Are you a first time home buyer and you’re wondering, what steps do I need to do so I can buy my first home, especially in this market? Well, I’m David Novak. I’m a realtor out here in the Denver area.
And I used to be a former lender for 16 years, so I’ve worked with people on the lending side and now representing them to buy and sell homes. And I wanted to go over some steps today knowing the frustrations that first time home buyers come through, especially when they’re buying their first home.
So, anyway, if you’re a first time home buyer and you’re looking at buying your first home, the number one thing that you need to do is get a pre-approval. There’s nothing more frustrating than taking, especially first time home buyers out and they find the dream home that they’re looking for, and we go to talk about the offer and you find out that they haven’t really spoken to a lender to really know where they’re at.
So let’s back up here and go back to the pre-approval process. The reason why this is so important is you call your lender and they take a what’s called a loan application, and you’re going to give them your employment history, income, all that stuff. They’re going to pull credit. So during the preapproval process, the credit, they’re going to know what your credit score is. And if your lenders has these products, which a lot of them do, if your credit score isn’t high enough to qualify for, say, maybe a better interest rate, or maybe you’re at the cusp to even qualify at all, they have programs to help you improve your credit score during the pre-approval process on what to pay off, what not to pay off. There are some things you don’t want to pay off because it can harm your score more than help you, but your lender can cover that. Anyway, that’s the first major part of the pre-approval, is get your credit score pulled to see how that is if you don’t know.
And then, also, the next step is verification of funds in your employment history. Now, if you’re a wage earner, your lender’s going to ask for upfront, and be ready for this because this is a very cumbersome process. But they’re going to want up to two years W2s. They’re going to want a few recent pay stubs. They’re going to want contact information for your employer. And if you’re self-employed, this is where it can get a little more tricky. Depending how you file, they’re going to want two years full tax returns and maybe some additional stuff from your accountant and so forth, but they’ll lay that out for you. A good lender will lay that out for you. And then, based upon the income that they calculate, this is where you’re going to understand what you qualify for as far as loan amount so that you are in the debt to income threshold that a lot of the lenders use.
Now, during this process, they’re also going to ask what kind of funds you have for closing and so forth. And a lot of first time home buyers will get gifts from mom and dad or somewhere, or maybe they’ve just saved up. But regardless, you have to send in bank statements or wherever the money’s coming from so you can get that approved upfront as a valid verification of funds. Now, part of these funds, and I want you to listen here, will go towards what’s called your earnest money deposit. And yes, there’s a lot of first time home buyers out there that when they go to put the offer in on the home, they’re shocked to know that they may either have to come up with anywhere from $2,000, sometimes up to $10,000 for earnest money, which is a good faith deposit on the contract when it’s accepted. And that money’s held by the title company and it goes towards your closing costs and your down payment when you go to closing. But a lot of people upfront, they don’t realize that they need this money. And usually, it’s within a 48 hour period. So that’s why make sure when you’re getting pre-approved, your lender has all those funds verified so when you go to underwriting, there aren’t any hiccups on that.
Anyway, you get through your credit application. You know your credit score. You’ve improved your credit score, maybe you didn’t need to do anything. You have your verification of funds. You have your money ready. The lenders told you what you qualify for as far as based upon your income verification. And now is the exciting part. After all this, the lender’s going to issue to you, and me if you’re working with me or your realtor, a pre-approval letter. So, basically, this letter goes with any offer to validate that you have gotten a full blown pre-approval. And really, the agent on the other end, when this offer goes in, if they accept your offer, they’re going to call the lender ahead of time. So make sure you have a good lender that answers their phone. And they’re going to ask the lender, basically they’re going to go through the whole process and try to validate the pre-approval so they feel good about your offer. And then, boom, let’s hopefully, you get your dream home accepted, and then you just send that contract into your lender, and then you go into what’s called the full blown underwriting, where they’ll probably update some of the things you’ve already sent and they’re always going to ask for a little more additional things, but a lot of the hard parts already been done.
Anyway, if you’re a first time home buyer and you’ve been wondering what steps you need to take to purchase your first home, hopefully, this video went through some of the steps to get over the hard part upfront because, again, I’ve been on both sides as a lender and now a realtor here in the Denver area. And I just want to help you make your process more smooth because there’s nothing more exciting than getting your first home.
