First Time Homebuyers

Williamsport First Time Home Buyer Guide

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So you are ready to purchase your first home, what steps should you take to make sure this happens?  Regardless of your motivation for purchasing a home there are certain steps to take and things you need to know that will help to simplify this process and get you a better deal financially.  In this article we will discuss a number of topics that will better prepare you as a home buyer whether it is your first time or not.

Step One: Understanding you finances

There are different options to find your credit score but not all of these options are a true representation of your actual credit scores.  You should have a pretty good idea of whether or not you have a good credit score.  If you have at least 2 lines of credit open for over 24 months and make your payments on time you most likely have a decent credit score that your mortgage broker can work with.  To get maximum available financing a borrower typically needs a minimum of a 580 middle score out of the three bureaus.  Keep in mind if you are applying jointly your broker or lender will need to qualify the applicants based off of the lowest middle score between the two or more applicants.  So, if you have a 650 middle score but your spouse or co-borrower has a 560 middle score your broker will need to qualify based off of the 560 middle score.  You can get a copy of your credit report at https://www.anualcreditreport.com.  This credit report will not represent your credit scores though, you have to pay to get access to your credit scores.  If you want your actual credit scores you are better off contacting your mortgage broker in Williamsport to access this.  Principle Home Mortgage and D. Shane Whitteker would be a great place to start. Your credit score will have a significant impact on your interest rate and the required minimum down payment.  Over a 30 year period on a mortgage this can make a significant difference in how much interest you pay to own your home. 

Buying a home requires an investment on the buyer’s part in most cases.  Planning ahead for this is important.  There are some mortgage options out there that don’t require a down payment and the seller can pay for your closing costs.  These mortgages are a bit more difficult to qualify for or you need to have been in the military and qualify for VA financing.  Having a conversation with Principle Home Mortgage to discuss your options ahead of time would be a good way to start this process.  FHA mortgages are probably the most common mortgage for a first time homebuyer.  The FHA mortgage option allows for a relatively lower credits score with less money out of pocket than a conventional FANNIE MAE or FREDDIE MAC mortgage.  The FHA mortgage option also typically will allow for a significantly higher debt ratio which can be an important factor for a first time homebuyer.  When you meet with your mortgage broker it is important to discuss a number of things including your assets that are available, include things like your 401K or any form of investment account.  This may help you to qualify for a better loan option even if you are not putting that money into the transaction.  This is also important to discuss so that you can properly structure you offers on homes once pre-approved.  If you need the seller to cover your closing costs this needs to be considered when making offers and negotiating with the seller.

Step Two: Getting a Pre-Approval Letter

Real estate agents will require a potential buyer to get pre-approved before being able to look at homes in person and before being able to make offers.  A pre-approval letter can be obtained from your mortgage broker and sent to your real estate agent.

A mortgage broker is a better option than a retail bank since they have the ability to shop with multiple wholesale banks for the best interest rate and mortgage product for your specific situation.  Mortgage brokers tend to be more available than a local bank or internet bank as well.  It is important to get your pre-approval from someone that knows your area and has some experience working in this area.  As an example, Principle Home Mortgage is licensed throughout Pennsylvania and the owner D. Shane Whitteker has 21 years of experience as of 2020.  In this 21 years he has worked all throughout Pennsylvania and has a very good understanding of the markets throughout the state.

Once receiving your pre-approval letter, you can shop with confidence and have a solid understanding of what you are getting into in regard to money out of pocket at closing and your monthly housing expense. 

Step Three: Home Shopping

It is up to you as to whether or not you will use a real estate agent.  That being said a real estate agent will help in a number of ways that people may not be thinking of without understanding the home buying process thoroughly.  A good real estate agent will represent your interests in the transaction when negotiating with the seller.  The real estate agent will be involved in ongoing potential negotiations in regard to the home inspection and other inspections performed on the property.  It is important to have someone that can help with the logistical aspects of the contract and the entire process of working bank and forth with the seller.  Overall, we recommend contracting with a good and experienced real estate agent in your local market.  Principle Home Mortgage can help you in finding a good agent to represent your needs if you don’t already have an agent lined up. Here are some important things to keep in mind when shopping for a home.

1. Applying for any type of credit needs to be discussed with your mortgage broker.  Don’t do this without consulting them first.
2. Paying off debts may seem like a good idea, but that money may be needed to help with the approval or for costs at closing and down payment.  Discuss this with your mortgage broker before making any decisions.
3. Avoid making any large cash deposits into any of your accounts.  Any money that the bank will see has to be sourced and seasoned.  This means the bank had to verify and document where the money came from.  That is typically not able to be done with cash transactions.
4. Absolutely do not quit your job or change jobs during this process.  It is a good idea to have a minimum of 6 months on your current job when seeking a pre-approval.  This is not always required but if you are going to purchase a home it’s a good idea to keep your current job and make changes afterward if you choose to.
5. Making any large purchases at this time can cause issue as well.  If you finance a new car for example that will have to be added to your debt to income ratio and could make the difference between qualifying or not qualifying for a mortgage.
   
   

Step Four: Everyone Else Involved in the Transaction

In the process of home shopping and the purchase transaction there will be other decisions you will need to make.  Here is a list of other parties you will need to work with during the mortgage process/

1. Inspections:  The contract typically will allow the buyer to select inspections that will be done on the property at the buyer’s expense.  You have the option to have a home inspection done, a pest inspection, a water test, an on-site sewage system inspection and so on.  You are not limited to these inspections, but they are the more common inspections that we see being done.  Your real estate agent and your mortgage broker can recommend inspectors in the area that you can choose from or you can select your own.
2. Insurance Agent:  You will need to select a homeowner’s insurance agent and company to provide homeowner’s insurance on the subject property.  It is a good idea to start looking with the company and agent that provide coverage on your vehicle.  If you don’t have any insurance check with your mortgage broker to see who they recommend and shop your local market. 
3. Closing company or attorney:  You will need to select a closing company or an attorney to do the title search and provide the required title insurance.  This company will also take care of the closing and signing of documents, recording the deed and collecting and disbursing all funds associated with closing.  Again, check with your mortgage broker on who they use typically in your area if they don’t have a suggestion check with your real estate agent. 

Step Five:  Initial Disclosures, Submission, and Conditional Approval

After the contract has been signed by all parties your mortgage broker may need to update certain time sensitive items like paystubs, bank accounts or other assets and possibly your credit report.  Most mortgage brokers are using e-sign options for disclosures which makes it easier and less time consuming to acknowledge the disclosures that are required to be sent to the borrower.  Once this is complete you mortgage broker will organize all of your documents including income documentation, assets, purchase contract, identifying documents etc. and submit them to the wholesale bank for the underwriting approval process.  Once the initial disclosures are signed be prepared to pay for the appraisal as well.  Your mortgage broker will have disclosed this amount to you by now.  The amount you pay for the appraisal will be deducted from what you need to bring to closing.  Each loan scenario is different based on the specific situation of the borrower(s).  The underwriter at the bank will review the file and make requests for explanations and documents that will be necessary to get your loan to the closing table.  You will work with your mortgage broker through this process and they will typically help you understand and possibly obtain some of these documents.

Step Six: Appraisal

As stated above you will be required to pay for an appraisal at this point.  This is typically done with a credit or debit card that is processed by the appraisal management company.  Your mortgage broker will collect this information, but they do not receive the payment for the appraisal.  Banks and mortgage brokers are required to work with an unbiased third party to order the appraisal or are required to have a separate department at their company that orders the appraisal and manages that portion of the transaction.  The appraiser will be contracted and will set up a time with the real estate agents to gain access to the property in order to complete the appraisal report.  Once the report is completed it will be reviewed by the appraisal management company and if it passes their inspection it will be released to the mortgage broker, bank and borrower(s).  The appraiser may require certain items to be repaired for the property to qualify for the selected mortgage product.  If that is the case, you will work with your real estate agent to figure out who will be completing and paying for the required repairs.  Once these repairs have been completed there will be a final inspection scheduled and the cost is the buyer’s responsibility to cover.  This will be cheaper than the original appraisal cost. 

Step Seven: Final Underwriting Approval and Closing

After the underwriter has completed their final review of the file and cleared all conditions that were required the file is moved to a clear to close status (CTC).  This means the file will be moved to the closing department to finalize the closing disclosure and the documents for closing.  After the closing disclosure has been finalized you will now know the exact amount to bring to closing.  Make sure to plan on bring a certified funds check from the account you had verified for closing funds with the underwriter or to send a wire from this account to cover the required amount of money at closing.  All parties will work together at this point to schedule the closing for a time and place that will work for everyone involved.  At closing the documents will be explained to you and you will sign the necessary paperwork to finalize the mortgage and have it recorded at the courthouse.  The deed will also be recorded, and you are now a homeowner.