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Tips for First-Time Homebuyers

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Tips for First-Time Homebuyers

Purchasing a home is one of the biggest financial purchases you will make in your lifetime. At Iowa State Bank we want to take the confusion, frustration, and worry out of the mortgage process. It is always helpful to meet and talk with one of our experienced mortgage lenders, but here are some helpful hints while you get started on the process!

Get prequalified!
One of the first things your Realtor will ask you is if you have been pre-qualified to purchase a home. We recommend that you do this before looking at homes so you have a good understanding of what you can qualify for, what you can afford, and you have a letter in hand when you start looking so you are ready to make an offer if your dream home comes on the market!

What is the difference between being prequalified and preapproved?
A prequalification is a basic application where the bank will run your credit report but doesn’t require any verification documents. A preapproval is a more in-depth look at your information and can show that you are a serious buyer with all of your ducks in a row. If you want to be preapproved, simply provide verification information like paystubs, bank statements, etc. to your lender and ask to be preapproved!

Can I buy a home if I don’t have 20% down?
Yes! There are a variety of ways to buy a home with limited down payment funds. While putting 20% down will save you money through the life of the loan, most first-time homebuyers do not have resources to put down that much. If you don’t have 20% down, the most common options would be to do a USDA Rural Development loan that allows up to 100% financing, or get a loan with Private Mortgage Insurance, or “PMI”.

What credit score do I need to qualify for a home loan?
With a conventional loan (20% down payment), a 620 credit score will typically qualify you for a mortgage. If you have limited to no down payment, a 640 credit score is usually the standard. And if you don’t have any traditional credit established, we can still help! If you have history of paying at least three-monthly obligations (i.e. rent, vehicle insurance, utilities, etc.) for at least a year, we can “build” credit for you.

How much can I afford?
A general rule of thumb is for your qualifying monthly house payment to be no more than 30% of your monthly gross income and your total loan payments to be no more than 41% of your income. Your total housing payment includes principal, interest, taxes and insurance (PITI). The amount you can afford and the amount you can qualify may be two different things. While you may be able to qualify for a higher loan amount, you want to make sure the full PITI payment works in your monthly budget.

How do I apply?
There is no fee and no obligation to get prequalified at Iowa State Bank. You can set up an appointment to meet with one of our mortgage experts at one of our locations, call and apply over the phone, or apply online. You will want to know your gross income (before taxes), down payment money, and debt payments so they can see what you qualify for and give you some options on loan terms to help you be prepared to purchase a home.

Are there grants available to help purchase a home?
There are grants available to home buyers purchasing their primary residence. The grant money can be used for down payment or pay for closing costs. To qualify for a grant there are household income limits that must be met. See a mortgage expert to see if your income would qualify for a grant!


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