As the next generation of first time home buyers begin to venture forth into the market there are generally a plethora of questions that accompany them. In this article I will attempt to answer the most common place questions and hopefully give you the peace of mind to move forward with confidence in your home buying decision.
One of the most intimidating steps for first time home buyers is getting prequalified, however, I would not entertain the idea of shopping for a new home until you do so. It can be a devastating blow to find your perfect home and then realize you’re not qualified for it.
A credit score is a major focus on getting prequalified. In most cases there is a minimum requirement of 620 or higher. There are a few exceptions for government loan programs. You will also need to have at least 3 accounts that are verifiable, typically this is done through a credit report.
All lenders require an income of some sort. In general you must demonstrate stable income for the previous 2 years that is likely to continue. An example of this would be a salaried job that has been held for 2 years with income verified by paycheck stubs and W-2 forms. All loan programs have a debt to income ratio (DTI) calculation that includes the projected amount of the new home payment plus any other payments made periodically (car payment, student loans, credit card, etc.)
All loan programs require the down payment and closing costs to be readily available. Several loan programs also require reserves in addition to the funds needed to complete a home purchase. The typical reserve requirement is 2 months of projected home payments. To give you an overview I wrote up 2 scenarios using our most popular models for loans, Conventional and FHA for a house that is being purchased for $250,000.
Conventional: 5% down required
– 620 credit score or higher
– $17,500 down payment
– $3,230 in reserves
– $315 in other payments
– $54,000 in annual income
FHA: 3.5% down required
– Credit score may not be required. Some lenders can go as low as 580
– $13,750 down payment
– $0 reserves
– $315 in other payments
– $47,000 annual income required
FHA loans require mortgage insurance as well, so consult with your lender on the options available to you. If you have any further questions schedule a consultation with a lender.
Your Home Search
When beginning your home search it is important to select an agent right away. Choosing to go with an agent as a buyer is an easy decision because the seller is actually paying the commission. An agent will have access to current market conditions and trends, online tools, and even pocket listings that may not even be on the market yet. Once you have selected an agent they can begin an RMLS search for you, which is a search for homes available that meet your criteria (price, number of bedrooms, location, etc.) and email them to you as they become available on the market. Once you start receiving these emails, review them in a timely manner. Currently, Eugene is a seller’s market (April 2017), which means there are very few homes on the market. So when a good property becomes available there are usually multiple bids on it within a short amount of time. Needless to say once you find a home that suits your needs you should try your best to make an attractive offer quickly.
Once you decide to make an offer you must be prepared to give the seller an earnest money check (typically 1% of the purchase price) and a pre-approval letter from your lender.
The seller will then either accept, reject, or counter your offer. Making an offer may make you nervous, but don’t worry because you are not locked into a contract quite yet. Once you have an accepted offer there is a 10-15 day window to get your inspection done. That is when a licensed professional comes out to look over your new home for any potential problems. An inspection usually costs about $400-$500 in Eugene, and if anything is discovered in the initial inspection report they may suggest a follow up inspection by someone who specializes in a certain area, such as a roof inspection, a foundation inspection, etc. So be sure to have a little set aside just in case, it may seem inconvenient at the time, but you may also get necessary major repairs done at the expense of the seller that will improve the value of your home for years to come. If something does happen to come up during inspection that makes you uncomfortable you can write an addendum to the original offer to have it repaired or back out of the agreement. It usually takes about 45 days to close. That timeline could be flexible depending on if any repairs need to be made and the availability of inspectors and contractors. Unless otherwise agreed upon you would get your keys at 5 pm on the day of closing. Congratulations, you are now a new home owner!
Pro Tip- If you are ever feeling overwhelmed by the prospect of buying a new home, but it is definitely a life goal. Check out NEDCO (Neighborhood Economic Development Corporation). They have a program that will match 3 times your contribution(ex. If you save $3,000 they will match you $9,000 for a total of $12,000) and it will teach you how to raise your credit score, and lots of other helpful information on buying your first home. Please visit their website for more information http://nedcocdc.org/ .
David Kammerer- Summit Funding
Branch Manager/ Senior Loan Officer
Vince Casey- Windermere RE/Lane County