(December 5, 2019)

There are a few important steps to mark off on a “First Time Home Buyer Checklist” before making that first big home investment. Although each step may take some time to achieve, some steps may not require much time at all depending on the financial and credit situation of the buyer(s). Please note the following checklist items with further discussions of each item in more detail below: gathering down payment funds, obtain and understand credit score(s), understand mortgage rates and terms (both fixed-and adjustable-rate), obtain area property tax estimates, what direction are interest rates moving, and understand and obtain closing cost estimates. Start by reading through each of the steps below and discuss any outstanding questions, as well as mortgage options available to you, with one of the mortgage professionals at DuTrac. A little effort and gathering of information beforehand will ensure an easier first time home buying experience.

Start by gathering a down payment

First-time homebuyers will want to begin this first step in the home buying experience by gaining an understanding of their personal financial situation. Once comfortable in understanding their financial situation, future home buyers can better assess where and how to begin gathering the funds for a down payment. A down payment is a minimum cash amount collected by the home buyers later paid to the credit union at the time of closing. The down payment is applied against the amount due or netted against the loan proceeds issued by the lender. A mortgage loan is the most common lending instrument issued by lenders to secure assets for funds borrowed by consumers to fund home purchases. Closing is the last step in the home buying process when all parties to the mortgage being issued sign and accept the issuance of the debt incurred (the mortgage loan) for the home purchase.

Buying a home (particularly for the first time) usually requires a lender to issue a mortgage loan to the home buyer especially to those home buyers who may not have cash or convertible assets to pay the purchase price of the home outright. Mortgage lenders often require a down payment to be made by the consumer before the mortgage is settled. A down payment is considered “skin in the game” by a mortgage lender and builds confidence in the borrower that the mortgage terms will be met barring any unforeseen circumstances.

During 2019, a typical mortgage down payment was as little as 3% of the home purchase price. Further, veterans or the home buyer making a home purchase in certain rural areas may be exempt or incur reduced down payment percentages associated with a mortgage. If this discussion on personal finance and mortgages has left unanswered questions in your mind, please stop by and visit, or call, one of DuTrac’s mortgage loan consultants. As mortgage experts, they can help with gaining a better understanding of personal finances and walk through many of the terms found in this brief guide. Finally, if comfortable with your personal finances, you may want to consider using DuTrac’s Mortgage Qualifier calculator. This calculator steps you through the process of determining future home payments, maximum amounts to consider for borrowing and other helpful information.

Check your credit score

During the journey to understanding your personal finances, the topic of good or bad credit will come to the surface as well as understanding the value derived from having and maintaining good credit. In addition to a down payment, a first-time home buyer will want to achieve and maintain a good credit score before making a mortgage application as a home buyers credit score will influence the interest rate offered on a mortgage. Stated as a three-digit number ranging anywhere between 280 and 990, a credit score is a numerical summary of your credit history. Lenders will check a home buyer’s credit score and evaluate future risk potential in association with the terms and conditions of the offered mortgage. based on the home buyers credit report and the credit history contained therein.

View DuTrac’s online financial resources to learn how to receive a free copy of your credit report every 12 months from each of the big three national credit reporting companies.

Another primary factor affecting the rate on a mortgage loan is the prevailing market interest rate. Interest is the expense paid by borrowers to fund a loan through a lender. Interest rates offered may vary depending on the type of mortgage the home buyer has selected, the geographical location of the home, the underlying financial strength of the market etc.

A fixed-rate mortgage has a fixed rate of interest over the life of the home buyers’ mortgage loan. A variable-rate mortgage has a rate that may or may not change over time depending upon the index, factor or other determinant the rate on the home buyers’ mortgage loan is based. Interest rates fluctuate at any given time and are driven by the supply and demands of the marketplace. Understanding the direction interest rates may be moving, may influence when and how much home is purchased.

Get pre-approved for a mortgage

Each mortgage lender will review your financial background—such as your debt-to-income ratio and net worth – and calculate the impact future mortgage loan payments may have on the borrower and their overall ability to meet future mortgage, and life, payment obligations within the terms laid out within the mortgage agreement. Let this information guide home buyers in evaluating what amount monthly payments may be and what payment amount a home buyer may realistically afford. This will help in targeting personally affordable homes within a select price range.

Make a list of “needs” for your first home and seek advice from trusted sources in securing a realtor.

Knowing what is needed in a first home versus what may be “wanted” is an important assessment to be made by first time home buyers. It is the first step to finding the perfect home. Write down a personal “top three must-haves” for a future home. This list will help a realtor evaluate what properties to present for showing as well as limit the length of time and distance of your home search.

Go shop for a home!

This is the fun part! As a home buyer, there are literally thousands of real estate listings to peruse on-line. When you have selected those homes meeting those “must have” specific needs and price range, ask your realtor for suggestions and recommendations in order to narrow down your selection. . Your realtor’s guidance is typically given at no charge until you decide to purchase. At which time, the agent will take a commission for their service, usually calculated as a percentage of the purchase price which is typically paid by the seller – but not always.

Make an offer and begin your home ownership

The loan process begins once an offer is put in and accepted by the buyer on a property, The buyer’s offer to purchase usually outlined in a buyer’s contract and guided by state and local laws, will often require the buyer to present earnest money. Earnest money is paid by the buying party to hold or secure a good faith purchase offer. Once the offer has been accepted by the seller(s), future homebuyers will want to contact DuTrac and make an appointment with their mortgage loan consultant to formally complete a mortgage application.

DuTrac will provide a checklist of documents and information required to assist in the underwriting of your mortgage application – and will be there each step of the way to guide you through the mortgage application process, answer any questions and discuss requested documentation needs for the mortgage application.

The documents being asked for will provide proof of the home buyers’ income and assets in addition to proof of completion of any agreed upon inspections, appraisals, property insurance etc. Once all requested documents are submitted to DuTrac, the initial mortgage loan documents are ready to be signed.

Once signed, these initial mortgage loan documents will be sent to an underwriter. The underwriter will review the application as well as the supporting documentation. If all items are in order, the underwriter will approve the mortgage application. Once the title work has been received and the loan underwriting is approved the closing can be scheduled and…

Congratulations!! Enjoy your new home.

“Purchasing a home is a big commitment…DuTrac will guide you through the home buying process. With DuTrac’s array of mortgage products and services, we have lending options that will meet all your real estate needs.” Greg Hill, mortgage manager.

Schedule a no-cost DuTrac Mortgage consultation by contacting DuTrac’s real estate lending team today by email at realestate@DuTrac.org, in person at any of DuTrac’s convenient locations or by phone at (563) 582.1331 or (800) 475.1331.