Buying Your First Home

Aug 30 2021

If you’re considering your first home, you probably have more questions than answers. We’ve got you covered, with tips on everything from credit and closing costs to applying (and qualifying!) for a mortgage.
Buying-Your-First-Home

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Stepping into Homeownership

Between student loans and car payments, the thought of buying your first home might seem daunting. But with the right steps, information, and a strong mortgage partner on your side, it doesn’t have to be.

Once you decide it’s time to buy your first home, there are some steps you can take to get started:

Talk to a mortgage lender

Talk to a mortgage lender

You have questions, and they have the answers. Make an appointment to talk through your situation to find out how your credit looks, discover how much buying power you may already have, or set a plan to help you achieve your goals. Then, keep communication lines open. Sharing information that could affect your loan with your mortgage banker is critical. From changes in marital or job status to travel plans before closing, being upfront from the start will make the process easier.

Build-a-good-credit-picture

Build a good credit picture

Before you apply for a home loan, it’s important to work on building a good credit history. Consistently paying your bills on time is key. Work to pay down any revolving debt (such as credit cards) you might have. Mortgage lenders want to see that bills are paid on time and that credit lines are not maxed out. Your qualification depends on factors like your credit score, assets and debt-to-income ratio. Missing payments, letting credit card balances grow or applying for additional credit can impact your credit score and whether you qualify for a loan. Work to pay down debt and make timely payments to ensure your credit history is at its best.

keep your job

Keep your job

Your income needs to be verified as part of the loan process. Lenders like to see a 2-year work history at the same company, with a consistent schedule. Changing jobs, switching to part-time, becoming self-employed or quitting your job could prevent you from being approved for a loan or closing as expected.

maintain your bank accounts

Maintain your bank accounts

Opening new accounts, closing accounts, changing banks, or making large deposits (outside of your paycheck) can cause headaches during the mortgage process. Keep the accounts you have, and if you have a large deposit, call your mortgage lender to discuss the best way to document it.

Down-payments-dont-make-a-mountain-out-of-a-molehill

Down payments – don’t make a mountain out of a molehill

So often, people looking to buy their first home are intimidated by the idea of saving for a 20% down payment, but in reality, there are many programs available that allow for a down payment of 3% or lower! Your down payment can also come from gift funds that may be given to you by a family member.

think through all the costs

Think through all the costs

There are many benefits to owning a home, including a sense of stability, increased borrowing power and an opportunity to build credit and equity. But you should also be ready for the responsibilities and costs that come with homeownership. Checking the property taxes and finding out if there are association fees for the neighborhoods you are interested in will help give you an idea of additional monthly costs. You will also need to consider the cost of appliances, repairs, maintenance and tools for yard work. Be sure to set some money set aside for the unexpected.

Avoid-large-purchases

Avoid large purchases

It may be tempting to start buying furniture for your new place, but wait until after you move in. And don’t purchase or lease a new vehicle prior to closing, as that will also affect your credit ratios and may prevent you from closing.

 

Your first home might be closer than you think!

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What to Consider When Buying a Starter Home

Just because you might not be able to afford your dream home, doesn’t mean you have to put your dream of homeownership on hold. A starter home, which is typically more affordable but may not have everything you want, can be a great first step toward achieving your homeownership goals.

Consider these 5 factors when buying a starter home:

1. How long you'll be there

Knowing how long you plan to live in your first home can make finding one a little easier. For example, you may be able to live without having much of a yard now, if it means you can take public transit to work and save for your next home.

2. Your future plans

Think about your goals and plans for the next 3 to 5 years. Do you plan to change jobs or start a family? Knowing what your goals are can help determine your budget for your first house, ensure your new home can accommodate the changes you are planning and make sure it is a good fit financially.

3. Location

Finding a home in the right location is important. Think about factors such as how long you want your commute to be, whether you like having access to entertainment, parks or shopping close by and what noise levels you’re comfortable living with. Considering the characteristics of the neighborhood can help you make sure the neighborhood you’re contemplating fits your lifestyle.

4. Building equity

If you’re handy or like do-it-yourself projects, finding a home that has the basics, but needs some updates, can save you money on the initial purchase. Putting a little “sweat equity” into the home by making updates and improvements can help you enjoy the space and build some financial equity.

5. Your financial goals

Federal Home Loan Mortgage Corporation (Freddie Mac) notes that starter homes can help you build wealth through home equity (your home’s worth minus your mortgage), home appreciation (an increase in your home’s value) and possible tax benefits. (Consult a tax adviser for information regarding the deductibility of interest and charges.) When you work with Bell, one thing that sets us apart from other lenders is our mortgage bankers look at your entire financial picture – including your financial goals – to ensure we set you up with the best loan program for you.

 

How a Federal Housing Administration (FHA) Mortgage Works

While first-time homebuyers can (and often do) qualify for conventional loans, FHA loans, can be a great option for people looking to buy their first home who might need a little help qualifying. With an FHA mortgage, the Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development (HUD), insures the loan, so lenders can offer you a competitive deal with:
  

Low down payments

It’s a common misconception that you have to put 20% down on your mortgage. A larger down payment reduces your monthly payments, but if you qualify for an FHA loan, your down payment could be as low as 3.5%. (That money can also come from a family member, employer or charitable organization as a gift, if certain requirements are met.)

Low closing costs

Closing costs – the fees charged when you take out a home loan – vary greatly, and they average between 2 and 5% of the home’s purchase price. On a $200,000 home, that’s roughly $4,000 to $10,000.

But don’t let the numbers scare you.

Down payment assistance programs – available in some markets – can help first-time homebuyers.

You can save thousands on closing costs at Bell Bank Mortgage, which does not charge qualifying applicants an origination fee on most home loans.

You can sometimes negotiate to have the home’s seller pay your closing costs. (You may need to pay full asking price or more than the asking price to make this happen.)

Saving even small amounts of money can really add up over time. (Keep reading to learn how!) 

Easier credit qualifying

If you have a less-than-perfect credit score – and even if you’ve had some credit problems – it may be easier for you to qualify for an FHA loan. And remember, your credit history is not a permanent obstacle.

 

How a federal housing administration works

Qualifying for an FHA Loan

If you’re even thinking about buying a home, the first step you should take is to meet with a mortgage lender! Our friendly, experienced mortgage bankers will talk with you about your goals and can answer questions about how much home you can afford, which housing programs you qualify for, and what your closing costs might be.

When applying for an FHA loan, you will need to show proof of steady income. There may be other qualifications, such as assets and credit worthiness, depending on your situation. When you meet with your mortgage loan officer, they will walk you through everything you need to do to qualify.

FHA loans require borrowers to pay upfront and annual mortgage insurance premiums. Mortgage insurance is included in your monthly mortgage payment, and you can roll the upfront fee into your loan amount. This is not the same thing as homeowners insurance, which covers financial loss to your home and belongings should disaster strike.

(Learn about homeowners insurance coverage options from Bell Insurance here.)

Homeownership Is Possible With Bell Bank Mortgage Program

If you think you might earn too much money to qualify for some assistance programs, but you’re not quite in the position for a traditional loan, a Bell – Moving Forward loan might be just what you need to make your dream of homeownership come true.

Now more than ever, homeownership is possible with Bell Bank Mortgage’s new, unique program, which allows for a minimum credit score of 620 only 1% down.

Disclaimer: 

  • Loan amounts limited to conforming baseline loan limits ($548,250 in 2021)
  • Full manual underwrite
  • Lending markets: Ariz., Fla., Kan., Minn., N.D., N.M., Mo., Tenn., Wis., Colo.
  • Owner-occupied / 1 unit

Ready to Apply for Your Mortgage?

The first step to ultimately getting the keys to your new home is getting pre-approved for your mortgage. In order to apply, you’ll typically need the following information:

  • Residence history for the past 2 years
  • Employer name(s), job title and dates of employment for the past 2 years
  • Current pay stubs covering a full, 30-day period
  • W-2s for the past 2 years (and 1099s and K1s, if applicable)
  • Federal tax returns for the past 2 years – all pages and schedules and business tax returns (25% or more ownership), if self-employed

Once you’ve gathered the necessary documents, choose a trusted mortgage expert near you, then apply online or schedule an in-person appointment to get pre-approved.

After submitting your pre-approval application, your lender will follow-up with a phone call or email as soon as possible. Don’t hesitate to reach out with questions throughout the process.

(Need more information? Read our handy homebuying guide for answers to your top 10 mortgage questions and learn more about how to get a mortgage.)

 

Credit Tips for Success

During the pre-approval process, your full credit report will be pulled. Follow these tips to ensure your credit score and history are in their prime:

  • Make bill and credit card payments on time
  • Avoid applying for additional credit or making any significant purchases on credit
  • Keep your credit card balance below 30 to 50% of the card limit

Two big ways to improve your credit score are paying your bills on time and paying down debt. Set up automatic payments to make sure your bills are paid by their due dates. To help pay down debt, pay more than the minimum balance on higher interest debts, like credit cards. Once you pay off one debt, put the money you had been spending on that bill toward other debts to pay those down even faster.

(Learn about debt differences and what to pay off first here.)

4 Hacks to Help You Save for Closing Costs

Closing costs can seem prohibitive, especially if you’re already burdened with car payments and student loan debt. But that doesn’t have to keep you from owning a home.

These 4 tips can help you save $4,000 or more toward your closing costs in one year:

1. Pay yourself first.

Set up your direct deposit to automatically put a certain amount of money into your savings account with each paycheck. Can you afford $50 a paycheck? That will give you $1,300 in a year if you’re paid every two weeks. How about $100 a paycheck for a savings of $2,600 in a year?

2. Take advantage of programs to help you save, like Bell’s ChangeSaverTM program.

It rounds up every purchase you make and deposits the difference into your savings account. If you round up your purchases by $2, and you make 50 purchases a month, that adds up to savings deposits of $100/month or $1,200/year. Plus, Bell matches 5% of your ChangeSaver roundups, up to $250/year. That means Bell will add $60 to your $1,200 ChangeSaver savings.

The 5% ChangeSaver match will be reported to the IRS on Form 1099INT. You need to be enrolled in ChangeSaver and have your checking and savings account open on the last day of the year to receive your 5% match for the year. If you close either account before the end of the year, matching funds are forfeited.

3. Track what you spend.

If you don’t track your spending or follow a budget, it’s too easy to impulse buy. If you have a budget, are there places where you can cut costs?

  • Save $600 toward your home by forgoing cable for a year (estimating it costs $50/month).
  • Invite friends over for a game night instead of going out. If you spend $100/month going out, you can save $1,200/year.
  • Even lunches at a restaurant once a week can cost you $30-$50/month. And if you treat yourself to one coffee shop beverage a week, that’s around $20/month. Pack your lunches, bring coffee from home, and save yourself $50/month (or more!)

4. Keep your goals visible.

Going out to lunch or a movie can seem a lot more fun than brown bagging it or watching a video at home. But in the end, being able to pay your closing costs and get into a new home is a lot more fulfilling. When you feel deprived at not being able to treat yourself to a latte, it helps to be able to see and touch a tangible representation of your goals.

  • Carry a picture of a house in your purse or wallet to remind yourself why you’re working so hard to save.
  • Hang a goal chart, like a fundraising thermometer, in your home, so you can see and track your progress.
  • There are also free cell phone apps, like Bell’s CardValet®* program, that can help you stick with your budget. With CardValet, you can set spending limits for general use and specify thresholds by merchant types to make sure you don’t go over budget. (Learn how to sign up for CardValet here.)

Following all of these tips, you can save roughly $4,000-$6,000 in just 12 months. It will take dedication, but when you unlock the door to your new home, it will be worth the sacrifice.

* CardValet is a registered trademark of Fiserv, Inc.

Ready to start your journey to homeownership?  Contact a mortgage lender to let us help guide you home.

 

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