The decision to buy your first home is one of the most important you’ll ever make. It’s a high cost purchase, yet it’s an opportunity to build wealth for yourself, rather than paying rent to your landlord. However, the process is unfamiliar, and there’s many new words and phrases to learn, so it may feel intimidating to start.
That’s why we created FinLocker. Our financial well-being app was designed to financially prepare first-time homebuyers to confidently apply for a mortgage and remove the mystery from the homebuying process. Here’s how FinLocker can help you purchase your first home:
How do I get my credit score?
Good credit is vital to buying a home. Credit scores are calculated using information in your credit reports, including your payment history, outstanding debt, length of your credit history, new credit utilization, and types of credit used.
You’ll need a minimum credit score of 620 to qualify for most home loan programs, but a higher credit score will generally receive more favorable credit terms. This may translate into a lower interest rate, lower monthly mortgage payment, and less money you’ll pay in interest over your loan term
How much home can I afford?
Many first-time homebuyers jump into a big purchase without understanding the impact to their overall finances, including being able to qualify for a mortgage.
FinLocker has a Home Affordability Calculator to estimate your down payment and closing costs. With your financial accounts enrolled, FinLocker will provide a Spending Analysis to see where you can begin saving to reach your goal sooner.
Do I need a 20% down payment?
While many first-time homebuyers assume they need to save 20% for a down payment, there are mortgage programs with lower or no down payment requirements.
FHA home loans are popular with many first-time home buyers because they accept a lower credit score and 3.5% down payment. If you put less than 20% down on a FHA or Conventional home loan, you will pay mortgage insurance each month, in addition to your monthly mortgage payment.
VA loans for veteran and active duty service members, and USDA loans for home purchases within specific rural areas, often require no down payment for eligible applicants.
Should I get pre-qualified for a home loan?
It’s tempting to want everything in your first home. Most singles and young couples begin with a starter home as it’s more affordable. To determine the amount they are prepared to finance, mortgage lenders consider many factors like how much other debt you have and your monthly income. This is often referred to as debt-to-income ratio or DTI. Lender want to see you’ve been at your current job for at least 2 years, and know your anticipated down payment.
The most important first step is getting pre-qualified for a home loan so you’ll know a realistic budget, before you start housing hunting.
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What will be my monthly mortgage payment?
The term of your loan will determine if your mortgage payment is higher or lower. A 15-year loan term will have a higher monthly mortgage payment, but you’ll pay less in interest over the loan term. A 30-year term will have a lower monthly mortgage payment, but you’ll pay more over the loan term. When you get pre-qualified, your loan officer or mortgage advisor will be able to discuss the loan programs and loan terms that best meet your financial needs.
Should I work with a Real Estate Agent?
Homebuying can be a complex process for the first-time homebuyer. While you might prefer to research homes within your budget online, and attend open houses, a real estate agent protects your interests. They know what may be glossed over in renovated and well-staged homes, or find a diamond in the rough if you’re prepared to put in a little sweat equity. Then, they’ll use their experience, and knowledge of the neighborhood and market to negotiate your best offer, and purchase contract.
What documents do I need to provide with my mortgage loan application?
Depending on the loan program you have selected to finance your home purchase, or if you are self-employed, you could be asked to provide additional documentation. However, these are the common documents mortgage lenders will require for your loan application:
- W-2 forms (or business tax return forms if you’re self-employed) for last 2 years
- Personal tax returns for the past 2 years
- Your most recent pay stubs
- Credit card and all loan statements, e.g. car loan, student loan
- Your current bank statements
- Most recent retirement account statements, e.g. 401(k)
- FinLocker users who have enrolled their Accounts can transfer loan & account statements to their loan officer through the app
FinLocker provides a secure Documents folder to safely store personal and financial documents. FinLocker users can select which documents to share with their loan officer directly from the app.
First-Time Homebuyer Benefits
Owning a home is a great way to build family wealth.
Studies have also shown that a homeowner’s net worth is 44x greater than that of a renter. At the same time, the median net worth of renters has decreased by 5%. Every time you pay your mortgage, you are contributing to your net worth by increasing the equity in your home.
Homeownership is a good investment.
Home prices rose nationwide 8.2% year-over-year as of November 2020, so you can be earning equity in your home from day one. In comparison, rent rates for a 2-bedroom apartment rose 3.5% in the same period. As a homeowner, having a fixed-rate monthly mortgage payment will give you peace-of-mind.
Homeownership can provide tax savings.
Mortgage interest, state and local property taxes, and certain closing costs, could be deducted from your federal income tax if you itemize. Consult your tax advisor for more information.
Insider's Guide To Buying Your First Home
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