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FIRST TIME HOME BUYER’S
GUIDE TO FINANCING
mortgagesolutions.net
FIRST TIME HOME BUYER’S
GUIDE TO FINANCING
CONTENTS
OVERVIEW
Purchasing your first home involves a lot more than finding a place to hang your hat. It involves long-term commitments, a sizeable
investment, and great rewards. You will no longer write rent checks to pay off your landlord’s mortgage. Instead, you will make monthly
payments on your own mortgage – and you will gain valuable equity in the process.
Your home is likely to be one of the largest purchases you ever make, and few of us are able to simply write a check to cover the bill.
The job of a mortgage lender is to provide financing to make the purchase possible. The job of a good mortgage lender is to ensure that
the loan provided is sensible—that it can be manageably paid back by the borrower over time.
The goal of this guide is to make you an educated and confident home buyer. The guide
• explains the need for pre-approval and the pre-approval process,
• provides an overview of some common financing options,
• explains factors affecting pre-approval and loan qualification, and
• lists some of the documents needed when applying for a loan.
THE MORTGAGE SOLUTIONS FINANCIAL MISSION
Mortgage Solutions Financial strongly believes every client should be served with integrity, dignity, and respect. Without compromise,
Mortgage Solutions Financial is committed to providing loans that are in the best interest of our clients, not our bottom line. We will
continue to educate the community by empowering our clients to make responsible and informed fiscal decisions that result in greater
financial peace of mind.
Overview/Mortgage Solutions Financial Mission ..................................... 2
Get the Loan First: Pre-Approval ............................................................. 3
What is FICO? ......................................................................................... 4
Immediate Cash Requirements .............................................................. 5
Loan Options .......................................................................................... 6
Dos and Don’ts for Successful Financing .............................................. 7
Application Checklist .............................................................................. 8
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GET THE LOAN FIRST: PRE-APPROVAL
Why Obtain Pre-Approval?
Common sense dictates that we should know what we can afford before we start shopping, and the home-buying is no different. For
this reason, it is wise to get pre-approved for a loan before house-hunting.
Even if you think you know how much you can afford or the loan amount you will qualify for, solid numbers from a mortgage expert
ensure a smoother process.
House hunting is exciting but can result in disappointment if buyers set their hearts on a property that is out of financial reach.
Pre-approval gives you more clout in the eyes of realtors and sellers.
There is no cost or commitment for pre-approval. Pre-approval is a straightforward process. Lenders base their determinations on a
number of factors, including:
NOTE: Pre-approval is a necessary and valuable first step; however, you will complete a more detailed application later in the process to
become fully qualified for a loan.
Income
&
Assets
Debts
&
Liabilities
Credit History
&
FICO Score
Lenders also weigh your current
debts and liabilities in light of
other qualifying factors in order
to determine loan eligibility and
repayment ability.
Lenders assess your income
amount and stability to
determine your eligibility for a
loan and your ability to make
monthly payments.
Lenders examine your credit
history and FICO score to assess
how well you have handled debt
in the past. Your FICO score
may vary somewhat from one
reporting agency to the next;
don’t be surprised if you check
your score and the numbers are
different from those of the lender.
WHAT IS FICO?
FICO is an acronym for the Fair Isaac Corporation. A primary function of FICO is to provide
lenders with credit scores that help indicate a borrower’s credit risk. Though the precise
formula for scoring has not been made public, it is based on length of credit history, types of
credit usage, new credit, existing credit debts, and payment history.
There may be loan options for borrowers with flawed credit histories or lower-than-ideal FICO scores. However, if your credit history is
not in great shape, working to repair it—before attempting to finance a mortgage—may be strategic.
Ultimately, consulting with a mortgage expert will give you the best idea of your options in light of your FICO score.
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How can I determine how much my mortgage could be?
Use our free mortgage calculator.
Calculating a mortgage can be a complex process. Know the numbers without all the head scratching. Visit the Resources section of the
Mortgage Solutions Financial website at www.mortgagesolutions.net to access a mortgage calculator. This free, zero-commitment tool
and many other resources offered on the site will help guide you through the financing process. These tools provide general information;
work with a Mortgage Solutions Financial expert to get actual numbers.
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IMMEDIATE CASH REQUIREMENTS
Although some mortgage options require zero money down,
most require cash on hand for the down payment, closing
costs, and mortgage/lender fees.
Down Payment
Any money you put toward your down payment will reduce the principal amount of the loan, therefore lowering your monthly payments
and possibly your interest rates.
You may be required to make a down payment that equals a specific percentage of your home’s purchase price. The percentage
required may be dictated in part by factors—such as your FICO score, income, assets, and debts—that are considered during the
qualification process. The type of loan you seek will also affect the amount of the required down payment.
As a general rule of thumb, mortgages obtained with less than 20% down will require the purchase of PMI, or Private Mortgage
Insurance. PMI, which serves as a safeguard for lenders, will be figured into your monthly payments.
Where you obtain your down payment may also have bearing on your approval and interest rates. For example, money received as a gift
from a family member is perfectly acceptable, but money from your personal savings account presents a lower risk to the lender.
Closing Costs and Mortgage/Lender Fees
At the time of closing, certain fees and closing costs should be expected, though they vary, depending on a range of factors. Costs and
fees can be confusing, but your Mortgage Solutions Financial expert will explain any charges and answer all of your questions.
Occasionally, lenders will omit certain fees or sellers will agree to cover portions of the costs. However, closing costs and fees typically
range from 3%–5% of the total mortgage amount. Charges may include:
• General Loan Fees
• Insurance
• Taxes
• Title Charges
• Government Recording Charges
• Application Fees
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LOAN OPTIONS
Speaking with a professional is the best way to determine which loan is the best fit for you
and your family. This section outlines only a few of the most common loan options available.
USDA
Loans
The U.S. Department of Agriculture’s Guaranteed Rural Housing Program is designed
to help low or moderate income families acquire home loans within designated rural
areas. 100% financing is available for eligible USDA loan applicants.
VA
Loans
The VA Loan program is designed to assist the brave servicemen and servicewomen
of the U.S. Armed Forces. Military veterans and their spouses may benefit from the
special terms of these loans, such as relaxed credit score requirements and 100%
financing.
FHA
Loans
FHA loans may offer significant benefits to qualified borrowers. The flexible guidelines
allow relaxed credit score requirements and the possibility for a borrower to qualify
quickly following a bankruptcy. The standard FHA purchase loan requires only a 3.5%
down payment, and in many cases the down payment may be gifted.
Adjustable
Rate
Mortgages
Adjustable rate mortgages offer variable interest rates that may change over time
according to benchmarks set prior to closing. As a result, your monthly payment may
change over time.
Fixed Rate
Mortgages
With a fixed rate mortgage your interest rate stays the same throughout the course of
the loan’s maturity. Your total payment toward interest and principal will not change
from month to month.
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DOS AND DON’TS
FOR SUCCESSFUL FINANCING
With guidance from a Mortgage Solutions Financial mortgage specialist, the financing
process is usually relatively straightforward. The guidelines below highlight some of the basic
“Dos and Don’ts” that can expedite the process and help to ensure a successful transaction. It
is important to continue following these guidelines even after preapproval.
DO crunch ALL of your numbers and clearly define your goals.
Your Mortgage Solutions Financial mortgage specialist will strive to make the financing process as stress-free as
possible for you. However, you must perform your own due diligence—carefully considering ALL your financial
details— to ensure that your decisions are financially sound for you and your family.
DO be prepared.
Gathering the appropriate information before the financing process begins can significantly streamline the
transaction. The checklist on the next page presents some of the documentation that may be required, but
please bear in mind that different loan programs may call for different forms of verification.
DON’T change jobs or start your own business during the financing process.
It is essential that your employment status is the same at final verification as when you fill out the initial
application. Mortgage Solutions Financial supports the entrepreneurial spirit, but now is not a good time to
change jobs or quit your job to start your own business.
DON’T make any large purchases that require a credit check during the
process.
Credit checks can negatively affect your credit score. For this reason, large purchases such as vehicles and
furniture—anything that may result in a credit check—should be avoided during the financing process.
DON’T guesstimate when filling out your application.
From pre-approval through final verification, ensure that all the information provided to your mortgage specialist
and lender is as accurate as possible. The fewer surprises the better!
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APPLICATION CHECKLIST
Though additional information may be necessary, this checklist provides an overview of the verification documents lenders use to deter-
mine loan qualification. Ask a Mortgage Solutions Financial mortgage specialist for additional information.
Income Information:
Pay stubs for the last 30 days.
Names and addresses of all employers for the last two years.
W2 forms and Federal Income Tax Returns for the last two years.
Verification of other income, such as dividends, rental income, child support, alimony, or Social Security and disability
payments.
Asset Information:
Savings accounts.
Checking accounts.
401(k) accounts.
IRA accounts.
Investment records.
Additional Documentation:
Social Security number.
Names, phone numbers, and addresses of all involved parties.
Getting Started
Mortgage Solutions Financial is here to help.
Over the course of nearly two decades, Mortgage Solutions Financial has helped over 40,000 families purchase the homes of their
dreams and reach their financial goals. We are here to serve you and guide you through the financing process every step of the way. Our
mortgage specialists are dedicated to answering your questions and finding the best options available for you and your family, seven
days a week.
Give us a call at (877) 899-3614 today, or visit us online at www.mortgagesolutions.net to schedule a free,
no-commitment consultation.
Complete your free loan application today.
Mortgage Solutions Financial offers a free online loan application at www.mortgagesolutions.net. You can fill out the application at your
own pace. You can even begin the application, save your work, and return at a later time to complete the forms.
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