First-Time Home Buyer
If you’re a first-time home buyer, you’re entering a whole new landscape. There’s a lot to know: from learning how much you can afford to borrow to understanding the types of mortgages available to first-time home buyers. With that in mind, there are also some great options for those seeking their first mortgage that you’ll want to investigate.
As a first-time home buyer, our mortgage specialists will help you navigate the entire process of obtaining a mortgage from pre-approval to closing. We’ll help you find the right loan option.
Before You Apply for Your First Mortgage
Find out if you can afford to buy a home
Since you’ll be committing to regular monthly payments for the term of your mortgage, first review your monthly budget and determine what percentage of your income you can put toward a new home.
In addition to taking out a mortgage, there are many costs associated with purchasing a home. A standard down payment is 20% of the home cost to avoid private mortgage insurance (PMI), although there are alternative options with lower down payment requirements.
There are also closing costs to consider, which could include origination fees, discount points, appraisal fees, credit report fees, title insurance, and attorney’s fees. You may also be required to prepay tax and insurance payments. While closing costs vary from loan to loan, they often end up costing between 3% and 6% of your home sale price.
You will also need to obtain homeowner’s insurance for your new home before purchasing. Depending on where you live, there are minimum requirements for the coverage you need. You may also need mortgage insurance or flood insurance.
As you can see there are many factors to consider. Use our Renting vs. Buying calculator to help you determine if you’re ready to buy a home.
Assemble your home buying team
There are a lot of people involved in the home buying process. Some members of the team you may not actually choose directly. They will be part of the larger mortgage team at your bank, such as a Loan Processor or a member of the Loan Underwriting Department.
There are two members of your team that you need to devote time to choosing upfront:
Mortgage Development Officer
Your Mortgage Development Officer, also known as a Loan Officer, will be your main point of contact throughout the mortgage process. He/she will help you determine which mortgage to choose, how much you can afford, and answer any of your questions from application to closing. Make sure that you feel comfortable with your Mortgage Development Officer as he/she will be your partner from start to finish.
Real Estate Agent
While real estate agents aren’t required, for a first-time home buyer they can be a valuable resource. While the Mortgage Development Officer will be your partner in the mortgage process, a buyer’s agent is your partner as you search for a home. Because they are experts in the field, they can help you save time navigating the home search process while answering your questions along the way. Make sure to do a lot of research before choosing a real estate agent to ensure that he/she will be representing your best interest.
Figure out how much you can borrow with pre-qualification
Before you begin seriously looking for a home, it’s important to know how much home you can afford to buy. That’s where pre-qualification comes in. By providing information on your financial situation to a mortgage specialist, he/she can determine how much you’ll qualify to borrow. You can pre-qualify online or in person.
Prequalification only determines how much you are eligible to borrow. When choosing a home, make sure that you are comfortable with how that home’s monthly payment will fit into your monthly budget. Use our monthly payments calculator to help you determine how much you can afford and are comfortable paying.
Choosing a Mortgage
As a first-time home buyer, there are several types of mortgages to choose from depending on your financial situation and your needs. Discuss each option with your mortgage specialist. He/she will help you decide which mortgage will best fit your borrowing needs.
Fixed Rate Mortgage
If you’ve been a renter, then you’re used to a predictable monthly housing payment. This type of mortgage offers a fixed interest rate, which means your principal and interest payments stay the same for the entire life of your home loan. It’s a good option if you want your payments to stay the same from month to month, and if you plan to stay in your home for a number of years.
Adjustable Rate Mortgage (ARM)
Will your first home be a starter home? If so, an Adjustable Rate Mortgage may be a good option. An Adjustable Rate Mortgage allows you to start out with lower monthly payments by offering an attractive interest rate for the first several years of your loan. After that, it adjusts annually for the remainder of the mortgage term. So, if you don’t think your new home will be your dream, “forever” home, this mortgage is worth considering.
First Time Home Buyer Mortgage Alternatives
There are also alternative loan options to consider as a first-time home buyer beyond conventional mortgage options. They can offer attractive features like low down payments or a wide range of rate and term options. Talk with a Santander Bank Mortgage Specialist about one of these when discussing your first home mortgage options.
Let’s say you’re looking for your first home but you haven’t had the opportunity to save much. What’s nice about an FHA Loan is that it offers down payment options as low as 3.5% so you need less cash up front to put toward down payment and closing costs. This mortgage option is available to borrowers in all income levels and it is more flexible when it comes to credit requirements and credit history.
A VA Loan is designed specifically for qualified veterans, reservists, or active duty personnel. For first-time home buyers this mortgage can be a great option because it requires no down payment whatsoever. What’s more, with a VA Loan you won’t have to pay for monthly mortgage insurance, which keeps your monthly payments down.