MyMortgageInsider asked loan officer Mason Buckles (NMLS #176104) about the top tips first-time home buyers should know as they start their home search.

MMI: What happens when a first-time home buyer walks in but has limited credit history? Should they open credit accounts to build their credit?

Mason: From a lending standpoint we never want to see a borrower take on “unnecessary” debts. An experienced Loan Officer should be able to help a new home buyer with limited credit history establish what’s called “non-traditional” credit. This can include accounts such as rental history, utility payments, cell phone, and auto insurance etc. The key is each account needs to have a documented minimum 12-month payment history which the loan officer would work with the buyer to create a blended credit report of both their traditional and non-traditional accounts. This type of credit history is allowable for conventional, FHA and VA lending.

MMI:  How concerned should a first-time home buyer be with interest rate fluctuations?

Mason: Interest rate fluctuation can have a major impact on a new home buyer’s ability to qualify. On a $300,000 loan even a 0.50% interest rate increase can cause the payment to jump up by over $90 per month. That can be very considerable when reviewing overall qualifying debt-to-income ratios.

The key for any new home buyer is to identify and work with an experienced Loan Officer that will keep them up to date on market developments and consistently review their preapproval limits to ensure they are home shopping in an appropriate price range.

MMI: When should a first-time buyer inquire about their homeowner’s insurance policy? Can waiting too long delay closing?

Mason: I always suggest getting started on this as soon as you have your new home under contract. In reality, the lender doesn’t need your decision made until about 2 weeks before closing. However, like anything, you want to make sure you have time to compare your options to determine which insurance policy best meets your needs.

MMI: Should someone go pick out a house first, or get pre-qualified before they even start looking?

Mason: A new home buyer should always work with a lender before heading out to tour homes. An experienced real estate agent should direct you to meet with a lender prior to viewing homes so your time is spent in a productive manner.

As a consumer, it’s vital that you identify what your appropriate price range is whether that’s dependent on your down payment available or monthly payment tolerance.  An experienced loan officer should be able to thoroughly explain these figures and make sure you understand all of the financial impacts and benefits of a new home purchase.

MMI: Let’s imagine I’m a first-time home buyer with $10,000 in the bank. Does that mean I can go put $10,000 down on a home because that will be my final cost?

Mason: No. Dependent on the loan program you utilize the $10,000 could be the minimum down payment requirement. You must also account for the loan closing costs and prepaid taxes and insurance. These figures will vary by sales price and property type so it’s important to speak with an experienced loan officer to determine your options and if additional funds will be required.

MMI: What if a person is considering buying a home, but will only be in the area for 3 more years? Is it a good idea to buy with the intention to sell or rent out the home after that time?

Mason: With interest rates still well below historical averages and home prices still recovering from the extreme depreciation most of the nation experienced from 2008-2010 it is an excellent time to buy. These factors combined have raised home purchase affordability to all-time highs over the past 18 months and the high level of competition in the market is evidence of this trend.

When speaking to someone who may end up renting out a new home after a 3-year period the key factor to consider is whether or not the property will be a good investment. This determination has a number of factors from the neighborhood selected to rent controls etc. and a new buyer should work closely with the real estate agent to identify homes that will offer a good investment opportunity.

MMI: What’s the most surprising thing your clients run into when buying their first home?

Mason: I’d have to say it usually stems from the inspection process. New home buyers probably have never seen a home inspection report and they’re consistently surprised by the number of items an inspector finds on what seems to be a “perfect” home. The key is having an experienced real estate agent who can help the new buyer discern which items are “must fix” and which items they can probably ignore or repair on their own in time.

MMI: What’s the biggest mortgage or home buying myth you encounter with first-time home buyer clients?

Mason: “I must have perfect credit and 20% down to buy a home.” In many cases, you don’t. There are many loan programs available now to new home buyers that offer as little as 0% down and still offer very competitive interest rates even with average or challenged credit ratings. The key again is working with an experienced loan officer who can help you identify these loan programs and if needed provide referral to credit repair specialists to put you in a position to buy.

MMI: What are some other significant points first-time home buyers should be aware of before, during or after purchasing their home?

Mason:

• Before: Know Your Numbers. By this I mean work with a loan officer. Determine your appropriate price range and identify the total financial obligation it will take to purchase a new home. An experienced loan officer should be able to provide all these details in a preapproval meeting and advise you of the key factors to consider before submitting any potential home purchase offers.
• During: Keep Your Eyes on the Prize. This speaks to staying focused on the goal of purchasing your new home. Try to avoid any major life events during the loan process; it sounds basic enough but you’d be surprised by some of the obstacles lenders have incurred over the years.
  • Rules of thumb:
    • Don’t quit your job
    • Don’t open any new credit accounts
    • Don’t pay off or close any credit accounts
• After: Stay in Touch. An experienced loan officer should consistently be in touch with his clients to determine their needs dependent on market trends or pending life events. I’ve implemented my “Client for Life” philosophy into a program that keeps my past clients updated monthly with mortgage and housing news and trends and reaches out once a year for an Annual Mortgage Review. It sounds simple enough but by identifying and working with a professional you can trust you can ensure that you’ll always be in the best position possible with your home financing.