Education | April 24, 2024

What Banks Look for When Qualifying a First-Time Homebuyer

The real estate market can be intimidating at the best of times — and that’s especially true if you’re a first-time buyer. Not only are you making what’s likely to be the biggest purchase of your life so far, but, between fluctuating interest rates and a dynamic real estate market, it can feel like there’s so much to learn before you dive in.

However, the process doesn’t have to be overwhelming and preparation is key to setting yourself up for success, says Johnathan Graves, a Northwest Bank Community Lending Officer in Buffalo. “When you’re prepared from the beginning, you’ll know what to expect at each step of the homebuying process, so you’re less likely to have to scramble to find forms and documents when you need them.”

Thinkfully, you don’t need to do it alone. Read on for expert tips from three of Northwest’s community lending officers to help you apply for a mortgage — and create a brighter financial future in your first home.

Start with education

You don’t need to have all the answers as a first-time homebuyer, but getting educated on the buying process can help you prepare you for the next steps. Consider attending a workshop for aspiring homeowners and take advantage of digital tools to help you create your plan.

Northwest Bank offers a range of tools and calculators to help:

While independent education is important, don’t be afraid to look to a mortgage loan officer for help. “A lot of first-time homebuyers think they need to have all the answers by the time they talk to us, but it’s part of our job to guide you through the process,” says Arlicia Robertson, a Fishers, Indiana-based Northwest Community Lending Officer. “We’re truly here to help you every step of the way.”

Set realistic goals

Once you have a sense of what homeownership might look like from a financial perspective, take an honest look at your lifestyle and financial situation to set goals that will work for you.

A mortgage affordability calculator gives you a starting point for creating a realistic budget. But reflect on how much you truly feel comfortable spending on housing to set a budget that works for your needs, advises Charles Payton, Northwest Community Lending Officer in Independence, Ohio.

“Buying the most expensive property you can afford might impact other factors of your lifestyle,” he explains. “By understanding what you can cut and which discretionary spending you need to feel happy, you can set a goal that will allow you to live the life you want.”

This exercise also helps you set a savings goal for your down payment. While lenders typically look for a down payment of at least 3-5%, saving more can help you reduce the balance of your mortgage and manage your monthly costs.

Lastly, make sure you’re saving enough to cover the cost of home inspection services, title insurance and other closing costs, so you aren’t surprised during the homebuying process.

Check your credit

Lenders look at your credit score and history during the mortgage application process, so building strong credit helps you put your best foot forward.

Start by reviewing your credit report. Graves recommends using to pull your credit report without impacting your score. As you review your report, make sure the information is correct. And, if necessary, contact the three major credit bureaus — TransUnion, Equifax and Experian — to address any errors.

If you’re worried about your credit score, talk to a mortgage loan officer for personalized advice. They can give you an honest assessment of whether your credit might impact your application process and can work with you to find options that fit your needs.

Gather the documents you’ll need

Securing a mortgage requires providing a number of documents, so knowing up front what you’ll need will help you prepare for your application.

The specific requirements might vary by lender, but banks generally want to see:

  • Proof of identity, such as a driver’s license or Social Security card
  • Proof of income, including tax returns (including W-2), pay stubs, employment information and business records if self-employed.
  • Rental history
  • Loan statements, including personal loan, student loan and credit card statements
  • Proof of your assets, such as statements for your bank accounts, 401(k), IRA and other investment accounts.

Your mortgage loan officer can help you identify which documents they’ll require and how to get them, so you’re prepared for your application.

Identify other requirements

Depending on where you live and the circumstances of your purchase, your bank might have other requirements to approve your mortgage application.

In New York, for instance, you'll be required to have an attorney represent you at closing and review your contracts, including your contract with the seller. And, depending on the type of loan you get, your lender may require a home inspection before closing as well.

Look to your mortgage loan officer for help with any other requirements you’ll need to meet, and don’t be afraid to ask for referrals for service providers.

Keep in touch after you move in

Purchasing your first home is a huge financial milestone — but it’s also one of many milestones you’ll reach in your life. And working with a full-service bank for your mortgage can help you work toward other financial goals too.

“Once you’re in your home, we can help you make the most of your home equity,” says Robertson. A home equity line of credit can help fund renovations and repairs, help pay for college or even fund your dream vacation. “If we know your long-term goals once you’re in your home, we can help you find a way to get there.”

The bottom line

Your first home is one of the biggest purchases of your life and you deserve a mortgage loan officer who makes you feel comfortable every step of the way, says Payton. “There’s no such thing as asking ‘too many questions’ or reaching out too much. For us, there’s no greater joy than to help you purchase a first home you’ll love.”

Northwest Bank’s team of residential lenders are here to support you, whether you have a specific home in mind or you’re just starting your journey. To learn more about our home lending solutions and connect with a lending expert near you, visit us online.

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