Many first time homebuyers feel excited to purchase their first home, but do not know where to start. They ask questions like ‘What is the first step? Who do I talk to first? How much money do I need to have?’ Well, dear renter, we are here to answer your questions. For those looking in the near future to buy for the first time, here are three simple steps to get start on the home buying process.

Jon Lucas is a mortgage adviser at Ikon Mortgage in Dallas, Tex. He is passionate about educating people – especially first-time buyers – on what to expect and how to be prepared in the home buying process. The key is to be ahead of the game and there are many ways you can be on top of the process.

“Organization, Promptness, and Communication are critical,” Lucas said. “That’s on all levels – the loan officer, the borrower, the real estate agent, the title company. If we’re all coming into with this mindset, then we’ll really get things done.”

1. Saving Money

Not only should you be doing this on a regular basis anyways, if you’re looking to a buy a house in the near future, you need to have money set aside for the down payment. The way you move and handle your money will also be inspected when you’re trying to buy a home, Lucas said. He added that you want to create a good history of income, be a good record keeper, and have your tax returns, W2s, bank statements, and paystubs handy.

“These are all things that you will have to provide upfront,” Lucas said. “So keep them accessible. With the finances, don’t move your money around. We need the money that’s in your bank account. Keep the same bank. Keep it consistent and don’t move it from account to account. This will also help with the speed of the process.”

He also mentioned that it’s important to keep a good record of anything you sell. That sofa you sold on Craigslist for $500, keep a record. The old vehicle you sold to your friend for $2,000, keep a record of it. The lender will need proof of where that money came from. Be honest with your money, Lucas said.

2. Work on Your Credit

The first way to improve your credit score is by paying your bills on time. Lucas said even if you cannot pay the full amount of your bill upfront, always pay something and call to the creditor to work out a payment schedule. Don’t ever let any of your payments become delinquent!

“There is a somewhat of a hierarchy of how underwriters view types of credit,” Lucas added. “First on top, is mortgage. If you’re not making mortgage payments and you’re trying to get another mortgage or if you have missed payments within the previous 12 months, you are most likely not going to be able to get another mortgage right now.”

Second most important, he said, is car payments or other installment loans.

“If you have fallen into an economic hardship and absolutely must choose between paying your credit card or your car payment, pay your car payment and contact your credit card company, they are more willing to work with you than most people expect” Lucas said. “Car or Installment loans have more weight on your credit score and greatly affect approval odds for a home loan.”

Finally, your revolving credit cards are in third place because they hold the least amount weight. However, they still show how financially responsible you are and should be paid on time monthly. Even though they are ranked third, expect your credit card history to be critically examined during the qualification process.

“Don’t ever close credit cards!” he said. “Leave them open because that’s going to leave you more available credit, which lowers your overall debt ratio.”

Of course, the best way to handle credit cards is to keep the balances low, ideally under 10 percent. You want to keep as many lines of credit open as possible, Lucas added, while being responsible. It does not hurt your credit score to have multiple cards. The more that you can prove you’re a responsible money-manager, the more it’s going to help improve your score. However, once you start hitting the 40-50 percent bracket for expenses on your credit card, you will see a dramatic decrease in your score.

Finally, be sure to not make any big purchases and don’t run your credit a bunch of times in search of new lines of credit. You will have to explain each inquiry on your credit report. Lucas suggests using a consumer report source, such as Credit Karma to monitor your credit. However, he advised that Credit Karma is not a substitute or as accurate as a financial institution credit report. It’s best used to keep an eye on score to see if it is moving up or down, as well as, monitor your accounts.

3. Employment

“Steady employment is huge,” Lucas said. “Don’t quit your job or move to a new one… we like to see consistency. This is what it’s all about. If we’re basing it off a 30-year loan, we need to ask ‘Is this person consistent?’”

Of course, every person and every situation is different and Lucas understands this.

“If you work in the same line of business, but move to a different company in the same industry to make more money, who wouldn’t do that?” He said. “If you change industries, become self-employed or start commission-based salary, you’ll have to wait 2 years until we can use that work history.  First job out of college is different, though. if you’ve been to your first job for a year or a year and half, that’s fine. We can use your college as previous work history, or Military service.”

If there are dramatic increases in pay between your two jobs – for example, jumping from $30,000/year to $150,000/year – Lucas said that may or may not be used in the home-buying process. When you have those kind of big increases, they need to see that it’s permanent. Additionally, if you are self-employed, the Underwriter needs to see a consistent two years of income.

“The biggest issue we see with self-employed borrowers is when they say, ‘I make $100,000’ but they write off $80,000. I have to use the remaining $20,000 as their income,” Lucas said. “If your business isn’t profitable or you are too generous with write-offs it will be difficult to qualify for a home, so keep that in mind when doing your taxes. This is where honesty and transparency comes into play. Your money has to be in the system to get a house.”

And finally, Lucas added that if you have good employment and good credit, but coming up with a down payment is difficult to buy your house, you can use money gifted to you by a relative (not a best friend). They’ll just have to take a look at the gifter’s bank account as well.

“We use gift funds a lot, especially for first time homebuyers,” Lucas said.

Final Thoughts

All of these basic steps are intertwined on many different levels and one step is not more important than the other.

“You could be in the same job for 20 years but if you don’t have money for down payment and closing costs, then you’re not going to get a loan,” Lucas mentioned.

He recommends using the Three C’s of Credit as a guide for preparing and sustaining home ownership.

  1. Character – Willingness to repay
  2. Capacity – Ability to repay
  3. Capital – Collateral used to repay if primary source of income is lost

Also, be sure to have realistic expectations of what you’ll find for a home. Many people, Lucas said, try for too much and push their limit, when they should really take a step back and get something that’s comfortable, affordable, and will not put them in a potential financial burden. It is crucial to get pre-qualified before you start looking at houses.

The bottom line is this: save money, work on your credit score, keep a consistent job, stay in communication with your lender, be realistic, and have fun!

 

Questions? Comments? Reach out to your First International Title rep today!

Selecting a Realtor for the sale or purchase of your home is a big decision. Just because someone passed the real estate exam does not mean they are a good fit for your transaction. With so many to choose from, which one is right for you?

First and foremost, look up your prospective agent’s license. How long have they been in business? Have there been any disciplinary actions or complaints? This information may be posted online and will be beneficial to making an educated decision.

Check out the agent’s reviews online. Are past clients happy with their service? Or was it a complete nightmare? Obviously, you want to know what you are getting yourself into.

Choosing the most successful Realtor means you are choosing the busiest Realtor. While this is not necessarily a bad thing, if you are a first time home buyer you may want to choose someone who can take extra time to guide you along the way. Although experience and success are important factors, motivation and determination are vital characteristics of a skilled agent.

Make sure you research the Realtor’s marketing efforts. This is huge. Do they hire professional photographers to take enticing pictures of your home? Do their home descriptions make you want to view that house? Are they highly active on social media? These are all very important marketing questions that need to be answered before you choose the right agent. Proper marketing ensures a faster sale of your home.

Last but certainly not least, choose a Realtor whom you are comfortable with. This will make it easier to voice any concerns you may have. After all, communication is key. If you have to wait a while for a call or text back for basic information, chances are they won’t be available when something important happens.

Only you can determine which Realtor is the right fit for the job. Take your time and interview a few agents. Real estate is kind of like love; when you know you know.

Congratulations! After negotiation and maybe a few tears, your offer was finally accepted on your perfect home. Before you pop that bottle of champagne, make sure you follow these next steps. After all, the battle is only half over.

The first critical step to securing that dream home is depositing your escrow. You must deliver the earnest money deposit to the title company in the format and timeline agreed upon in your sales contract. Don’t be late! You do not want to be in breach of contract and risk cancellation.

The second important step is to schedule the property inspection. You want to choose a reputable inspector that will do the inspection as soon as possible to assess the home and determine if any repairs are needed. You may need multiple types of inspectors so be sure to discuss the options with your Realtor.

Next, be proactive and let your lender know you are under contract. Make sure you give them all their requested information on time. You do not want to delay and slow the closing process down or risk contract cancellation.

Once you receive the title commitment from your title company, be sure to review it and ask any questions immediately. The title commitment will provide you with the title history of the home and disclose any liens against the property. If there are liens, they will need to be resolved before closing.

The fifth step is to order the appraisal. This should be done after you have completed the inspection and resolved any issues. Your lender will do this for you to ensure that your new home is worth the loan amount that you are requesting. Buyers are typically required to pay for this, and the cost will appear on the closing disclosure as part of your closing costs.

Following the appraisal, you will need to shop around for the home owner’s insurance policy. This step is required by your lender. Research your options and choose the one that best suits your needs. Once you have selected the provider, make sure to inform your Realtor, lender, and Title Company.

The hardest parts are now finished! Your next move is to schedule the utilities to be transferred into your name and turned on before closing. The sellers will likely provide you with the utility contact information. Now it’s time to schedule the closing! Your sales contract will have an agreed upon closing date. Communicate with your Realtor and schedule the appropriate closing time with your title company. The day prior to the closing, you will need to contact the title company to verify any monetary amount needed from you to close. Most title companies require a wire transfer. Your last action before closing is to complete the final walkthrough. You want to make sure that all repairs have been made and personal belongings have been moved out.

You’ve completed your required steps; it’s finally time to close! Be sure to bring a state issued identification card such as a driver’s license or passport to the closing. All that is left to do is sign the closing documents and wait for the lender to fund the transaction. Once the deal has been funded, the house is officially yours! The process can be emotionally and physically draining but if you follow the steps above, your closing should go off without a hitch. Now is the time to pop that bottle of champagne and move into your new home!