to establish credit (more than one line) for at least 6-12 months, and show a proven history of making payments on time prior to engaging with your Mortgage Company and/or real estate agent.
If you have poor credit (a score of 640 or less), you will need to work to improve your credit score. A Poli Mortgage Loan Officer will be able to direct you to a credit repair company if needed, or can provide advice for your specific situation.
You can learn all about the Factors that Contribute to Your Credit Score here.
Beginning the Home Buying Process
Once you have completed the preparation phase, and you determined you have a clear understanding of your financial situation, you are ready to begin the home purchase process.
Beginning the Home Buying Process - Gather your Documentation
Regardless of your personal situation, most borrowers must provide a set of core documents and information once you have contacted your Loan Officer. Having these documents ready prior to making contact with us will expedite the process. Documents that are required by all include:
- W-2's for each applicant for the previous 2 years and/or if self employed, two years of federal tax returns (all pages and schedules)
- 30 Days recent and consecutive pay stubs with year to date earnings on them
- All pages of the two most recent and consecutive statements for checking and savings accounts
- A fully executed (signed by all parties) copy of your Purchase & Sales agreement (when available)
Getting Pre-approval Letter
A pre-approval from Poli Mortgage Group is an important step towards the purchase of your new home. Within a couple of days from submittal of your required documentation you will receive a formal pre-approval letter with exactly how much you qualify for.
Requesting and receiving a pre-approval not only provides you with the value of the home you are qualified to purchase, but is extremely valuable once you begin shopping for your new home. Having a pre-approval in hand shows both your Realtor and seller that you are a serious buyer and gives you greater purchasing power.
Shopping for your First New Home - Home Search/Real Estate Agent
With your pre-approval complete you now will know the preliminary mortgage value you will qualify for. At this time, you should prepare a wish list prior to meeting with a real estate agent. Start with the price range of homes you would like them to show you and include locations of interest. Additionally, make sure you note the home features you would like such as number of bedrooms, fireplace, pool, etc.
Remember your “other” home expenses when searching for your new home and factor in any expenses you may need for minor updates you may want to make. You may need to find a home for something less than you qualified for if you need additional money available for furniture, paint, etc.. Know up front what features are “must haves” and those that you may be willing to make compromises on.
Make sure to bring a camera as you visit homes and take notes. Educating yourself about the housing market and home values prior to meeting with your real estate agent will arm you with more information about what is available in your price range. The more information and knowledge you have up front will certainly save you time and potentially money throughout your home buying process.
Find and work with a good Realtor, a Buyer's Agent that you feel comfortable with, and that you feel has your best interest in mind. Attend open houses, search the internet, and visit specific homes with your realtor.
When you have found the home you are interested in, discuss with your agent what similar homes in the area are selling for or are valued at, and how long the home has been on the market. You will also want to ask them to point out any pro’s or con’s they know about the home of interest. Remember, you are the customer and should know gather all information possible prior to making any commitment.
Making an Offer
Once you have successfully completed the above steps, and you have found a home, now is the time to make an offer to purchase. You should understand the seller’s needs, however they may have other requirements, for instance, they need to move quickly. Having information on the seller’s needs may give you even more room for price negotiation.
Review and Sign a Purchase and Sales Agreement
The Purchase and Sales agreement is a contract between the seller and the buyer. Key information contained in the P&S identifies the parties involved, the property, and purchase price. In addition, the Purchase & Sales Agreement includes two critical pieces of timing information, the first being the commitment date, sometimes called the contingency date, which is the date the buyer must have approval from their lender, and the second critical timing item is the Closing date.
Both of these dates are determined by the buyer and seller of the home along with the real estate agents and the parties’ attorneys. The P&S, as a signed contract shows a meeting of the minds. It is also a legal binding contract which should be reviewed by your attorney.
Getting a Home Inspection
It is extremely important that you have the home inspected by a professional. Your Purchase and Sale Agreement should have a contingency clause that the offer to purchase is only valid with a home inspection. The Home Inspector will evaluate all critical elements such as the condition of the home and how safe the home is. They cover structural, mechanical, and determine if the home is constructed well. With a contingency in place, if there are any egregious problems, you could back out of the agreement or renegotiate.
The Mortgage Process - Completion
Since you previously submitted key documentation for your pre-approval to Poli Mortgage your application has begun working its way through our system. Now that you have made an offer, had it accepted by the seller, it is time to reconnect with your Loan Officer to finalize completion of your mortgage transaction (your LO may have contacted you through the process). Poli Mortgage Loan Officer will require you submit your Purchase and Sales Agreement, and any other additional documentation they may need.
During your initial conversation(s) with your Loan Officer you may have discussed a loan program that will best fit your financial/mortgage requirements. Now that you know the price of your new home, your Loan Officer can discuss the current interest rate so that you may lock your loan when it is right for you to do so.
Closing on your Home
Your Loan Officer will let you know when everything will be ready to close on your home. You should have representation of an attorney at your closing. Your lender can schedule an attorney. If you would like your own attorney you can certainly do that as well. If you have questions, your Poli Loan Officer can help.
Prior to your closing, you will receive a settlement document (known as HUD1) which details all the closing costs, credits, and, how much money you will need to bring to the closing. You should review this document prior to your formal closing. Typical closing costs include the appraisal, title insurance, documentation fees, loan origination fees, recording fees, survey fees, and others. Additionally, there are pre-paid items, also known as escrows that must be paid at the closing. Escrows could include pre-paid interest, homeowners insurance, taxes and mortgage insurance as applicable. Your Poli Mortgage Loan Officer will be happy to educate you on any fee you want to know more about.
CONGRATULATIONS! YOU ARE NOW A FIRST TIME HOME OWNER!!!