Buying your first home is very exciting but can also be very scary! Lately I have had several clients that are buying their first home and all have had lots of questions. There is a lot to know if you are buying a home and it helps to do some research so you have a better understanding.
One of the biggest hurdles most first time homebuyers face is the down payment. There are programs available to you to help with your down payment and some mortgages may not require a down payment. If you have VA eligibility or you are buying in a rural area, you may be able to qualify for a VA mortgage or a USDA mortgage- both are zero down. If you meet income requirements, you may be able to use a first time homebuyer program with down payment assistance. FHA requires 3.5% down and conventional loans require 3% down. All of these loans will allow you to ask the seller to help contribute towards your closing costs. The area you live in may have some special programs that help – either in the form of a grant or a loan. Some have to be paid back, some don't – check with your lender and see what may be available. If your lender doesn't know of any, do some research on your own or talk to another lender.
Another hurdle can be your credit report. Most lenders want to see a credit score of at least 620, sometimes 640 or 660 for certain programs. If your score isn't there yet, you can talk to a loan officer or a credit counselor to see what you need to do to improve your score. Sometimes it just takes time, for some it may mean paying down credit cards or collections. If you have had a bankruptcy, you need to wait at least 2-3 years, depending on the type of mortgage you are applying for.
Once you know you have the down payment, credit score and income to qualify for a mortgage, you need to talk to a lender and get the mortgage approval started. You will need to provide a recent paystub, 2 months of bank statements and 2-3 years of tax returns and w2's. You may need additional information depending on the type of mortgage. Your loan officer will pull your credit report and run a loan approval for you. Once that is done, you can start looking for a home!
When you find a home you want, you will write up your purchase agreement with your realtor. Be prepared to write an earnest money check – typically $1000 or more. That check will get cashed once your purchase agreement is accepted by the seller. You will need to do an inspection – that is different from an appraisal. The inspection gives you a report with things that may need to be fixed in the home, it also gives you an idea of things you may need to look at replacing in the future. Once you are done with the inspection, your lender will order the appraisal and title work. Your file goes through loan processing and underwriting. With the changes in October 2015, you will need to sign a closing disclosure at least 3 business days before closing.
The day of closing, you will meet at the title company or other selected closing place, sign many papers and get your keys! It's always exciting to go to closings – you now own a new home, you get to move in and start making your new home yours!
Buying a home is exciting and scary all at the same time! Make sure you ask the questions so you are prepared for the process. There are first time homebuyer programs available either in a classroom setting or online. Sometimes they can really help to answer your questions. Talk to your lender and your realtor. Have fun!