First time homebuyers: make a list and check it twice!
In Part I of our series on first time home buying, Paul Arvay, Vice President and Mortgage Consultant in Dunmore, and Michael Coury, Assistant Vice President & Mortgage Consultant in Kingston, gave us insight into who is a good candidate for home ownership, and how we can get started. (If you missed Part I of our series, click here to catch up). This week, our experts discuss grants and programs available to first-time homebuyers, and they’ve created a checklist that every first-time homebuyer needs.
Grants & Programs
When it comes to financing your first home, you have options, from traditional mortgage loans to a variety of grants and programs. Fidelity Bank offers standard mortgage products with minimum requirements based on a sliding scale of your credit score. “With a good credit score, we can do a conventional loan with as little as 3% down,” Michael said. “We’re going to look at how you manage your debt. Income to debt ratios play a major role in the mortgage approval process.”
With a conventional mortgage, there will also be closing costs and down payments. On average, closing costs could equal 7% to 8% of the purchase price and a down payment of about 3% of the purchase price. “If borrowers don’t have the money saved right now, there are many options for down payment assistance,” Michael said. “There are grants and products through the Federal Home Loan Bank, and some local cities, such as Wilkes-Barre and Scranton, offer incentive programs to first-time homebuyers, too."
Talk to your mortgage consultant about programs available in your city. In Scranton, The Office of Economic and Community Development (OECD) administers the city’s First-Time Homebuyer Program to assist eligible homebuyers with low interest loans for down payment and closing costs. In Luzerne County, the Luzerne County Growing Homeowners Initiative offers similar programs.
Additional grants and programs for first-time homebuyers include:
- First Time Homebuyer Program — This program is designed to assist eligible first-time homebuyers in northeastern Pennsylvania with down payments and closing costs.
- Federal Housing Administration (FHA) Program — Eligible first-time homebuyers with a modest amount of savings for their down payment may qualify for this loan insured by the Federal Housing Administration.
- First Front Door Program — The Federal Home Loan Bank offers this program to assist qualified, low-income, first-time homebuyers with a matching grant up to $5,000 for down payments and closing costs.
- Veterans Administration (VA) Loan — First-time homebuyers who are veterans, reservists, active duty personnel, or family members of veterans, may qualify for this program in which the down payment is waived and mortgage insurance is not required.
- United State Department of Agriculture (USDA) Loan — Eligible buyers in designated rural areas may qualify for a USDA loan providing 100% property financing.
You may qualify for one or more of these programs, so it’s important to discuss these options with your mortgage consultant.
First-time homebuyers’ checklist: 7 steps to success!
Now that you’ve done your homework, and you’re in the right headspace to enter the exciting world of home ownership, it’s the perfect time to review our first-time homebuyers’ checklist:
- Creating an accurate budget is key to success in the home buying process. Bring your budget to your first meeting with your mortgage consultant so you can determine how much you can afford to spend on monthly payments, and still maintain a comfortable lifestyle.
- Credit Score. Research your credit report so you have a sense of what your score is prior to meeting with your mortgage consultant. There are plenty of online options to do this research. Just keep in mind that your lender may pull a credit report that is a bit more in depth than what you might access on your own, so there could be a slight discrepancy between your results and your lender’s results.
- Tap into your inner pack rat for just a brief period of time if you’re considering buying a home because you’ll need documentation for your lender, such as:
- Pay stubs (from the most recent 2-3 pay periods)
- Tax returns from the last 2 years (if you are self-employed)
- Bank statements from the last 2 months
- 401K statement (if you plan to borrow from that account)
- Bank statement from family members providing gifts for your purchase. (For example, if your mom is going to help you finance your first home, you’ll need to provide bank statements showing funds being withdrawn from her account and deposited into your account).
- Research banks, realtors, and inspectors. Take your time and do your homework on lenders, realtors, and inspectors so you can assemble a team of qualified professionals specializing in their areas of expertise.
- Get pre-qualified. The pre-qualification process is critical because you will likely need to provide a pre-qualification letter to your realtor before you can tour homes on the market.
- Make sure your bank account matches your gameplan. If you plan to put 5% down on your first home, make sure you actually have those funds in your bank account. Follow the same rule for closing costs.
- Rainy day savings. It’s important to plan for the unexpected, whether that should come in the form of home repair, medical expense, job loss, etc... Whether you reserve enough to cover 3,6, or 12 months of living expenses, continue to build that rainy day fund. It will be well worth it should life through you a curveball.
Words of wisdom from mortgage consultants who know
- No large purchases before closing. We’ve covered a lot of ground in this article, but stay with us for just a few more minutes because this is important: If you’re itching to buy that new car or boat, or you feel an overwhelming urge to go on a spending spree in your favorite home improvement store, please don’t!
At least, don’t do it until after your closing.
Michael explains. “As a lender, two days before closing, we run a soft credit check. If we see a large purchase like a car or a boat, or 20 gallons of paint was charged to a credit card because you want to paint your new house, that could lower your credit score,” he said. “Please, don’t go shopping. Don’t quit your job. Keep your expenses in line with the way they’ve been for now, and just wait until after you have the closing.”
- “Better to not trip over the dollars to save the pennies.” This is Paul’s rule, and it’s a good one for anyone in the market for a new home. It’s particularly relevant when it comes to home inspection. You may be tempted to skip a home inspection before closing because your lender may not require it. Be careful. Our experts agree a home inspection is well worth the investment of a few hundred dollars to ensure the property doesn’t have major issues that could cost you large amounts of money in the future.
You’ll want to work with an inspector who has a state license. Ask your lender or your realtor for a list of professionals in your area. “There are a lot of good inspectors out there who are trustworthy and will really turn everything upside down,” Michael said. “You’ll pay for it, but the peace of mind you’ll have is worth it. Just plan.”
- Don’t be shy. Ask lots of questions. Make a list of everything you want to know about the property you’re buying, and share it with your inspector. How old is the roof? How old is the furnace? When was the water heater last replaced? Your inspector will check everything, and alert you to any concerns prior to the sale.
Ready to Explore Home Ownership?
Visit our Mortgage Center online or call or visit one of our local branch offices throughout Lackawanna and Luzerne counties today.
Daniel J. Santaniello, President and CEO, of Fidelity Bank, publishes Financially Fit with Fidelity, your guide to financial well-being, every Thursday. If you’re interested in a financial topic we haven’t yet covered or want to subscribe to our emails, please feel free to drop us a line at blog at fddbank dot com. We would love to hear from you.