What to Consider When Purchasing a Home

One of the most important financial decisions that you will ever make revolves around the purchase of a home. You have to consider what type of mortgage you’ll get, and which of these options will help you reach your financial goals. Almost all of us, at some point in our lives, will make the decision to purchase a home. When you make this decision, you must also consider how you will procure a mortgage and what you will need to have your mortgage application be successful.

Obtaining a mortgage can be a difficult process, and because of how important a mortgage is to the rest of your life, it is vital that you know what goes into making this happen.

To start with, it’s a good idea to sit down with a local mortgage broker and decide how much home you can afford based on your current situation. This is an important first step because it can lead you in the right direction when searching for your ideal home. You do not want to fall in love with a home you cannot afford, but you also do not want to look at homes that are below your income level because you may never find one that you like.

Your mortgage broker can give you a pre-qualification letter that will give you an idea of how much home you can afford. You must also begin to think of how much money you can use as a down payment on your home because this will affect every other aspect of your loan process. If you can afford a 20% down payment then things are a lot easier - and you might not be required to purchase mortgage insurance depending on the mortgage type you qualify for. If you cannot, then you have to look into alternative loans and private mortgage insurance that will raise your monthly mortgage payment.

Once you have an understanding of how much you can afford to pay for a house and you have your pre-qualification letter, it is time to start searching for your new home. Pick an area of Williamsport where you most want to live and start looking.

Your best bet is to find a realtor and look at as many houses as you can so that you know what is out there and what fits your needs and wants the most. Decide on how many bedrooms, how many bathrooms, what type of layout you prefer, what type of appliances and fixtures you like, and anything else that makes you like certain homes more than others. This is important because you will begin to get a sense of what is important to you and you can begin searching for those things specifically. The reason this is important when searching for the right mortgage is that you’ll get an idea of how much home you can comfortably afford - an important consideration that should not be overlooked.

Now you have chosen your mortgage company, and you are ready to do the work required to get your mortgage. Your pre-qualification letter was a good start, but now it is time to get down to the real business of procuring a mortgage.

One of the first things your mortgage company will look at is your job history. If you have worked for the same company or at least in the same field for an extended period of time, it shows that you will probably have a consistent future income.

D. Shane Whitteker is the owner and chief broker at Williamsport mortgage company Principle Home Mortgage. He helps his clients through each step of the mortgage process.

“Job history is very important when applying for a mortgage,” Whitteker says. “Lenders look for a two year work history without any significant gaps.”

Your credit report is another tool that a lender will use when assessing financial fitness. Some of the most important aspects of your credit report are if you show a tendency for making payments late, whether or not you have a wide range of credit accounts open and useable, and what type of credit history you can show like rent payments or medical bills. It is important, even months in advance of a home purchase, to make sure these specific reports are checked so that they do not cause a headache down the road.

Whitteker recommends keeping an eye on credit inquiries when you’re thinking of buying a home. Those inquiries can negatively impact your credit score.

“Credit inquiries can be an issue, and car shopping is a common way to have a large number of inquiries in a short period of time that can negatively affect your credit score,” Whitteker says. “This is important for a couple of reasons. First, a lower credit score can cause a higher rate on your mortgage. It is also possible that if your credit is marginal you could actually drop below the required credit score to qualify for the type of mortgage you are trying to obtain. One or two credit inquiries really won’t have a significant impact but it is important to manage this situation.”

Your assets can also play a substantial role in determining the types of mortgages available to you. You’ll need to have enough to cover closing costs and a down payment on the home you’re buying - although according to Whitteker, there are ways to mitigate these expenses.

“There are ways to minimize the out of pocket amount when closing on your mortgage,” Whitteker says. “This needs to be discussed with your mortgage broker to make sure the contract is structured in a manner that will work for you and that you select the type of mortgage that fits your needs.”

Credit depth is something most people have never heard of, although it plays a critical part in what loans you’ll be able to get.

“Your credit depth is impacted by the number of tradelines on your credit report,” Whitteker says. “You can actually lose your credit score if you pay off all of your debt and don’t keep any open tradelines on your credit report.”

Denied at first and in need of a manually underwritten loan? Your credit depth just got even more important.

“This (credit depth) also becomes a significant factor on manually underwritten loans. The guidelines change for manually underwritten loans and credit depth is a much larger factor for this mortgage type,” Whitteker says.

However, Whitteker says an active credit history won’t necessarily be enough to build your credit depth sufficiently.

“Even if you have enough credit activity to generate a score you may not have enough active tradelines to qualify. Banks are typically looking for three tradelines that have been open for 12 months each,” Whitteker says. “These tradelines need to be active or recently active. Of course, discuss this with your mortgage broker to plan properly.”

Renting? Whitteker says it helps to start a paper trail.

“Establish a rental history record by paying your rent by check,” Whitteker says. “Banks are looking for the ability to pay for housing on time for at least 12 months. This rental history can also be used to build credit depth as a form of alternative credit.”

Unpaid medical bills can adversely impact your ability to get a mortgage loan. Whitteker recommends at least making regular payments.

“Pay your medical bills. Insurance typically does not cover your full medical bill - so be sure you’re making regular monthly payments,” Whitteker says. “I know this frustrates many people but there is no point in hurting your credit if you can make some type of monthly payment to work towards paying off the debt.”

Taking some of these small steps can save you thousands of dollars in future interest and mortgage insurance payments. The more you can take care of before starting the mortgage application process, the better your chances of obtaining a positive outcome.

Don’t forget the paperwork. The following is a bullet point checklist to help you know what you will need followed by a brief explanation:

• Pay stubs for the last 30 days of your employment pay

• Previous 2 years of w-2 forms

• Previous 2 years of your federal income tax returns


• Your 2 most recent monthly bank statements


• 2 forms of ID chosen from a list of acceptable ID forms


• A list of personal assets

• Proof that you can pay closing costs and your down payment

With each of the required documents listed above, there are multiple ways to turn those in to your lender. These documents help a lender understand your particular situation and if your financial wellness is compatible with the particular loan.

Whitteker says the bottom line is to be sure you’re not getting in over your head, and that you maximize your opportunities to get the best mortgage possible.

“Don’t take on more debt than is necessary. Being frugal prior to purchasing a home can really make a significant difference in the terms of the mortgage that you qualify for which can save you money in the long term and possibly in the short term,” Whitteker says. “If you don’t know where to start a mortgage broker is a great place to look. We are not allowed to charge for credit advice or credit repair so you get free coaching if the broker is willing to invest the time to help you.”

To learn more about how to get a home mortgage, contact Williamsport mortgage company Principle Home Mortgage.