First Time Home Buyer Q&A

Becoming a home owner for the first time can be an exhilarating and liberating feeling. No more paying for someone else’s mortgage as a renter - you’re taking control of your financial destiny. However, getting there can be a process - one you’ll want to engage your local mortgage broker to help with. We discussed first time home ownership with D. Shane Whitteker, owner and chief broker at Williamsport mortgage broker Principle Home Mortgage.  

How has being a first-time home buyer changed over the last 10 years? 

Today because of various market factors, bidding wars are often common, and many buyers have to expect to offer more than the asking price to beat out other buyers. 

At the same time, interest rates are lower, which allows buyers to have more flexibility with what they can afford. This means that buyers don't have to pay as much in interest during the length of the loan. 

When is the right time to buy a home? How can you be sure you’re making a good decision? 

The best time to buy a home is when you have steady, consistent income and are financially stable. You should plan to buy a house when you're ready to settle down and don't plan to move in the next five years. The ideal time to start looking around for a new home is when there's less demand in the housing market and interest rates are low to ensure you have more negotiating power and can become more selective with what you purchase. 

Whitteker says prospective first-time home buyers need to keep several factors in mind when deciding when to act.    

“I think this really comes down to what the market is doing and where you are at in your life,” Whitteker says. “Owning a home earlier in life comes with significant financial advantages in the long term. The amount of equity you can build in a ten-year period is pretty significant. Overall, I think a good time to buy is when you plan to stay in one place for 5 years or so. You also need to be stable enough financially to qualify.” 

Bottom line? it’s important to buy a home when you can afford it. Look into the utility costs, property taxes, HOA fees, homeowner's insurance, and cost of repairs.    

What are the financial benefits of owning a home rather than renting?   

There are many financial benefits that come with owning compared to renting, which include building equity that you can keep once you choose to sell the property in the future. It's also a great investment because you can have stable monthly payments and it can be a cheaper option than renting over time. Buying a home allows you to build your credit and provides many different tax advantages. 

Owning a home is also considered to be a solid financial investment and offers a better return on investment than other types of purchases that are more prone to depreciating. Working with an experienced, local mortgage broker and real estate agent can allow you to find the best place to buy a property where the home values are steadily increasing.  

What is the #1 reason that people hold off on home ownership? When is this a bad idea?   

It's important to delay homeownership if you aren't sure about where you want to live long-term. If you plan to relocate for your job or travel, it may be better to rent. Buying a house and selling it within the first five years can cause you to lose money. It can also be cheaper to rent instead of buying a house if you live in a state with high property taxes.    

According to Whitteker, many people simply don’t know how easy it can be to become a homeowner.  

“I think misinformation is part of the issue. Credit and savings along with inconsistent employment is significant as well,” Whitteker says. “A lot of people think they need 20% down or need a higher credit score, more time on the job, etc.  If you are ready to settle down and stay in one location for 5 years I think you need to research your home ownership options.  It is easier to qualify than most people think.  I routinely finance clients with scores between 580 and 620 with only around 4% of the purchase price in savings.”  

How can a first-time home buyer learn more about mortgages? 

The best place for first-time home buyers to learn about mortgages is through their local mortgage broker. First-time home buyer programs also make it easier to understand the basics of mortgages and what they entail to ensure you're prepared for the process.  

If a first-time home buyer doesn’t have enough saved to put 20% down, are there options? 

If you don't have enough money saved to put 20 percent down on your first home, you can consider other types of home loans that are available. Most first-time home buyers take advantage of FHA loans, which only require a minimum down payment of 3.5 percent. This will require that you pay mortgage insurance, which can increase your mortgage payment each month. You'll need to put 20 percent down if you want to avoid PMI insurance. Some types of USDA loans or conventional loans also don't require 20 percent down.  

Military veterans can take advantage of VA loans, which require zero down and can make it easier to buy a home. Keep in mind that the less you put down, the higher your mortgage payment will be each month. The average down payment for first-time homebuyers is seven percent down. 

Whitteker says low down payment mortgages are common at his Williamsport mortgage brokerage.   

“We absolutely do low down payment mortgages frequently, and some products are available with almost nothing out of pocket,” Whitteker says. “VA mortgages for example, you can get a home with very little out of pocket if you are a veteran and qualify for VA financing. All agency loans have a relatively low-down payment option.”   

What kind of credit score do I need in order to get a home? What are the benefits of a higher credit score?   

Most lenders require that you have a credit score of 620 to 640 if you plan to apply for an FHA loan. Some loans require a minimum credit score of 580. A higher credit score will allow you to obtain a lower interest rate, which can lead to thousands of dollars in savings in interest over time. You can increase your credit score by paying down your balances and by keeping your credit card utilization under control.   

What is the #1 thing you wish all first-time home buyers knew? Why?   

Whitteker’s wish is for his first-time home buyers to better understand the mortgage process. 

“In general, I wish that more prospective first-time homebuyers were more aware of how to prepare for mortgage qualification, especially when they have a lower credit score,” Whitteker says. For example, paying your rent by check can make the difference between qualifying or not.” 

Understand that the home-buying process is lengthy and can be complicated. Start by gathering all the necessary documents and taking a close look at your financial situation to ensure you're prepared. You'll need to remain flexible with the process and avoid borrowing any debt after becoming pre-approved for a loan, which can affect your debt-to-income ratio and cause a lender to withdrawal their approval of your home loan application. 

What kind of debt-to-income ratio should someone considering home ownership have?  

When you're considering home ownership, lenders prefer borrowers who have less than 36 percent with no more than 28 percent of their income used towards the mortgage each month. The debt-to-income ratio can't be too high, or it's more of a risk for the bank or financial institute to lend the money to the first-time homebuyer.  

Can I get my down payment gifted to me? 

Home lenders allow buyers to have down payments gifted to them, but a gift letter must first be submitted to the lender. The letter is used to prove what your relationship is with the person gifting the down payment and that the family member or friend doesn't consider it to be a loan or expect to be repaid.   

Is it better to buy a starter home early in life or wait until later in life? Why? 

Most financial experts recommend purchasing a starter home early in life to ensure you can get your foot in the market and own a property that increases in value over time. This can allow you to earn a higher profit in the coming years and use the money towards your forever home. Waiting too long to buy a home can cause you to pay more as home values increase over time. 

Whitteker says if your situation is right, it’s never good to delay home ownership.  

“I am strongly in favor of buying a home as soon as you are able,” Whitteker says. “You have to be ready to do this but you will be much farther ahead in life financially as long as you can make the payments.  I can’t stress this enough.” 

Am I able to use my parents as a co-signer on a mortgage? 

Most mortgage lenders will allow you to have a parent co-sign on your mortgage to ensure you're approved for the home loan. FHA and traditional mortgage lenders invite co-signers to use their credit and income to aid you in securing the loan.  

Keep in mind that asking your parents to co-sign on the loan can affect their credit score if you fail to make a mortgage payment on time. Your monthly payment habits will also be reported on their credit report, which means you can't keep your financial information private. 

If you’d like to learn more about how to become a first-time home buyer, contact Principle Home Mortgage, the Pennsylvania mortgage experts in Williamsport at (814) 308-0959.