First Time Home Buyer FAQ

Being a first-time homebuyer can leave you with quite a few questions. We sat down with D. Shane Whitteker, owner and chief broker at Williamsport mortgage company Principle Home Mortgage, to get some expert answers.

What mortgage programs could be good for first time home buyers?

There are three major types of mortgages that first time home buyers should acquaint themselves with.

The first is the FHA loan, which requires a substantially lower down payment than most traditional loans. Whitteker says this mortgage program has several features that may be attractive to the first time home buyer.

“An FHA loan allows for a higher debt to income ratio, lower credit scores and less time from a major credit event like bankruptcy or foreclosures,” Whitteker says. “FHA also typically allows for less money out of pocket than a conventional mortgage.”

The second, the USDA loan, allows buyers to purchase a home with no down payment whatsoever.

USDA is the best deal for a first time homebuyer unless they qualify for VA loan,” Whitteker says. “Zero down payment, closing costs can be covered by the seller completely in most cases, rates are relatively low, mortgage insurance is relatively low and the up front funding fee is relatively low compared to other loan products.”

The third, a home renovation loan, includes not only the funds for a home but also the funds for renovation - a must for those who are looking for a fixer-upper.

This product has the potential to allow a first time home buyer to qualify for a home that will help them to build equity and meet their needs at a lower price. If using the FHA 203K renovation loan, this loan comes with the benefits of any other FHA transaction.

Is there a recommended checklist for first-time buyers?

- Yes! Before buying, you'll want to complete the following steps:

- Check your credit score

- Determine what you want in a home

- Research local mortgage brokers

- Gather financial documents (tax returns, pay stubs,etc)

- Get pre-approved for a loan

- Contact a real estate agent to look for a home

- Check out our First Time Homebuyer Guide here

How can someone searching for a home for the first time determine how much home they can afford?

The best way to determine what you can afford is to look at your current standard of living. How much more could you afford to pay in rent without substantially impacting your lifestyle? Once you have the answer to that question, it's time to start looking at loans. A general rule of thumb is that the total price of your home should not exceed three times your annual income, though this can vary depending on your personal circumstances and debts.

To really get a handle on how much home you can buy, Whitteker recommends contacting a local mortgage broker.

"This topic really needs to be discussed with a mortgage broker,” Whitteker says. “Different programs offer different maximum debt to income ratio requirements. The start to this process should always be creating a household budget. Understanding your own payment comfort level is important.”

What should first-time home buyers know about their credit score? What mistakes should they avoid with their credit?

It's incredibly important to know that your credit score is going to impact not only whether you can get a loan, but how much you're going to end up paying in interest.

“Credit scores can be a bit daunting for some people,” Whitteker notes. “The obvious rule is to pay your bills on time. Make sure your balances on revolving debt (credit cards) are not above 50% of the credit limit, lower if possible. Having enough credit is also important. A lack of credit depth will affect credit score and the potential for mortgage approval.”

The biggest mistake you can make is to take on a substantial amount of new debt before you seek out a loan. The drop to your credit score - as well as the change to your debt-to-income ratio - can negatively impact your ability to get a good loan.

What is a pre-approval letter?

“This is a letter issued by your mortgage broker letting property owners and real estate agents know that you are pre-approved for the purchase of a home,” Whitteker says. “This letter will typically indicate what type of financing you qualify for and how much of a home you can qualify for.”

If you have a pre-approval letter, you have met a major milestone in the mortgage process. After this your loan will be underwritten to finalize your financing.

How can I select a good Realtor?

The best way to find a good Realtor is with a referral. Whitteker recommends having a discussion with your local mortgage broker. You should also meet with the Realtor to determine if he or she is a good fit for your needs.

“Talk to your mortgage broker about suggestions, sometimes family members will have good suggestions as well,” Whitteker says. “I hate to tell people to not work with a new realtor but the reality is that an experienced realtor is going to most likely be more competent.

Does a first time home buyer need a down payment?

In most circumstances, a first-time homebuyer will need a down payment, Whitteker says, however this is dependent upon the borrower’s loan program.

“Whether or not you’ll need a down payment depends on the type of financing chosen and qualified for,” Whitteker says. “Many times a first time homebuyer will require a down payment.”

FHA loans generally require a 3.5% down payment, while others might require down payments of ten to twenty percent. Special programs like the USDA loan allow first-time buyers to buy without a down payment, though.

Why is becoming a homeowner a good idea?

Buying a home gives you access to an asset that tends to appreciate over time. It also gives you the freedom to do what you want with your own property. For most renters, it's also a chance to live in one place without worrying about signing new contracts of having their rent go up.

“Aside from owning your own home and making the decisions about the property on your own there are other benefits,”Whitteker explains. “Equity is one of the biggest forms of savings that a middle class person in the United States achieves. This is pretty significant. In short this equity can have a significant impact on your retirement years.”

What mistakes should first time homebuyers avoid?

Avoid issues on your credit report. Call a mortgage broker at least six months before you intend to purchase. Plan properly, have your documentation that will be required on hand. Know where your money will be coming from for down payment and or qualification. If you need a gift from family members, have this conversation with them ahead of time.

What do you need to buy when you purchase a home?

According to Whitteker, this really depends on the home and the needs of the borrower(s).

“You may elect a home inspection among other inspections, these all come with a cost. You may need to purchase appliances and or furniture. It is important to plan out your purchases before you enter a contract for the home,” Whitteker says.

Whitteker says to beware big purchases during the loan application process.

“Applying for other forms of credit or taking on new debt during the mortgage process is not advisable,” Whitteker says. “This can get you denied during the loan process and you won’t get any of your money back that you have spent on the appraisal or other inspections. You may also lose your earnest money deposit on the home.”

Is rent to own a good idea?

Rent to own can be a good idea, however Whitteker recommends you consult with a mortgage broker before entering into any agreements.

“Rent to own is not necessarily a bad idea,” Whitteker says. “Make sure to pay your payments by check and any down payment on the home needs to be paid by check. You really should discuss how to set up the contract for rent to own with a mortgage broker before structuring the contract.”

If you’re considering buying a home, contact the Williamsport mortgage experts at Principle Home Mortgage, or call them at 814-308-0959.