So, you’re ready to begin buying your first home! It’s an exciting time. To make sure the process goes as smoothly as possible, it helps to refer to a first-time home buyer checklist. This way, you know exactly what you need to be doing at each step along the home buying process.

We’ve prepared a list of considerations so that you can be confident as you begin your journey as a first-time home buyer.

1. Know your numbers

The first step to buying your first home is knowing your numbers. These include:

• Your income
• Your housing budget
• Your credit score
• Your savings balance

The combination of these numbers will all affect how much home you can afford.

Your income will dictate how much money you can afford to set aside each month for your housing payment -- experts recommend no more than 25-40% of your income goes to housing. For someone who earns $5,000 per month, for example, $1,250 to $1,750 would be a starting point for your housing budget. Use our mortgage qualification calculator to help estimate your payments and get a sense of how much you could qualify for.

• Lenders assess several factors when determining the amount of your mortgage loan including your total debt-to-income (DTI) ratio.
  • Your DTI measures how much income you have available to put toward a mortgage after paying existing debt.
  • Usually, lenders look for a DTI of up to 45 percent, but a larger down payment or stronger credit can help offset risk if your DTI is above 45.
• Confirm that your estimated payments are reasonable for your risk tolerance.

And remember that your housing budget should not only take into consideration your potential mortgage payment each month, but also insurance, taxes, and home maintenance costs.

Your credit score will affect the interest rates you will be able to secure, so you should know what your credit score is. The higher your score, the better the rates -- since lenders will see you as an attractive loan customer.

Finally, your savings. How much do you have saved so far? How much are you able to  put down for a down payment, as that will affect how much you need to borrow (and eventually pay interest on), so it helps to know how much you can afford to put down.

• Remember that most lenders will accept a down payment (and closing costs) that is  a financial gift or an inheritance.  If you have strong credit and consistent income to repay a mortgage, but lack robust savings, friends or family might be able to help. 

2. Pre-qualify for your mortgage

To speed up the process, it helps to pre-qualify for your mortgage. Consumers can help with this.

Pre-qualifying means you have the basic requirements necessary to get a loan -- it doesn’t mean you WILL get the loan. When you prequalify, a lender is taking the first steps toward verifying that you are a worthy borrower for a home loan.

There is also mortgage pre-approval, which is a similar concept taken one step further. In a pre-approval, the bank runs your credit report to get a better idea of how much you can afford to borrow.

During the pre-approval process, lenders will provide an estimated interest rate on your mortgage loan. Rates reflect several factors, including:

• The Loan-to-Value (LTV) ratio that measures how much a borrower will owe as a percentage of the appraised value or purchase price of the loan. For example, if you want to purchase a $100,000 home with a down payment of $10,000, you’ll need to borrow $90,000. Your LTV would be 90 percent ($90,000/$100,000). If you are able to contribute an additional $5,000 toward the purchase, your LTV goes down to 85 percent.  A lower LTV typically helps you get a lower interest rate.
• The purpose and type of home you’re buying also has an impact on your rate. Rates may vary if your real estate purchase is for your primary residence, a second home, or an investment property.  Similarly, rates may change if you’re purchasing a townhome, condominium, manufactured home, or traditional “stick-built” structure.
• The loan amount may also have an impact on the rate, especially if it’s considered a “jumbo” loan (currently set at $647,200 or greater).

Remember to ask your lender about whether quoted terms include mortgage (or discount) points, a financial tactic that lets you pay more money upfront to reduce your rate, and therefore, the monthly payment.  

• A ‘point’ = 1 percent of your mortgage loan value and typically reduces your interest rate by 0.25 percent. If you plan to borrow $100,000 at an interest rate of 3.5 percent, a point would be $1,000. 
• By paying an additional $1,000 at closing, you’d reduce your interest rate to 3.25 percent, lowering your monthly payment and saving money over the term of your mortgage. 
• Paying points can be a useful tactic in reducing your overall financing costs, especially if you plan to remain in the home for at least 5 years.

Getting this information from your lender ahead of time helps you narrow down your price range as well as get a head start on the loan process. Plus, it shows both the bank and the home seller that you are serious about buying a home.

3. Check out the available loan programs

So many first-time home buyers leave a lot of money on the table because they don’t consider the available loan programs. These programs are designed to help people buying a home for the first time, and there are many different options available, including several government programs.

Some federal loan programs include:

• FHA (Federal Housing Administration) Loans
• VA (Veterans Affairs) Loans
• USDA (U.S. Department of Agriculture) Loans

These loans have very low (or no) down payment requirements and offer great interest rates. Plus, you don’t have to be low-income, or a veteran (unless it’s a VA loan, of course), or a farmer to take advantage of them -- these programs are designed to help consumers become homeowners! So be sure to ask your bank whether you qualify for any of these programs.

There are also many different types of down payment assistance programs that can help you in your home purchase. These programs are available at the state and local level, and they are intended to help you afford your home purchase.

Finally, you may also be able to take advantage of programs aimed at people with certain types of jobs, such as teachers and police officers, so be sure to explore all the avenues available to you based on your situation.

Contact your Consumers National Bank for help learning about all the available options.

4. Hire a professional real estate agent

With your target price range in mind, it’s time to hire a real estate professional who can help you find the right home. These experts know the market inside and out and have access to insider information about new homes for sale - more than what an average person can find on the internet. A good real estate agent is your secret weapon when it comes to finding quality homes, knowing the local market pricing, and navigating the home buying process.

Not all agents are created equal. Get referrals from friends and family for the agents they know and trust. Also consider searching out an agent who specializes in your particular area, home preference, or price range. Your Consumers National Bank mortgage officer may also be able to suggest an agent to you.

5. Make the offer!

This is the part where your heart will pound. Once you have found a home that ticks all of your boxes, it’s time to make the offer. Your real estate agent will help you draft a purchase offer that spells out your offer price as well as any other considerations, such as contingencies.

In a hot seller’s market, you may have to offer more than the asking price - so be prepared. In cooler markets, offer what you think is fair, keeping in mind that a price too low may offend the seller and sweep your offer right off the table.

Waiting to hear if your offer is accepted -- or is countered by a new offer -- can be nerve-wracking, but it’s all part of the process to get you closer to your new home.

6. Complete the mortgage loan application process

When your real estate agent has executed a purchase agreement on your selected home, it’s time to complete your loan application.  Here’s the documentation you’ll need:

• Your 3 most recent pay stubs
• All pages from your last 2 bank statements
• Federal Tax returns for the most recent 2 years including W2s, 1099s, and all filed schedules
• If you’re self-employed, you’ll need to include a year-to-date profit and loss statement as well as 3 months of bank statements for your business account(s) 

Having all your financial records together will help with the lending process. 

7. Prepare for closing

When you have an offer accepted and your loan approved, you’ll have several new tasks to manage or complete, including:

• Reviewing the home appraisal
• Completing an inspection
• Finalizing formal loan paperwork
• Securing homeowner’s insurance
• Confirming the title search
• Taking a final walkthrough
• Paying the down payment
• Paying closing costs and fees
• Signing closing documents

Some of these tasks will be completed by a Title Agency that will most likely be recommended by your mortgage lender.

You will likely need to have the home inspected and appraised in order to get a loan for the purchase price, plus make sure any other reports are completed, such as pest and radon inspections. You will complete the final, formal loan paperwork, make sure the property has a clean title, and secure homeowner’s insurance for your new place.

The day before closing, you’ll do a final walkthrough of the property to make sure everything is as it should be. Then, about 30-45 days after your offer was accepted, it’s time for closing. This is the day where you finalize all paperwork, making sure all the i’s are dotted and t’s are crossed. You’ll sign a whole stack of documents, pay your closing costs and fees, and finally receive the keys to your new home.

Count on Consumers

Buying a home for the first time can feel overwhelming. But you don’t have to go it alone. Get in touch with our mortgage loan department at Consumers National Bank, and we’ll walk you through the whole process. Our mortgage lending team are experts at the home buying process, and we’re happy to help you on your journey. Contact us today and let’s do this together!