Representing the interests of a first-time home buyer is one of our favorite things to do as real estate agents. So let’s get down to it and discuss the frequently asked questions we usually answer before the home search process begins.

HOW MUCH HOME CAN I AFFORD?

Mortgage lenders usually favor loaning money for housing payments of no more than 28% of gross monthly earnings, and total monthly debt payments (credit cards, car payments, etc.) are less than 36% of total gross monthly income. Use our mortgage calculator to determine your monthly payments. Remember to include utility estimates and homeowner’s association fees in your estimates.

WHAT VARIABLES DO LENDERS CONSIDER WHEN APPROVING A HOME LOAN?

There are five values that determine if you are a worthy risk to mortgage lenders. Your capacity to meet loan requirements is based on your employment history, savings, and monthly debt payments, which must convince lenders you are worth the risk of a home loan. Your access to capital gives a lender confidence that you are responsible with money and that you have something other than your income to help pay debt. This is usually in the form of savings, property, investments, and assets that can be converted to cash. The amount of cash used for a down payment will impact your payment. A 3% down payment will get you into a home. But a down payment of 20% will qualify you for lower interest rates. The collateral of the loan. The value of the home is verified by appraisers before the loan is funded and ownership of the home is transferred at closing. Everyone knows about credit scores. A 680 or better credit score opens your options to the types of loan programs that qualify you to purchase a home. The higher your credit score, the more favorable terms become on your options for a mortgage. Paying your bills and debt obligations on time is the best way to qualify for a mortgage and on favorable terms.

WHAT PAYMENTS ARE REQUIRED WHEN MAKING AN OFFER ON A HOME?

After deciding to make an offer on the home of your choice, an earnest money deposit must accompany the contract. These payments are usually between $1,000 and $5,000. The amount depends on several factors, such as contract price, competing offers, seller demands, etc., and it usually accompanies the contract offer. If the offer is accepted, the deposit becomes part of your down payment or closing costs. If your offer is rejected, it will be returned to you. If you decide to back out of a signed contract without justification, your deposit is forfeited. New homes require larger down payments than traditional arms-length transactions. Each builder requires different down payment amounts. We’ve seen minimum down payments between 2 and 5% of the base price required for the builder to countersign the contract. Sometimes the minimum deposit is based on sales volume in each subdivision. Expect to pay between $8,000 and $15,000 for homes in the usual first-time buyer qualification range. Builders also handle upgrade deposits differently. Some builders set maximum spending amounts on allowable upgrades before requiring the buyer to make upgrade deposits. This practice is necessary to protect the builder when the appraisal on the home is under the contract price. Other builders have standard upgrade packages without deposit requirements, and some require 25%–50% deposits on all upgrades. If you’re buying a new home, consult an agent to figure out these costs for you.

HOW MUCH DOWN PAYMENT IS REQUIRED?

Loans insured by the Federal Housing Administration (FHA) usually require 3% of the contract price. Loan programs administered by Veterans Affairs (VA) have options for no down payment and no payment requirement for private mortgage insurance. VA loans have relaxed credit qualifications compared to conventional loans because the lender has the flexibility to decide whether the credit rating, debt-to-income ratio, and other variables make the military home buyer a good candidate for a home loan. A funding fee of 2.15% (except for surviving spouses and disabled veterans) also applies. Conventional 80/20 loans require you to pay 20% of the contract price upfront, while the loan covers the remaining 80%. If you can cover 20% of the cost of a home (unusual for a first-time home buyer), you can avoid paying PMI, which can save you hundreds every month. FHA borrowers are allowed to use savings and other sources of cash, such as a gift from family members or state and local government grants designated for down payment assistance programs.

WHAT DOCUMENTS ARE REQUIRED FOR LOANS?

You will need financial statements proving you can afford to buy a home. This is necessary at the start of the home-buying process. Everything evolves around your buying power. Starting at the price range of homes you can afford. After providing a qualified lender with initial financial documents, you will receive a pre-qualification letter that declares you have the financial ability to buy the home. Sellers will require that your pre-qualification letter accompany a contract offer. Expect to provide a month of pay stubs, bank statements during the last 6 months, and all other documents related to other financial assets.

DO I NEED A REAL ESTATE AGENT?

Most first-time buyers don’t understand they can be represented by a real estate agent without paying for this service. This also pertains to new homes. The seller pays for agent commissions at closing. So not using the tools and experience of an experienced agent is a lost opportunity. We have access to all homes entered into our regional multiple listing service (MLS). We have electronic keys to gain permission and access to view homes, the ability to identify lenders who will protect your interests, and the best home inspectors, contractors, and title companies to identify and resolve problems during the contract process. We interpret, negotiate, and present contracts on your behalf and help you through the series of inspections and selections during the construction of a new home.

The processes of qualifying for a mortgage, finding the right home, contract negotiations, building processes, inspections, risks and liabilities, and performance obligations are best left to experienced and knowledgeable agents. We will represent your best interests at every step, from our first meeting until the last document is signed at the closing table. Real estate is a serious business, and you should be protected by full-time, committed real estate professionals.

HOW DO I FIND THE RIGHT LENDER?

The financing needs of home buyers are usually unique for each borrower. Finding the right loan program requires you to consider different interest rates, fees, and closing cost contributions (especially when buying a new home). We encourage our clients to use lenders we believe are the best fit for their needs while finding the best deal. You should consider loan programs from mortgage companies, credit unions, brokers, and savings and loan institutions that have conventional and government-insured loans, including FHA, VA, fixed-rate (15 and 30-year), interest-only, and the Dream Maker mortgage program (available to active, guard, and reserve military members and Department of Defense and Homeland Security employees). This first-time home buyer program is for borrowers with minimum credit scores of 620, $72,250 maximum household income, a 5-year home ownership requirement, financing of mortgage insurance, $5,000 toward down payment or closing costs, and lower monthly payments.

HOW DOES MY CREDIT SCORE AFFECT MY MORTGAGE?

First-time buyers often ask us what the minimum credit scores are to qualify for a mortgage. This answer focuses on the most popular loan types. Conventional loans are 650; VA loans are 620; and FHA loans are 580 for programs requiring down payments between 3% and 3.5%. Programs with credit scores between 500 and 580 require a 10% down payment. The best mortgage rates begin at 740 (850 is considered a perfect credit score). Mortgage rates between 500 and 740 credit scores vary by as much as 1.5 percentage points. This difference means hundreds of dollars in monthly payments. Lenders evaluate credit reports based on outstanding debt versus the amount of available credit. The borrower's credit history and the number of recent inquiries attempting to receive new credit are also important data points for loan approval.

WHAT HOME CHARACTERISTICS SHOULD I CONSIDER?

Ask yourself these questions when finding a home that appeals to you.

1. Does the floor plan offer enough space for my future? Families planning to expand should purchase accordingly.
2. Is the neighborhood in a community that offers the right fit? Nearby recreation and retail amenities are an important part of everyday life.
3. Is the location compatible with the right commuting options? How long does it take to get to commuter lots, slug lines, van pools, commuter bus stops, and commuter rail stations? These variables add value to homes in Northern Virginia.
4. Are there quality public schools serving the neighborhood where you have found the home of your choice? Ask yourself if there are special interest courses and special needs programs that best serve your family.
5. What is the age of the home? Most first-time buyers have little (if any) money to spend after closing on their homes. Buying a home during a traditional transaction can require you to replace the roof, appliances, mechanical systems, and asphalt driveway sooner than anticipated. Some home owners will list their homes to avoid paying for these expensive replacements. The home inspectors we recommend will give you an informed opinion of the life expectancy of these items.
6. Is the yard large enough to serve your future needs? Children need a safe place to play.
7. Will your furniture transfer to the new home without complications? Every buyer we have represented visually places their current furniture in the homes that interest them.
8. Will bad weather cause hardships? Isolated properties usually suffer longer power outages after severe storms. Homes like this should be equipped with a generator wired into electrical panels, and long driveways often require a tractor with snowplow capabilities.

HOW MANY LISTINGS SHOULD I LOOK AT BEFORE SELECTING MY FIRST HOME?

If we had to choose a number based on experience, 15 homes are typical of a first-time buyer. But we will show you as many as it takes until you feel like you have found your home. We have toured 160 homes with one client. We have also worked with another client for 2 years, showing homes. We search our regional multiple listing service for our clients while supplying them with a link for the same access to home listings. Working as a team with clients allows us to find and discuss all possible matches before arranging showings. If there is something you like, we are going to show it to you.

WHAT CAN I EXPECT AT CLOSING?

Closing documents include loan agreement papers and property records. You will sign these documents to assume responsibility for the terms of the loan and also be required to pay for points if they were part of an agreement to lower the interest rate, as well as title insurance (if necessary). You will also pay for closing costs such as the loan origination fee, appraisal, credit report, survey, taxes, filing fees, etc. Usually, closing costs are about 3% of the contract price. Builders offer closing cost credits and free upgrades to entice buyers to use mortgage companies they either own or have a business affiliation with. We always ask the seller to pay for all closing costs so our clients can use this money for moving expenses. However, housing markets can dictate the willingness of sellers to cover all or part of these expenses.