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8 things loan officers want first-time homebuyers to know about homebuying

By Zak Stoiber

May 2022

If you’ve just started thinking about buying a house, you probably know as much about loan officers and the homebuying process as the average loan officer knows about TikTok and the two-step. I reached out to 3 loan officers and asked them a simple question: What do you wish first-time homebuyers knew about the homebuying process? Here’s what they had to say.

1. An online calculator is the quickest way to understand the costs of buying a house

The first place many go when they think about buying a home isn’t to a financial institution – it’s Zillow and other home browsing sites. The problem is that borrowers are seeing the listing price of the home without understanding how it would translate to a monthly cost or down payment amount. This can cause buyers to think they might be able to afford a more expensive home than their budget actually allows.

“The first question I always ask my borrowers is: how much do you want to pay a month? This brings them down to a reasonable level, versus asking how much they’re planning on spending on the home. If you start with the payment, and they say they only want to spend 1,400 a month, that can help guide the rest of their expectations,” said Chris Chapman, Mortgage Loan Originator for Space Coast Credit Union in Melbourne, Florida.

Using a calculator like Readynest’s allows you to input your ideal monthly payment, which then calculates a potential down payment and home price. From there, you can adjust sliders to see how the numbers impact each other. You’ll have a better sense of what you’re looking for when you do meet with your loan officer, and they can provide you with specific programs to suit your needs.

2. Get educated on the process of buying a home in the format you’re most comfortable with

All loan officers I talked to mentioned how they’re happy to fully walk first-time homebuyers through the homebuying process, but also that a little personal research can go a long way toward having a common foundation to build on. But where should you start when there are so many resources to choose from?

“Educate yourself on the platform that you’re most comfortable with,” Chris said. “I asked my kids how they get their information, and I got 3 different answers – all completely valid! If you’re comfortable with YouTube and podcasts, use that. If it’s friends and family, schedule some time to talk with them and learn about how the process went for them. Great information is out there in every medium – just make sure it’s from a source you trust.”

3. Take your parents’ advice with a grain of salt – if they’re basing it on their own experience

Friends and family can be a great resource if those people have recently gone through the homeownership process – but do be aware that every situation is different, especially if they bought more than a few years ago.

“I’ve met plenty of buyers who got most of their research from Uncle Joe who bought his last house 40 years ago – and 40 years ago, Uncle Joe needed to come up with 20%. That’s not the situation that’s happening today – most homebuyers put down less than 20%,” Chris said.

Chris is right – today, the average buyer puts down 13% for a down payment, while first-time homebuyers tend to only put down 6% or 7%, according to the National Association of Realtors. 

4. Compare lenders to find the right fit – don’t just shop rates!

When you’re new to the homebuying process, it’s easy to do some quick research and just go with the lender that has the lowest rate – but, just like any service or business, not all lenders are created equal! You should think about choosing a lender just like you would any other service – except you’re entrusting them with the biggest purchase of your life, so price shouldn’t be the only factor.

Melissa Abramovich, Mortgage Loan Originator at A+ Mortgage Services in Milwaukee, Wisconsin, emphasized the importance of finding a loan officer who will be a true partner. “You are going to be friends with this person for a month or two – so you do need to be able to get along and rely on them. Are they responding in a timely manner? What’s their availability like? Those things all matter – we’re all essentially using the same pricing engine, so you don’t want to get too caught up in a rate.”

The best lenders will go the extra mile to help make your homebuying journey a success. Ryan Kiefer, Branch Manager at Prime Lending in Cincinnati, Ohio, likes to have an appraisal gap strategy ready. “If a buyer had put 20% down on their home and it under-appraised by 10%, with the help of mortgage insurance, the borrower can put down 10% (or less) – freeing up cash to close the appraisal gap. The cash-to-close would stay exactly the same, and the monthly cost would go up a small amount to pay for the MI,” Ryan explained.

5. Getting preapproved is a competitive advantage

The most common refrain among the loan officers I interviewed was the importance of getting preapproved. While the primary benefit of pre-approval is letting you know how much house you can afford, it can also give you a competitive advantage. 

Ryan explains: “Years ago, the preapproval might not have been as important as houses weren’t all getting multiple offers. Now, we’re helping our buyers win offers by getting you fully approved before you get your accepted offer. The main benefit is that we’ll call your listing agent on your behalf and let them know that not only are you approved but that you’re fully approved.

This also helps compete with the recent rise of all-cash offers, as even cash offers need to wait a couple weeks to fully close as they wait for the title, etc. We can close just as quick as a cash offer.”

6. The market is much more competitive than it was just a few years ago

The market is also almost as hot as it’s ever been, which some buyers are not prepared for. “The market that’s out there – if borrowers don’t have proper expectations, they’re going to stub their toe a few times, get frustrated, and learn the hard way,” Ryan said.

I bought my first home in 2021 when the market was similarly competitive. At the time, I looked at home prices from a few years earlier and regretted how much I could have saved if I had bought then. Of course, now I’m incredibly happy I bought last year as my home has already appreciated significantly in value, while my friends who are just entering the market are jealous that I bought last year. 

When my friends express that same regret, I’m going to pass along a quote that Ryan shared with me: “The best time to plant a tree was 20 years ago. The second-best time to plant it is now.”

7. Today’s “high” interest rates are still historically low

Interest rates over the last 10 years have generally been incredibly low – and now that they’re starting to finally rebound, younger buyers aren’t sure how to respond.

“Younger buyers who are buying their first home have come to expect low interest rates. If you think of a buyer who’s 30, interest rates have been historically low for practically their whole adult life. One thing I like to do is show my younger first-time homebuyers a graph that has historical interest rates. In the 80s, interest rates were in the low teens,” said Melissa.

Freddie Mac’s chart includes monthly interest rates all the way back to 1971 and shows that interest rates dropped below 5% for the first time in 2009. 

8. When it comes to repairing your credit, prioritize which issues to address first

Your credit score is crucial to obtaining the best mortgage terms, and you should always make sure you can do what you can to keep it from dipping – but mistakes happen. One common issue you’ll want to clear up ASAP to improve your credit score is removing derogatory marks (negative items like late payments) from your credit report. However, if you have multiple lines of debt, choosing which to clear first can make a major difference.

“When I see derogatory marks on a credit report, the first thing I do is look at the least expensive one, call up the company, and ask if they’ll remove it from your report if you pay it off. If they will remove it, start with that. If they won’t remove it, you might be better off paying off a larger account that states they would remove the derogatory amount. Medical and car loans are more likely to remove the marks, while phone companies are less likely to,” said Melissa.

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Zak

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Zak Stoiber is a digital marketing program specialist at MGIC who enjoys reading books, some of which do not contain pictures. He recently became a homeowner mostly to house his board game collection.
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