A Guide for First-Time Homebuyers

Navigating the process of buying a home for the first time can feel much easier when you have a good understanding of where to start, what to expect, and what you’ll need. If you keep one thing in mind at this stage, our mortgage lenders say it should be this: Do your research. In general, they say first-time homebuyers who’ve asked questions and done their homework set themselves up for a smoother experience.

Remember, you’re not alone. We’re ready to help, and you can browse our resources and frequently asked questions or contact one of our friendly, knowledgeable mortgage lenders at any time to learn more about the process. In this comprehensive guide, we’ll walk through the following advice for first-time homebuyers:

• Assessing your financial health
• Finding your real estate professionals
• Researching homes and price points
• Understanding mortgage options and interest rates
• Getting pre-qualified for a mortgage
• Making an offer and going ‘under contract’
• Closing day and securing your mortgage

Step 1: Assessing your financial health

Assessing your financial health is important when preparing to purchase your first home because it helps you understand what you can afford and allows you to determine your readiness for the ongoing costs associated with homeownership. This includes evaluating your credit report, understanding your income and expenses, saving for a down payment, and learning about private mortgage insurance (PMI).

Evaluate your credit report

Your credit report is a summary of your personal credit history. It includes information like the number of credit cards and loans you have and whether you pay your bills on time. When you apply for a loan, your potential lender will automatically pull your credit report to help assess your creditworthiness, or the likelihood that you can reliably pay back the loan.

Evaluating your credit report as part of your pre-planning process will ensure you:

• Know your personal credit history. Thoroughly understanding your situation ahead of time will help you avoid surprises as a potential lender reviews your report and discusses it with you.
• Identify and correct inaccurate information. Credit reports can sometimes include mistakes such as someone else’s information or even a fraudulent account that you didn’t open. If you find an error, be sure to dispute it using the process available through each of the three major credit bureaus (Transunion, Equifax, and Experian). You don’t want inaccurate information in your report when you apply for a loan because it could affect your ability to be approved.

Understanding a tri-merge credit report

When you apply for a mortgage loan, the potential lender will pull a tri-merge credit report — a report that offers a combined look at your credit information from Experian, Equifax, and TransUnion. This is because credit bureaus often weight various aspects of your credit history differently, so lenders consider all three reports when evaluating your financial history.

Although it can generally be good to know your credit score and review your credit reports ahead of time, keep in mind that a tri-merge credit report — because it’s a combined look at three reports — can reveal information that is different than you expected. Your credit score, for instance, may be lower than what you see when using a free online service.

If you’re interested in talking through your credit score or credit report, what it could mean for your potential mortgage loan, or general guidance on how to improve your score, contact one of our mortgage lenders.

Understand your income and expenses

Understanding your income and expenses can help you figure out how much extra money per month you could comfortably afford to put toward a potential mortgage payment.

Write down your income and put together a list of what you typically spend in a month. You can use three categories: loans and credit cards, living expenses, and other monthly expenses. Your INTRUST account statement or transaction history through online and mobile banking can help you create your list.

• Loan and credit card minimum monthly payments.
• Living expenses such as groceries, gas for your vehicle, car insurance, utilities (water, electric, trash, etc.), phone bill, childcare, and any other monthly expenses that are necessities. (Tip: If you currently rent your home, you can leave that payment out since it would likely be replaced by your mortgage payment.)
• Other monthly expenses such as streaming services, memberships (gyms, recreational clubs, organizations, etc.), and what you spend on local attractions (restaurants, shopping, etc.).

Once you’ve made your list, subtract the amount you spend from your monthly income. For example, if your income after taxes is $4,500 and your payments (not including rent) total $1,700, your extra cash for the month would be $2,800. It may not be wise to put all of that toward a monthly mortgage payment because it would overextend you, as there are a number of additional expenses when owning a home, such as water, trash, gas, electric, lawn/landscaping, and general maintenance. All of these expenses should be considered when thinking about the move from renting to owning, but this can help give you an idea of how much you can afford.

Consider your down payment and understand private mortgage insurance

A down payment on a home is the cash you pay upfront when you buy the house. It's usually a percentage of the home's purchase price. This payment helps reduce the amount you need to borrow with a mortgage, which could mean lower monthly payments and a better interest rate.

“Do I need a down payment on a home?” This is a question we receive often from first-time home buyers, and the answer is almost always yes. Unless you qualify for a VA loan, which allows for 0% down, you’ll likely need to put at least 5% down (although there are options for as little as 3% down if you qualify).

Private mortgage insurance (PMI)

PMI is a type of insurance that protects your lender if you are unable to make your monthly payments at any point during the life of your loan. PMI is typically required if you plan to put down less than 20% of the home's purchase price, and generally costs around 0.2% to 2% of the loan amount per year.¹ Be sure to ask your potential mortgage lender about PMI and what it might look like for your price range.

Planning ahead

One of the biggest advantages of starting your homebuying and mortgage pre-planning process early is that it may give you some extra time to plan for your down payment:

• Research specific strategies on how to efficiently save for a down payment.
• If you have an INTRUST checking and savings account, consider setting up an automatic transfer that moves money every so often from your checking account to your savings account.
• Consider implementing a strategy to pay down credit card or other debt.

Step 2: Finding your real estate professionals

The homebuying process can feel easier when you have a local mortgage lender and a local real estate agent by your side. In general, when you choose a local real estate professional, they may be better equipped to:

• Offer specific information about the regional market, including information on specific cities, neighborhoods, and average home prices.
• Prioritize accessibility and have regular meetings with you in person.

Our experienced mortgage lenders serve several areas across the region. Learn more about who we are and the areas we serve. We regularly work with local real estate agents and can make one or several referrals if needed.

Here’s what we recommend when looking at mortgage lenders and the financial institutions they represent:

• Research the mortgage lender and the financial institution. Look for information online about the individual and their company — through their formal website, social media sites, and online forums.
• Check the lender's credentials, including NMLS number and years of experience.
• Compare interest rates and fees at the lender’s financial institution.
• Evaluate mortgage options and flexibility at the lender’s financial institution.
• Assess customer service quality. Consider contacting both the financial institution itself as well as the mortgage lender. Are they easily accessible and highly responsive to inquiries?
• Consider the lender’s communication style. Do they prefer email or phone call? Are they available for in-person meetings? Think about your expectations and if you feel the lender will be able to meet them.

Step 3: Researching homes and price points

When you’re starting to look online at homes and considering where you’d like to live, it can be good to think about the information below. Not only will this help you get a realistic understanding of the size of homes in your budget but also where they are and what factors matter most to you.

• Think about the amount of home you’ll need. What kind of home will this be for you? A starter home? If so, you may not need as many bedrooms and bathrooms. A home for a growing family? You may want slightly more space so that your home will continue to fit your family as you expand. Your real estate agent can help you weigh the options within your budget.
• Think about your budget. Not just for the purchase price of potential homes but also for property taxes, utility costs, insurance, and maintenance. A thorough financial evaluation may prevent future stress and financial strain.
• Assess your lifestyle needs. Think about factors such as proximity to work, schools, healthcare facilities, public transportation, and recreational areas. Reflect on your long-term goals and how the location of your home will align with them.
• Research neighborhoods and their characteristics. Do some online research to look at safety statistics and community amenities. Visit neighborhoods at different times of the day to get an overall feel of the area and noise levels.
• Think about essential services. This includes places like grocery stores, banks, and restaurants. Convenient access to daily necessities is important for a comfortable living experience.
• Evaluate quality of life factors. If you have or plan to have children, consider researching school ratings and reviews. Take environmental factors into account, such as air quality, weather patterns, and susceptibility to natural disasters, as these elements can affect your health and the structural integrity of your home.
• Consider a sense of community. Look for a place where you feel a sense of belonging and that aligns with your values and interests. Check for community events, local clubs, and opportunities for social engagement.
• Examine future growth and development. Look for signs of upcoming infrastructure projects and new businesses. A location with growth potential can positively impact the value of your home over time.

Step 4: Understanding mortgage options and interest rates

We offer a variety of mortgage loan types, two options for interest rate type, and several terms to choose from within each loan type. We’ve included an overview below, but we recommend contacting one of our mortgage lenders to ask questions and get a more in-depth explanation of each.

For the HomeReady and Home Possible loans, there are steps and conditions you’ll need to meet to be eligible for these programs, but in general, the programs aim to make purchasing a home more accessible.

Mortgage loan types at INTRUST

HomeOne - First-time homebuyer loan

If at least one borrower on your loan is a first-time homebuyer, you qualify for this option.

• Interest rate is fixed for the life of the loan.
• Only 3% down and no income restrictions.

Conventional fixed-rate loan

This option is for homebuyers who qualify for a typical mortgage loan. It’s the most popular mortgage loan type.

• Interest rate is fixed for the life of the loan.
• Ideal if you have at least a 5% down payment and a higher credit score.

HomeReady® or Home Possible loan

The HomeReady or Home Possible loan programs are a good option for low-to-moderate income homebuyers who want to access a conventional loan and qualify for a smaller down payment.

• Down payment is as little as 3%.
• Cancellable PMI at a reduced rate.

VA loan

A Veterans Affairs loan, or VA loan, is available to veterans, active-duty service members, and surviving spouses of service members who meet certain service requirements.

• Zero down payment.
• No PMI.

Adjustable-rate mortgage (ARM)

An ARM, like the name suggests, features an interest rate that can fluctuate. It can be a good option for homebuyers who want to take advantage of lower mortgage rates for an initial period.

• Lower initial payments and interest rate.
• Ideal if you don’t plan to stay in the home for a long time.

Interest rate

There are two basic interest rate types.

• A fixed-rate mortgage has an interest rate that remains the same over the life of the loan, which makes the loan principal and interest payment the same every month.
• An adjustable-rate mortgage, although it tends to provide a lower initial interest rate, comes with more risk than a fixed-rate mortgage because the interest rate can change — increase or decrease — over the life of the loan. That’s why this option can be better for people who don’t plan to live in the home for a long time. You’ll want to consider whether your future budget could handle a potential increase in your loan payment.

Review our FAQs section for more information, including the difference between interest rate and APR and how we determine your interest rate.

Terms

Your mortgage term is the agreed upon amount of time for you to pay back your loan. Terms can be different lengths, such as 10, 15, or 30 years. During this time, you'll make regular payments toward the mortgage so that you can have it paid off by the end of the term.

Choosing a shorter term usually means your monthly payments will be higher but your interest rate will be lower, meaning you'll pay less interest overall. On the other hand, a longer term means lower monthly payments but more interest paid over time. Picking the right term depends on your financial situation and future plans, and we can help you make that decision. Learn more about our competitive rates and terms.

Step 5: Getting pre-qualified for a mortgage

When you start actively searching for homes, agents and sellers want to see that you’re either pre-qualified or pre-approved for a mortgage. This means you’ve contacted a mortgage lender, and, through early evaluation of documentation you’ve provided and your credit report, that mortgage lender has made the determination that you could be approved for a mortgage in that price point. Both pre-qualification and pre-approval give you a better understanding of your financial position and can expedite the final mortgage approval process.

At INTRUST, we offer pre-qualification. Here’s how it works:

1. Fill out a preliminary version of our mortgage application.
2. We’ll pull your credit report and complete an initial evaluation.
3. If everything looks good, we’ll send you a letter of pre-qualification.

Your real estate agent will use your pre-qualification letter to assure sellers and listing agents that you’re a serious buyer who’s taken the necessary steps to begin actively searching for homes and making offers. You can quickly get a pre-qualification through our online mortgage application or by contacting one of our mortgage lenders.

Step 6: Making an offer and going ‘under contract’

When you find a home you like, your real estate agent will help you write an offer and submit it to the sellers and their agent. The seller typically has 24 to 48 hours to decide whether to accept, reject, or make a counteroffer.

If they accept your offer, you’ll be “under contract.” This means you and the seller have a contract in place to move forward with the sale of the home, and you both have obligations you must meet on a strict timeline over the next few weeks.

For you as the buyer of the home, this includes the following:

• Making your earnest money deposit. Earnest money is the sum of money that you as the buyer provide to the seller upfront to show you’re serious about following through with the contact and timeline. Your real estate agent will guide you on the specifics, but generally, you’ll provide a check to the title company, and the title company will hold onto it throughout the contract period. If you adhere to the contract timeline and complete your obligations, your earnest money will ultimately be applied to your down payment.
• Scheduling a home inspection. A home inspection is a detailed look at the property, completed by a professional inspector for a fee. They look at the home’s structure, roof, and electrical systems, as well as plumbing, heating, and cooling systems, and will also check for pests, water damage, and other issues that could affect the home's value and comfort. After the inspection, you'll get a report that highlights any problems and suggests repairs or improvements. Depending on what it reveals, you can decide to move forward with the purchase or negotiate with the seller for fixes or a lower price.
• Scheduling an appraisal. An appraisal is an unbiased professional assessment of the property's market value conducted by a licensed appraiser. This evaluation is based on several factors, including the home's condition, location, and features, as well as similar properties that have recently sold in the area. The appraiser will note any significant factors that could affect the home's value. The process ensures that you, the seller, and your lender all have a clear understanding of the property's worth, which helps you make an informed financial decision and can affect whether your lender will allow you to move forward with your mortgage.
• Loan application, processing, and underwriting. We’ll ask you to complete a loan application and submit several important documents to verify your financial status and ensure you meet the criteria for the mortgage. These documents help us assess your ability to repay the loan and ensure that you qualify for the mortgage terms. You may hear us refer to this in-depth verification process as “underwriting.”

Step 7: Closing day and securing your mortgage

Closing day is the final step in the process of securing a mortgage and purchasing a home. It's the day when you and the seller complete the transaction, and ownership of the property is officially transferred to you. You’ll likely complete a final walkthrough of the home, and then your real estate agent, your lender, you, and the seller may meet at the title company for the official signing and handoff.

Here’s an overview of what the day might look like:

• Do a final walkthrough. Before signing the documents, you'll have the opportunity to do a final walkthrough of the property to ensure that it is in the agreed-upon condition and that any repairs or improvements that were negotiated after the inspection have been completed.
• Review your loan documents. You’ll review and sign various documents related to the mortgage and the purchase of the home. These documents include the loan agreement and the closing disclosure, which details the final terms of the loan, including interest rates, monthly payments, and closing costs.
• Pay closing costs and down payment. If you are paying closing costs, you’ll pay those on this day. This may include fees for the loan origination, appraisal, title insurance, and other expenses related to the transaction. Your lender will communicate with you ahead of time on your closing costs and down payment and how you can plan to make both payments (i.e., cashier’s check or wire transfer).
• Transfer of funds and ownership. Once all documents are signed and closing costs are paid, your lender will transfer funds to the title company, which will in turn transfer them to the seller. The title company or closing agent will then record the deed with the local government, officially transferring ownership of the property to you.
• Receive the keys. After the transaction is complete, you'll receive the keys to your new home, which marks the end of the closing process and the beginning of your homeownership journey.

As a first-time homebuyer, it's natural to feel a mix of excitement and anxiety. Remember, you’re not alone. Your lender, real estate agent, and other professionals are here to guide you and provide support every step of the way. Embrace the process, ask questions, and take advantage of the resources available to you. This milestone represents a significant achievement and a new chapter in your life. No matter where you are on our journey, we’ll guide you home. Congratulations on feeling ready to take that next step.

Contact us to learn more or apply online now.

¹ Experian - https://www.experian.com/blogs/ask-experian/how-much-does-private-mortgage-insurance-pmi-cost/