• Home Buyers Guide

  • As a first-time homebuyer, you have an exciting journey ahead. We know applying for your first mortgage loan and navigating a complex housing market can be daunting. We want your first home purchase to be a rewarding experience and we're here to help first-time home buyers any way we can.
     
    Your mortgage loan originator can answer any questions you may have along the way. In the meantime, here's some practical advice to get you started on the right path to buying your first home.
  • Pre-Qualification

    Mortgage pre-qualification is a simple assessment of whether your debt-to-income ratio fits U.S. Bank guidelines for home loans. It also provides an estimate of how much you may be able to borrow - a good first step in your house-hunting journey.
     
    While this number is informative, keep in mind how much you may qualify to borrow is often more than how much you can afford to spend on your new home and still have money left over for the other important things in your life like furniture for your new home.
     
    Getting prequalified doesn't require a commitment from you or the bank. It isn't a true application and your credit history doesn't factor into your prequalification. Even so, you should be aware that when you apply for a mortgage, your credit score will affect your ability to qualify. If you have concerns about your credit history, talk to your mortgage loan originator now to find out what options might be available to you.
     
    When you get pre-qualified, you can request a letter stating how much you may be able to borrow, based on the information you provided to the bank. You can give this letter to your real estate agent to show you're a serious homebuyer.
  • Pre-Approval

    Mortgage pre-approval involves the same steps as a mortgage application - you'll provide detailed information about your income and assets that will be reviewed by the lender's underwriters. If approved, you'll get a commitment by the lender for a specific loan amount. (When you apply for a mortgage, you're applying for credit to purchase a specific property as well.)
     
    Pre-approval shows you have the resources to make the purchase and it helps you act quickly when you find the perfect home. From the sellers' point of view, a pre-approved buyer is more attractive than someone who says they can buy a house but have nothing but their word to back up their offer. By proving you have your bank's backing, a mortgage pre-approval can help you negotiate on price - and it can be a deciding factor for sellers who receive multiple bids.
     
    One note on timing: Don't apply for a pre-approval until you're fairly certain you'll want to buy a home within the next 90 days. Unlike getting prequalified, a pre-approval involves requesting a copy of your credit history and an examination of your application information and the documents you provide. A pre-approval will show as an inquiry on your credit report, and it's only good for a certain amount of time.
    If you decide to proceed with the loan, you may also be required to pay an application fee and prepay for the home appraisal and other costs. An estimate of costs or fees to be paid at the mortgage closing will also be determined at this stage.
     
    To get pre-approved, you'll need to provide some personal information and financial documents, including detailed proof of your income for the past two years.
  • 5 Things to Know When Shopping for a Home

    Credit history
    A credit score (also called a FICO Score, so named for the company that provides the score used by 90% of lenders) helps lenders determine their risk in lending you money. Your history of paying bills on time and your monthly debts determine your credit score, which can range from 300 (worst) to 850 (best). A score of 740 or above is generally considered "excellent."
     
    There are three national credit bureaus (Equifax, Experian and TransUnion) that maintain credit reports. FICO summarizes the results into three FICO scores, one for each bureau. Usually, the three scores are similar, but they may differ based on the different information collected by each credit bureau.
     
    Monthly debt
    Owning a home requires financial commitment beyond your monthly mortgage payment, including:
    • Mortgage insurance (required for most mortgages with down payments less than 20%)
    • Home insurance 
    • Utilities 
    • Repairs 
    • Property taxes
    Make sure you're taking all these costs into account when asking yourself, "How much home can I afford?" It's important to be informed on all the costs involved and how much you can afford prior to committing to a home mortgage.
     
    Income
    If you're still saving for your first home, here are some additional tips that can help.
    • Saving for a higher down payment can mean a lower APR and payments
    • Maintaining a regular and reliable income improves your standing with lenders
    • Combining stated income with a partner or spouse can be an advantage
    • Consistently paying your bills on time contributes to a good credit score
    • Limiting your monthly debt also helps improve your credit score
    • Generally, you'll want mortgage payments alone to be less than 28% of your income
    Building sound finances and a rock-solid credit rating before you buy will help you afford more home. It can also help you compete better in the market for the house you want, make it easier to handle the up-front costs of buying a home, and make home ownership more fun and easier to manage.
     
    Assets
    For Fannie Mae and Freddie Mac loans (conforming), reserve requirements vary based on credit score and LTV, along with property type.  They can range from as little as zero months to as much as 12 months, depending on the scenario.  As a rule of thumb, more risk requires more reserves.
    There is no reserve requirement for FHA loans on 1-2 unit properties. However, 3-4 unit properties typically require three months of PITI.
    For VA loans, there isn’t a reserve requirement unless it’s a 3-4 unit property, at which point six months reserves are required.  Additionally, three months of reserves are required for each rental property owned that is not secured by a VA loan.
    For jumbo loans, reserve requirements can vary tremendously, from as little as six months to several years, depending on how large the loan is.
     
    Purchases
    Don’t buy or lease an automobile or extend any new credit on your credit cards for large purchases. The underwriter looks carefully at your debt-to-income ratio and cash reserves. Any large payment such as a car lease or purchase of any expensive items can greatly impact those ratios or cash reserve requirements and prevent you from qualifying for a home loan. Of course, you should discuss any questions you have about this list with a mortgage expert, always follow the instructions your lender gives you and ask as many questions as you need to.
  • Home Loan Process Fees

    Down payment
    You can often get the best mortgage rates by paying a higher mortgage down payment. Down payments can range anywhere from 0% to 20% or more of the total cost of the home. 15% to 20% is ideal. Paying mortgage points up front can also help lower your payments and interest.
     
    Closing costs
    Final closing costs typically range from 2% to 4% of the total loan amount. Sometimes closing costs can be rolled into the mortgage loan amount, which means you can pay them off as you pay down your mortgage. Closing costs can include:
    • Mortgage application fees (see above)
    • Mortgage points
    • Attorney's fees
    • Inspections and surveys
    • Title insurance and title search
    • Escrow deposit
    • City recording fees
    Don't be intimidated by the list of closing costs. They are all paid at once and many can be estimated by the lender up front.
     
    Insurance
    Protect your family, home and belongings with homeowners insurance (or home insurance)—provided and serviced by select homeowners insurance companies. This not only covers your home; it can also cover detached structures, personal belongings, living expenses and injuries.
     
    Home inspections
    It is a visual inspection of the structure and components of a home to find items that are not performing correctly or items that are unsafe. If a problem or a symptom of a problem is found the home inspector will include a description of the problem in a written report and may recommend further evaluation. Before you close, you need to consider whether or not repairs are needed now and who's going to pay for them.
     
    Appraisals
    You've found your dream home. The asking price is $300,000 -- an amount you've already been pre-approved for by your bank. But is the home really worth that amount? That's the question at the heart of the home appraisal. The worth, or value of the property, will determine how much a lender is willing to give you to buy that particular piece of real estate.
     
    This all-important step in getting the financing you need is the home appraisal -- an oftentimes-confusing part of the mortgage process in which both buyer and seller must depend on the expert opinion of a stranger. A real estate appraisal is simply that -- the expert opinion of a certified, state-licensed professional who determines the value of a piece of property. If your $300,000 dream home is really worth only $200,000, then the home is overpriced.
     
    A home appraisal also protects the bank from getting stuck with property that's worth less than they've invested. And it protects you from paying too much for a house simply because it was love at first sight. The home appraisal is a no-nonsense factor in a decision that is often emotional for the buyer.
     
    A home appraisal is not the same thing as an inspection. If you're buying a home, you'll want to hire an experienced home inspector to point out any potential problems that could turn into costly nightmares in the future. Property appraisers will likely make note of any obvious issues, but they won't test your heat and air, check the chimney or determine if your plumbing is up to code. That's the job of the inspector.
  • Closing

    Required funds
    A bank wire for all closing costs, including the remaining portion of your down payment. You can get this figure a day or two before your closing from your closing agent. You are entitled to a copy of the HUD-1 Settlement Statement a minimum of 24 hours prior to the closing of the loan. This statement itemizes the services provided and fees charged to you. These fees should be negotiated prior to the closing.
     
    What is Closing?
    The closing is the last step in getting your mortgage and actually becoming the owner of your new home. You’ll probably see and sign more legal documents at your closing than at any other event in your life. You’ll have to pay a number of fees as well. These factors can make your closing confusing and a little overwhelming.
     
    Closing (or settlement) is the legal process of transferring ownership of a home from one person to another, and generally the purchaser receives a loan to finance the home purchase. Closing involves decisions that can save you money — or cost you money. Two issues can make closing seem complicated — the number of documents and the costs involved.
     
    Documents you'll receive
    • Settlement Statement — HUD-1 Form Prepared by the closing agent, this form lists all the important details regarding the sale/purchase of your new home: price, amount of financing, loan fees and charges, prorated real estate taxes and amounts paid between you and the seller. It must be signed by both you and the seller. Your lender will keep the original.
    • Truth in Lending Act (TILA) Shortly after you applied for your mortgage, you received a truth-in-lending statement from your lender, including your estimated monthly payment and the total cost of all finance charges involved in your mortgage. You’ll get a final TILA statement at the closing if these amounts have changed.
    • Mortgage note The mortgage note is legal evidence of your mortgage and includes your formal promise to repay the debt. It also spells out the amount and terms of the loan, along with the penalties the lender can impose if you do not make your payments on time as well as any prepayment penalties that may be required.
    • Deed of trust This document gives your lender a claim against the house if you don’t live up to the terms of the mortgage. It lists the legal rights and obligations of you and the lender, including the lender’s right to foreclose on the home if you default on the loan.
    • A few things to remember as you leave As basic as it sounds, make sure you know when your first mortgage payment—and all subsequent regular payments—are due. Most homeowners make monthly payments, but some mortgages are structured with payments every two weeks. Most lenders provide a coupon book clearly listing due dates and the correct mailing address and a monthly coupon to send with the payment.
    You should also make sure you know what the penalties are if your payment is late. You may not think about this on closing day, but you’re likely to go through the whole process again in the future, and your ability to qualify for larger loans and lower interest rates will have a lot to do with your payment history on this mortgage. It’s best to simply make sure your mortgage payment is consistently made on time.
     
    Also be aware that immediately following your loan closing (or perhaps a few weeks later), your loan may be transferred to another company for “servicing,” or collection of the loan payments. Your lender should have disclosed whether it will transfer the servicing to another company when you applied for the loan.