When you’re thinking of buying your first home, scrolling through the choices and imagine the possibilities on sites such as Zillow and Realtor.com can be fun, but that’s not really where the process begins. Before we embark on a house hunting adventure online, we need to do a bit of homework. In Part I of our first-time home buying series, Paul Arvay, Vice President and Mortgage Consultant in Dunmore, and Michael Coury, Assistant Vice President & Mortgage Consultant in Kingston, give us our assignments, and walk us through the exciting world of first-time home buying — from start to finish. Let’s go!
How to Know When You’re Ready
You’re ready to make the transition from living with your parents or renting an apartment to home owner when you’ve been managing your credit, building a rainy day savings fund, and you’ve weighed all the pros and cons of your options. You’re likely a good candidate for home ownership if you have:
Conducting a financial review is the first step in preparing to meet your mortgage consultant. Our experts suggest starting with your credit report.
Good credit is key.
“As the mortgage environment changes, credit is such an important factor,” Michael said. “That’s the first thing you need to review.”
Fidelity Bank follows Fannie Mae criteria when it comes to credit ratings. For example, a score of 740 or above is rated excellent on the Fannie Mae scale. Those with an excellent credit rating will pay the least amount in fees and get the best rate available on their loan. That score is vital when it comes to closing costs and rate, and that equates to affordability. That’s why managing your credit is so important. A good credit score is sufficient. An excellent score is, of course, even better.
There are plenty of secure, online options to run your credit report without affecting your score. Paul suggests visiting annualcreditreport.com. You may receive 1 free credit report per year from the 3 major credit bureaus — Experian, Trans Union, Equifax. Full disclosure: while running a credit report may be free, there could be fees associated with obtaining your credit score with some agencies. Those fees are typically between $9 and $40.
Save for the first year of home ownership, not just the purchase.
When it comes to saving, it’s best to reserve enough for the purchase (including the down payment and closing costs) plus the unexpected things that can arise during the first year of home ownership. If a repair comes up (and inevitably it will), you want to be ready for that expense.
Prepare a budget.
It’s critical to know how much you can comfortably afford to spend on a monthly mortgage payment so you can still do the things you enjoy in your free time, and continue to build your rainy day fund. This is where your budget factors into the process. You’ll want to share your budget with your mortgage consultant so you’re prepared to discuss how much house you can afford.
Ponder. Ponder again. Then, ponder a bit more.
We’re not suggesting you overthink it, but buying a home is not something to enter into lightly. Our experts advise that you take your time in making the decision — this is no time to be impulsive. “You have to remember, this will be the biggest financial risk that you’ll be taking in your life,” Paul said. “Like anything, you have to weigh the pros and cons within a situation, and you have to live within your means.”
Michael reminds us to think ahead: a home that may work well for you today may not be adequate in the future, especially if you’re planning to start a family.
While these reminders are worth mentioning, Paul and Michael said many of their first-time homebuyers already received that memo. They’re doing their research before they visit Fidelity Bank. “They’re coming in very well prepared,” Michael said. “They’ve saved their money. They know what to look for in a property. They’re considering whether or not they’re planning a family. I‘ve seen a lot of ready borrowers lately, which is great.”
Finding a Lender
Many financial institutions offer similar programs (we’ll talk about specific financing programs, including grants, in an upcoming post). However, the experience can vary among lenders, depending on the size of the lending institution and their process for underwriting loans.
If personalized service with professionals who specialize in mortgage lending and service the loans locally is important to you, it’s worth exploring a community bank such as Fidelity.
“If I have questions, I want a point of contact person,” Paul said. “I only shop at specific places because if I have a question, I want an answer directly from someone I know. The last thing I want to do is call an 800 number and press 1 for English, 2 for Spanish, wait 15 minutes and then speak to someone who tells me I have the wrong department and puts me on hold. With Fidelity, from the time of application until you pay off your loan, you can call us with questions directly.”
Another point to consider: when a community bank is your lender, you’re working with your neighbors. “Our board of directors, executives, and our president, all live within the area,” Paul said. “Also, all of the underwriting is done in Dunmore and Scranton.” It’s a much more efficient way to process loans because the information does not undergo a cumbersome path out of state, or out of the country.
Community bankers are invested in their customers’ future. “At the end of the day, I want to feel I helped people buy the home of their dreams, and when I see them out at a restaurant, I want to have a nice experience and know that I served them well,” Michael said. “And I hope they refer their family and friends to me. That’s how I do business.”
Ask questions. Find out if your lender is going to be accessible to you throughout the life of your loan, and make sure their style matches your needs. It may add a little bit of extra time to your homework assignment, but it will be worth it in the end.
Once you choose your lender, your mortgage consultant will walk you through the pre-approval process. Most realtors require a pre-qualification letter from your lender detailing how much you are approved to spend before they begin showing you houses. There are several ways to apply for pre-approval at Fidelity, including online, email, or via phone or personal meeting.
The My Mortgage App is a popular way to apply for a mortgage loan online. The process is quick and easy, and it allows you and your mortgage consultant to determine how much your monthly payments should be, and what you can expect in closing costs.
What you’ll need:
During the pre-qualification process, you’ll need some basic information (name, date of birth, employment history, salary, etc…) and details about your finances. Be prepared to share information about your assets. This includes funds in your checking, savings, money market accounts, and gifts from family members. This information is relevant because you can’t borrow money for your down payment or closing costs, so you have to show your lender proof that you have the funding in place.
Save money. Save documents.
When you start to think about buying a home, start saving money and a few key documents:
Once you’re pre-qualified, you know how much your lender will approve as a loan amount, and then it’s up to you to decide how much you want to spend. Our experts advise you to consider this carefully. You may be approved to spend $250,000 on a home, but if you’re not comfortable borrowing that much, explore homes well under that price range. It’s important that you feel the monthly payments will be manageable.
“You want to be able to enjoy pizza on Friday night, and you want to be able to do what you normally do for fun. You want to have a life,” Michael said. “Just buy what’s comfortable for you. That goes back to buyer readiness.”
Buying a home is exciting, and it’s a process. “Remember, this is a marathon, and not a sprint,” Paul said. Fortunately, there are great coaches out there, ready to see you through to the finish line, new keys in hand.
Ready to Explore Home Ownership?
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.