Nine Easy Steps to Buying Your First Homeeducation.bankerstrust.com/wp-content/uploads/2019/02/9-Easy-Steps-t… · 9/2/2019 · Mortgage loan options 5 Mortgage loan application

Nine Easy Steps to Buying Your First Home

Table of Contents Introduction: Benefits of being a homeowner 1

Step one: Choose a mortgage lender 2

When do I find a mortgage lender? 2

How do I choose a mortgage lender? 2

Step two: Prequalify 3

What can I expect in my prequalification meeting? 3

Step three: Shop, purchase, and obtain a sale agreement 4

Step four: Apply for a loan and submit documentation 5

Mortgage loan options 5

Mortgage loan application 6

Step five: Complete a property inspection 7

Step six: Receive final loan approval 8

What is a credit score? 8

What role does my credit score play in my mortgage? 8

Step seven: Obtain insurance 9

What is PMI? 9

Possible ways to avoid buying PMI 9

Step eight: Close on the home and make a down payment 10

Down payments 10

Down payment assistance programs 10

Step nine: Move in 11

Contact Bankers Trust 11

Education.BankersTrust.com

Making the decision to purchase your first home is a big one. There are many benefits to owning your

own home. While you can take advantage of some of these immediately, others will pay off down the

road. A few benefits to owning your own home include:

• Tax incentives. Did you know that homeowners can receive multiple tax deductions for things

like mortgage interest payments and property taxes? It’s true! For example, a new Iowa state

law establishes an income tax credit for people saving for their first home. Consult your tax

advisor to learn more.

• Building equity. One of the nice things about paying a mortgage rather than rent is that your

home is helping you build equity. Having equity, especially in a home, opens doors when you’re

looking for credit solutions. For example, home equity loans and lines of credit let you borrow

money against the value of your home.

• Home improvement opportunities. Whether you’re an HGTV star in the making or simply enjoy

planting and maintaining a garden, homeownership provides many opportunities to make a house

your own. If you’ve been renting for a while now, this is sure to be one of the first perks you take

advantage of as a homeowner.

• Pride of ownership. Of course, one of the benefits of owning a home is the pride that comes with

knowing you’ve accomplished what many consider a major milestone or life event. Buying your

first home is a big deal and definitely a reason to celebrate.

You’ll learn a lot about the home buying process simply by going through it, but it helps to be prepared ahead of time. In this guide, we’ll walk you through the home buying process in nine steps, from choosing a mortgage lender to moving into your home.

So you want to become a homeowner...

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A mortgage lender guides you through the process of purchasing a loan with honesty, experience,

knowledge and trustworthiness. This is a professional who helps you understand your options, that there

are many options, and explains how different choices can impact your monthly payment or long-term

financial goals.

Mortgage lenders are experts on different types of loans, and they can help you determine what type of loan

is the best fit for you. As a key partner in the home buying process, it’s important to find a lender you trust.

When do I find a mortgage lender?It’s best to involve a mortgage lender as early in the process as possible. In fact, visiting with a lender

should be your first step when thinking about purchasing a home. That way, you’ll know if you may

qualify for a mortgage and which loan options may be available for your situation. You can also find out

what your expected down payment and monthly payments may be so you know in what home price

range to shop.

STEP ONECHOOSE A MORTGAGE LENDER

How do I choose a mortgage lender?Choosing a mortgage lender comes down to your comfort level with the loan officer based on three important skills:

Communication. Does your

mortgage lender respond to

your emails and phone calls

in a timely manner? Do they

communicate thoroughly

or with short answers? A

loan officer should educate

you, and when you ask

questions, they should

provide detailed and

accurate answers.

Knowledge. A lender’s

job is to educate you on

different products offered

so the customer can make

an informed decision.

It’s important that the

borrower knows their loan

options along with the

pros and cons of each.

Personal level of service.

A mortgage transaction

can be an unpredictable

process. Is your loan

officer willing to support

you and answer all of

your questions during

your journey?

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After you’ve chosen a lender, you will need to set up a prequalification meeting. This meeting will help

you learn about and prepare for the home buying process, and determine the amount at which you

can expect to be approved for a loan. Because it can show you’re a serious buyer, most sellers want a

prequalification letter, which you can obtain at this meeting as well.

STEP TWOPREQUALIFY

What can I expect in myprequalification meeting?

You’ll walk through your credit report and discuss how your credit score impacts the interest rate you’ll receive and the loan products available.

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Your discuss your financials and the loan amount you may qualify for. Your income, assets and credit history help determine the amount you’re eligible to borrow.

Your lender will present different loan options and interest rates. After explaining each loan option, you’ll discuss which one is best for you and the interest rates you can expect.

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Your lender will discuss your estimated monthly payment. This helps you understand what you can expect to pay each month for your mortgage. It’s based on the total cost of the home, your down payment amount and the loan type.

Closing costs and cash needed at the time of purchase. At your closing, you will need to have funds for your closing costs and your down payment. Your lender walk you through what amounts to expect for each, and they’ll talk about the possibility of the seller paying your closing costs.

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Now for the fun part! Shopping for a home often

involves comparing and examining many homes

on the market. Most people shop for homes

by working with a real estate agent, a trained

professional who can help you find a home that

fits your needs and budget. Your agent will

take you to see the homes he or she thinks will

interest you, based upon your wants and needs.

This is the time when you and your family can

explore new neighborhoods, visit many different

kinds of homes and compare features. Take your

time, take notes, look at many houses and ask

questions. Once you narrow your choices to a few

houses, take a closer look.

Offer and sale agreementWhen you find the right home, you will work

with your agent to negotiate the terms of the

sale, including the sale price, requests, move-

in date, etc. Then, your agent will present

your offer to the sellers. The offer is a written

proposal to purchase the property and is usually

accompanied by earnest money, a deposit to

show your intent to complete the transaction.

In some states, if a seller accepts the offer,

the signed proposal becomes the purchase

contract. In other states, your real estate agent

or settlement attorney will prepare a real estate

purchase contract that includes all the terms

you and the seller have agreed to in the offer.

Once you and the seller sign the offer, you have

a binding contract. The contract to purchase a

home should allow you to cancel the transaction

and get your money back if a professional

inspection reveals problems with the house, if

you are unable to secure financing, or if other

conditions or contingencies written in the

contract are not met.

STEP THREESHOP, PURCHASE AND OBTAIN A SALE AGREEMENT

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STEP FOURAPPLY FOR A LOAN AND SUBMIT DOCUMENTATION

Once the seller accepts your offer, you will need

to obtain your mortgage. To do so, you will need

to finish the loan application with your lender and

provide documentation. Information commonly

sought includes pay stubs, two years’ tax returns

and account statements verifying the source of

funds being used to purchase the home.

Mortgage loan optionsIf you’re working with an experienced mortgage

lender, you should receive recommendations of

which mortgage loans fit best with your financial

and home buying situation. There are a variety of

loan types and each have different features and

down payment requirements. Certain mortgage

loans will allow first-time home buyers to make

down payments that are lower than the often-

recommended 20 percent.

Here’s a look at some of the more common

mortgage loan types and the down payment

requirements that come with each:

• Standard Conventional Loan: requires a

minimum of a 5 percent down payment,

while Home Possible or Home Ready Loans

require a 3 percent payment as long as you

meet the maximum income guidelines.

• Federal Housing Administration (FHA) Loan: offers government guaranteed

loans with a 3.5 percent down payment.

FHA is a great option for financing

because of the low down payment and

less stringent credit guidelines.

• Veterans Administration (VA) Loan: a home

mortgage option offered to United States

veterans and service members. There is no

down payment requirement for this loan

type, which is one of its many benefits.

• Rural Development Loan: home buyers

taking advantage of a Rural Development

Loan receive the benefit of a 0 percent

down payment requirement. However, there

are additional guidelines that may apply

depending on your location and family size.

• Portfolio Loan: each financial institution

may offer different portfolio loans. Some

examples, based on the portfolio loans

offered at Bankers Trust, include:

• Community Redevelopment Act (CRA) Loan: borrowers must

meet certain location and income

requirements to qualify. CRA Loans

require a 3 percent down payment.

• Adjust Rate Mortgage (ARM) Loan: down payment requirements for ARM

Loans can vary from no down payment

to 5 percent. The exact amount

depends on a variety of factors, which

you’ll want to discuss with your lender

if you’re considering an ARM Loan.

• 15 and 20 Year Fixed Rate Loans: require little to no down payment.

• 90/10 Loan: entails two mortgage

loans. A first mortgage at 90 percent

loan to value and a second mortgage

at 10 percent loan to value, which

equals 100 percent financing and no

down payment.

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The mortgage loan applicationAfter you’ve chosen the loan, you need to apply for it. This is one of the biggest steps in the mortgage process. While having submitted the application means “your part” is mostly over, there are a lot of steps your lender still has to take to approve your application.

While the loan application moves through approvals, there are a number of things you will want to keep in mind so the process stays on track. Failure to adhere to these few simple rules can cause unnecessary closing delays or jeopardize your approval. And delays are the last thing you want when you’re so close to moving in to your new home!

DO stay current on all payments on existing accounts

DO notify your lender of any changes to your contract or loan amount

DOresearch and obtain a company for homeowner’s insurance as soon as possible to avoid last minute delays

DOcontact your lender if you receive anything in the mail from a creditor or collection agency that you think might affect your score

DON’T apply for new credit of any kind!

DON’T change employment or your residence prior to closing

DON’T pay off collections or close credit card accounts

DON’T co-sign for anyone else’s loan

DON’T switch banks or move money around

DON’Tpack away important financial documentation your lender might request. Keep it handy, just in case!

Here are a few do’s and don’ts after you’ve submitted your mortgage applications.

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STEP FIVECOMPLETE A PROPERTY INSPECTION

If your purchase contract allows, you should hire a licensed home inspector to check the structural

soundness and safety of the property. If the inspection shows any major problems, you can cancel the

sale and your earnest money will be returned to you. If you don’t want to cancel, you can ask the seller

to make repairs, or the seller can give you a credit for the amount it would cost to make the repairs.

Since the buyer is not allowed to receive cash back from the seller, the credit can be used toward

paying your closing costs, but it cannot be used toward your down payment.

A REALTOR® is often another key part

of the home buying process. They are

licensed professionals who can help you

search for homes, make an offer and guide

you through negotiations.

Once the home inspection repairs, if any, have been

negotiated, you are ready to notify your lender to order a

home appraisal. If possible, order the appraisal after the

home inspection is complete so you are not responsible for

the appraisal fee if you decide not to move forward with

the purchase after reviewing the home inspection. Keep in

mind that sometimes the “preferred timing” of obtaining a

home inspection prior to ordering the appraisal may not be

possible given contract restrictions.

Education.BankersTrust.com7


STEP SIXRECEIVE FINAL LOAN APPROVAL

Your loan will go through two reviews. First is the processor’s review, in which the loan processor

will package all pertinent information to be sent to the underwriter. Then your loan moves on to the

underwriter’s review. Based on the information put together by both the loan originator and the processor,

the underwriter makes the final decision on whether or not a loan is approved. In most cases, when your

credit history and debt-to-income ratio are good, your loan will be approved with little or no problem.

What is a credit score?Your credit score is a little like a GPA: it’s a cumulative number that

measures how successfully you manage your credit. The most common

score is from a company called FICO that uses a 300 to 850 score

range. The higher the number, the better. Your score is based on criteria

including payment history, amount owed, length of history, new credit

and types of credit used.

What role does my credit score play in my mortgage?It’s simple: borrowers with higher credit scores tend to get lower home mortgage loan interest rates

than borrowers with low credit scores. Lenders also like borrowers with low balances, a mix of credit-

based purchases like a car, revolving loans like credit cards and a history of paying on time.

However, your credit score is also only one factor in your lender’s evaluation of you for a home mortgage

loan. Mortgage lenders will also look at your recent work history to see if you have had a steady income

for the past few years and how that could factor into your ability to meet payments. They may also

review any tax returns and your assets.

POOR FAIR GOOD VERY GOOD EXCELLENT

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STEP SEVENOBTAIN INSURANCE

Between the time the seller accepts your offer and the sale closes, your contract is pending, or in escrow.

Prior to closing, you will be responsible for obtaining a homeowner’s insurance policy to protect your home

against casualty and liability. During the escrow period, a title company or attorney will conduct a title

search to verify proof of ownership and clear title to the property you are purchasing. Some states require a

lender title insurance policy. All fees including title insurance will be disclosed to you in your loan estimate.

If your down payment is less than 20 percent of the home’s sale price, many lenders require borrowers to

carry private mortgage insurance, also known as PMI. Be sure to ask your lender about PMI requirements

based on your loan type and down payment.

What is PMI?Private mortgage insurance (PMI) is insurance that is usually

required on conventional mortgage loans when the down payment

is less than 20 percent. PMI protects the lender if you stop making

payments on your loan.

Possible Ways to Avoid Buying PMIIf you’re trying to avoid PMI, you can take a couple routes, such as:

• Second Mortgage: A borrower may obtain a second mortgage in conjunction with their first

mortgage. The second mortgage makes up the difference between the amount of down payment

and the 20 percent equity requirement. Some banks, including Bankers Trust, offer preferential

interest rates for home equity lines of credit or fixed rate second mortgages when obtained in

conjunction with a first mortgage.

• Portfolio Lending: In this case, some banks

service the loan themselves rather than

selling the loan onto the secondary market.

For example, with Bankers Trust’s Portfolio Lending

programs, we have the luxury of in-house

underwriting to standards we established,

rather than adhering to Fannie

Mae and Freddie Mac guidelines.

Often, this enables us to waive

your PMI obligation as well.

Everyone’s situation is different, so you’ll

want to discuss with your lender what arrangement is best for you.

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STEP EIGHTCLOSE ON THE HOME AND MAKE A DOWN PAYMENT

The closing or settlement date is the date on which your down payment and closing costs must be received and the title to the property is transferred from the seller to the buyer. In some states, the closing is a formal meeting where both the buyer and the seller must sign the final paperwork required for the sale. In other states, the seller’s final paperwork is signed in advance and the buyer’s closing is handled by the lender, title company or attorney. Generally, the seller turns the keys over to the buyer on the day of closing.

Down paymentsDown payment requirements vary by situation and are different depending on the type of loan you have.

The amount could range from zero to 20 percent, but many mortgage loans require only three to five

percent down. When you’re evaluating how much you will put down, keep in mind the full down payment

is due at the time of closing.

No matter your situation, make sure to consult with your lender about which loan options you qualify for

and the loan type that is best for your needs. This will help you determine how much you should plan to

budget for a down payment and how that amount might affect your overall search.

Down payment assistance programsA variety of organizations today are creating programs to help encourage people to buy their first

homes. These often come in the form of down payment or closing cost assistance. A few of the programs

currently available in Iowa include:

• IFA’s FirstHome and Homes for Iowans Programs

• FHLB’s Home$tart Program

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STEP NINEMOVE IN

After the closing is complete, you will receive the keys and are finally able to move in to your new home.

Congratulations! You’ve made it through the home buying process and are officially a homeowner!

Contact UsLearn more about the home buying process and homeownership at Education.BankersTrust.com.

Are you ready to get started on buying a home? Contact one of Bankers Trust’s experienced mortgage

loan originators to set up a prequalification meeting.

Bankers Trust Mortgage Loans(515) 222-5893BankersTrust.com/Mortgage-Loan-Originators

NMLS ID: 440379NMLS ID: 440379

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Documents

Nine Easy Steps to Buying Your First Homeeducation.bankerstrust.com/wp-content/uploads/2019/02/9-Easy-Steps-t… · 9/2/2019 · Mortgage loan options 5 Mortgage loan application