Purchase Information for First Time Homebuyers
So you are looking to buy your first home and you do not know where to start. What do you do first? Find a realtor? Find a loan officer? Find a house? Well… everyone approaches the home buying process differently.
We think the most sensible thing to do is to get pre-qualified first. If you really want to be ahead of the game get pre-approved. What’s the difference between getting pre-qualified and getting pre-approved?
Getting pre-qualified involves giving all of your information to a loan officer. The loan officer then pulls your credit and looks at all of the key factors of your file (credit history, assets, income, job history, etc.), and then determines whether or not you are qualified and how much home you should be looking to purchase.
Getting pre-approved involves all of the steps of pre-qualifying, but takes it one step further. Your loan officer can actually submit your file to an underwriter for credit approval before you even have a property. This makes you an even stronger buyer when it comes time for a seller to decide whether or not to accept your offer.
As a first time home buyer, you probably have a long list of questions and concerns. The goal of the Wendy Thompson Lending Team is to try and answer any questions you may have along the way. Here is a list of common questions that we get:
How do I start the process?
Call us at 901-461-8858! Or if you would rather fill out the pre-qualification form online right away, go here:
What do I need for the pre-qualification process?
You will need to know your basic information for you and anyone else that will be applying with you:
- Name, date of birth and social security number
- 2 year Residence history (including current rent/mortgage amount)
- 2 year Employment history (including employer name, position, dates of employment)
- Gross (pre-tax) income amount and how often you are paid (weekly, bi-weekly, semi-monthly, and monthly)
Once I pre-qualify, what is my next step?
After pre-qualifying, your next step is to find your new home with your real estate agent. We provide you and your real estate agent with an approval letter based on your offer price for your new home. Feel free to contact us if you haven’t decided on a real estate agent and we can make a suggestion.
How much of a down payment will I need?
The answer to this varies from buyer to buyer and from loan type to loan type. There are three main types of loan programs available:
- Conventional – typically a 5% Minimum Down Payment
- FHA – 3.5% Down Payment
- VA – No Down Payment Required (in most cases)
- USDA – No Down Payment Required (subject to income limits and rural property designation)
USDA loans do not have any down payment requirements. They do however have income limits depending on the county that you buy and they are restricted to properties that have been designated “rural”.
FHA mortgages have the lowest required down payment at 3.5%. FHA loans also have upfront and monthly mortgage insurance. The underwriting guidelines for FHA loans are less restrictive than Conventional financing.
Conventional mortgages typically have a 5% down payment requirement. With Conventional mortgages both the interest rates and monthly mortgage insurance rates are credit score driven. This is where the Wendy Thompson Lending Team really compares loan options for you to determine which loan is best for you.
If you are a veteran or active duty and have earned your VA benefits, you could qualify for a VA home loan. These are hands down the best mortgages available for people that have little or no down payment. We are always surprised to hear from veterans that aren’t aware of the benefits of this loan program. You are able to borrow up to 100% of the purchase price of the home in most cases, and there is no monthly mortgage insurance. The one caveat to VA financing is that VA loans have a funding fee that the veteran can pay out of pocket or finance into the new mortgage.
What if I don’t have a down payment?
Not to worry! FHA and conventional financing both allow for gift funds from family members. If you don’t have access to a gift, there are various State and Local down payment assistance programs that can be utilized by its residents to reduce or completely cover your down payment requirements.
Just about every down payment program has income limits and you will have to be under those limits to utilize the income specific programs available. Some programs only have limits on the person borrowing the money whereas others have income limits on the entire household.
What is Mortgage Insurance?
Inexperienced and experienced buyers alike often do not understand the purpose of mortgage insurance or the different types available. Mortgage insurance is insurance that you (the borrower) pay to insure that in the event of a foreclosure the lender gets reimbursed for their costs to process the foreclosure.
FHA loans have mortgage insurance that is backed by the Federal Housing Administration (FHA). You pay mortgage insurance on FHA loan regardless of the size of your down payment.
Conventional loans have mortgage insurance that is backed by Private Mortgage Insurance companies. You pay mortgage insurance on conventional loans when you do a down payment that is less than 20%. There are a number of Private Mortgage Insurance companies, so their rates can vary just like interest rates can. So, if you have a good loan officer like the Wendy Thompson Lending Team they will shop with the various mortgage insurance companies and choose the one with the best rate.
Conventional loans allow you to structure your mortgage insurance to be paid monthly, up-front in the form of a single premium, or partially upfront and partially in a monthly payment (called split premium). We will show you the comparison of monthly MI to upfront MI. Ask us today for your comparison so you can see how much you can save with the different options available.
Is there specific documentation I will need to gather for the loan process?
If there’s one thing you will become familiar with when getting a home loan, it is documentation. Don’t worry, some diligence on your part in the beginning will pay dividends as you move through the loan process. Here is a generic list of items needed for the loan process:
- Most recent 2 years of W-2’s
- Most recent 2 years of tax returns (all pages & schedules)
- Most recent 30 days of pay check stubs which includes year to date income
- Most recent 2 months of bank statements(any non-payroll deposits must be documented so limit cash deposits)
- Most recent 2 years residency and employment history
- Driver’s License (and Work VISA or Green Card if applicable)
- Purchase Contract
- Other items such as: Bankruptcy Papers, Divorce Decree, Marital Dissolution, and Parenting Plan if applicable
- Name and phone number of your Home Owner’s Insurance Agent
Once you speak with a member of the Wendy Thompson Lending Team you will get a much more refined list of items specific to your situation.
How long does the loan process take?
It depends on your situation, but typically we can close your loan in less than 30 days of a finalized contract. We can do this because we start the process of verifying income, assets and credit up front and are usually only having to get minimal documentation from you after you are under contract.
Which loan option is best for me?
This can only be determined by having a conversation with an experienced loan officer and having them provide you with some calculations. The simple answer is…it depends!
Deciding what the best loan structure is for your situation is an in depth process that involves reviewing the pros and cons of different options with a loan officer, and then making a decision once you have all the information. It is the goal of the Wendy Thompson Lending Team to provide you with the information needed to make an informed decision and to help you select the loan that is best for you.
How do I know which company or loan officer I should go with?
This is the part that many home buyers struggle with. Often they will scour the market for the company with the lowest rate. Unfortunately, this is not necessarily the company with the lowest cost or the most competent service. So the old adage, “Home buyers beware”, applies here. There are many mistakes a loan officer can make along the way that turn that “perfect rate” into a less than ideal scenario.
Buying a home is likely the largest purchase you will ever make and the loan process is tough enough to navigate even with a seasoned loan officer. When you decide on who you want to go with for your financing, getting a competitive rate should certainly be one of the items on your list, but even more important is getting an experienced loan officer that is effective at closing your loan smoothly and on time.
The Wendy Thompson Lending Team has over 15 years experience and an outstanding reputation. Please check out our reviews from some of our past clients.