Buying your first home is both exciting and somewhat scary. Sure, you have grand ideas of the perfect house with possibly a big yard and a pool in a great neighborhood, but how will you be able to afford it?
Not to worry, Points West Community Bank is here to help break down the process, show you which documents you need, and guide you through the pre-approval process. For more than 115 years, Points West Community Bank has supported the residents in the Front Range area of Colorado with financial support, reinvestment, and active participation in the community.
Get ready to take some notes and create an action plan so when you’re ready you can sail through the pre-approval application with ease.
Understanding the Home Buying Process and Real Estate Markets
Taking a little time to do some research on what to expect throughout the entire home buying process is critical to not only being prepared but being able to handle challenging situations. You’d be surprised by all the little details that go into the process (like issues raised during inspections), so we recommend starting with these two articles:
- Guide to Homebuying – Points West Community Bank blog: high-level blog that covers the basics of understanding the housing market, preparing for closing costs, and even planning for home improvement projects once you move into your new home.
- The Real Estate Home Buying Process in Colorado: The Colorado Department of Regulatory Agencies dives into greater details what to expect during the entire home buying process. Topics include sales contracts, earnest money, title company, and home inspection. All very important topics to know before you even complete the pre-approval application.
Knowledge is Power-Know Your Credit Score
First things first, and that’s to know what your current credit score is. No other 3-digits in the world hold as much power as your credit score. This determines if you meet minimum requirements for a home loan and impacts on the difference between a great interest rate vs. a high one.
You can get your credit report in a few ways:
- AnnualCreditReport.com – free service from the US Government to access all 3 credit reports
- Credit Karma and Credit Sesame – free apps that give an estimate of credit scores plus tips for improving
What to Do if Your Credit is Below 620
Don’t panic and know you’re not the first person with a lower-than-average credit score, but you can use these tips to make it higher to get pre-qualified and obtain a better interest rate.
- Pay your bills on time, every time
- Aim for 30% or less credit utilization on credit cards
- Resolve any delinquent or closed accounts
- Correct any mistakes you find on your credit report
- Consider paying more than a minimum on credits cards to help with utilization and reduce the amount of interest paid
Give yourself at least 3 to 4 months to see any improvements to your score. The key is to be consistent and eventually you’ll see your hard work pay off.
Determine Your Affordability With Our Handy Mortgage Calculator
Start Saving for a Down Payment
While you’re working on improving your credit score, it might be a good time to start putting money away toward a down payment. Amounts will be different depending on the type of mortgage you qualify for, but on average expect to pay 13.5% for a down payment. For example, if you are purchasing a $200k home you will need around $27k. Of course this will vary, but it does give you a good estimate to start saving for that down payment Consider opening a Points West Community Bank Savings Account to keep track of your progress and keep down payment savings separate.
What Types of Mortgages Are Available?
Before we get into what documents are needed for the pre-approval applications, let’s talk about the types of mortgages available at Points West Community Bank. And don’t worry if you’re a bit confused or have questions, you can contact a broker to guide you through the different types. And because we are focused on first-time buyers, these are the loan types that are most appropriate:
- Fixed-Rate Mortgage: This is the most popular type of mortgage loan. A fixed rate means the interest rate stays the same for the entire loan term, making it a popular choice for buyers who want a predictable monthly mortgage payment and plan to stay in their homes over the long run.
- FHA Loan: Backed by the Federal Housing Administration, these mortgage loans are ideal for first-time homebuyers who want to make a lower down payment or who need more flexibility with credit scores.
- VA Loan: VA loans are a benefit for veterans and active-duty service members. The primary benefits of a VA loan include competitive interest rates, no down payment, and no mortgage insurance requirement.
Get Your Documents Ready
Taking the time to gather the most common documents needed for the pre-approval application will help things go smoothly and reduce time spent, which means the review process can start sooner! While every person’s situation is unique, these are the most common documents needed:
Key Required Mortgage Documents
- Proof of two years residence (address and dates)
- Social Security or Tax ID
- Clear photo of driver’s license
- Proof of two years of employment, including previous employment
- Two most recent W2s and paystubs
- Two years of all federal tax documents
- Gift letter if you are receiving funds to help with payment
- Disclosure of all additional income such as rental properties and similar
Your Points West Community Bank mortgage broker can help guide you through the process and identify any additional documents needed.
Don’t Do Anything to Impact Your Credit Score
After you complete your pre-approval application, it’s very important that you do not do anything that may impact your credit score or overall financial situation as this could lead to delays in your closing date. Remember, the review and underwriting process takes time, and your credit score will be verified multiple times, so make sure it doesn’t drop. Here are some things to consider:
Do:
- Ask your Points West Community Bank mortgage broker any and all questions
- Pay all bills on time and keep a healthy credit utilization of at least 30%
- Get a homeowner’s insurance policy. Your Points West Community Bank mortgage broker can tell you the amount you need to cover.
Don’t:
- Open new credit cards or accounts
- Change jobs without discussing with your Points West Community Bank mortgage broker, as this could impact closing
- Move money around between accounts, keep everything where it is until after closing
Just be practical with your financial decisions during the closing process and you’ll be fine. That means you can start budgeting for new furniture, fixtures, or anything you want to make your new home feel perfect.
Start Your Home Buying Journey Today
Now that you have the basics for what to expect during the home buying process, it’s time to do your homework, gather your documents, and start your Points West Community Bank pre-approval application. We’re here to help you at any time just by contacting us.