first time homebuyers

10 Ways To Prepare To Buy A Home

FinLocker Blog / By Diana Mulhall / January 7, 2021 January 7, 2021 / first time homebuyers, how do I get my credit score, prepare to buy home, save for down payment

Nationwide, cities are low on inventory for starter homes, and this situation is expected to remain the same in 2021. It is important to get organized for your home purchase now, so you’ll be prepared to make an offer when you find the right home.

Many of these tips apply to current homeowners looking to upgrade to a larger home to raise their family or downsize for retirement, and those looking to make their first major purchase, such as a new car.

Review your credit score and credit report

FinLocker makes it easy to monitor your credit report by displaying your credit score on the Dashboard so you can easily see it every time you sign in. If you haven’t signed up for Credit, stop reading this article now, open your FinLocker app, and sign up – it only takes a few seconds – then resume reading this article.

Review each of your credit reports to ensure there are no errors. You can also obtain a free credit report from each of the three credit bureaus from AnnualCreditReport.com. Your mortgage lender will be reviewing your credit report as part of your loan application, so you don’t want any nasty surprises later. Reviewing your credit report now will give you plenty of time to correct any errors. FinLocker has advice on disputing credit report errors inside the app.

Credit scores range from 300 to 850, with a higher credit score indicating a lower credit risk. While a credit score of 720 and higher is generally considered good and will help you obtain a lower interest rate, you can qualify for a home loan with a lower credit score. FinLocker recommends homebuyers achieve at least a 640 credit score to apply for a home loan.

Save for your down payment and closing costs

If your goal is to buy a home in 2021, you’ve probably looked at the price of homes listed in your preferred neighborhoods. Use the FinLocker Home Affordability Calculator to calculate a realistic purchase price that you can afford. The calculator will also estimate your costs to close (your down payment and closing costs), which should be a separate savings Goal in your FinLocker.

Automate your savings

Open a separate savings account, ideally one that pays interest, to save for your down payment and closing costs. Set up a direct deposit through your company’s payroll or auto-transfer a set amount each paycheck if the savings account is with your current bank. Resist the temptation of getting a debit card for the savings account. If your savings account is less accessible, you are more likely to leave that account untouched.

Enroll your new savings account in your FinLocker to see the account balance grow.

Set alerts to pay your bills on time

One of the major contributing factors to your credit score is paying your bills on time. Your lender will want to see that you can pay your existing loans and bills on time before they finance your home purchase.

Sign up for email or text alerts for your credit cards, student loans, utilities, car loan, and other bills you pay regularly. Schedule payments to be deducted from your bank account after each paycheck is deposited to ensure your bills are paid on time. Some financial institutions or vendors may even give you a discount or a reduced interest rate for scheduling auto payments.

Calculate your debt-to-income ratio

Mortgage lenders want to be confident that you can afford to repay your home loan each month before they approve your loan application. One of the areas they review is your debt-to-income ratio (DTI). FinLocker makes it easier to monitor your DTI when you enroll in Credit and connect your bank accounts and loans. Use the FinLocker Spending Analysis to see where your paycheck is going and identify unnecessary spending that you can cut back or eliminate.

Monitor your spending

If your DTI is above 45%, you need to monitor your spending, stop relying on your credit cards to meet your expenses, and start living within your household budget.

FinLocker users can create a budget for their regular household expenses, receive notifications for staying on track, and alert when they’ve gone over budget each month.

Use the FinLocker Spending Analysis to see where you can make savings to start paying down your debts. Can you change your cable/internet plan to one with minimal service, or cut your cable subscription entirely and replace them with a couple of streaming services?

Don’t take on new debt

Don’t be tempted to open a credit card to purchase furniture for a home you haven’t bought. Opening new credit accounts, or being a co-borrower on a loan, may hurt your chances of getting a good mortgage rate. Even transferring a balance from a high-interest credit card to a card with an introductory 0% offer can negatively impact your credit score.

Improve your credit score by paying down the balance of your oldest credit card. Even after you’ve paid off the card, charge a manageable amount each month to keep the account active. Credit history has a moderate impact on your credit score, and lenders want to see that you have a history of being responsible with various types of credit.

Reduce clutter by selling unwanted stuff

Take an honest evaluation of the stuff you don’t use or need around your home. Challenge every family member to identify five items such as clothes, shoes, toys, sporting equipment, etc. that no longer fits or isn’t used. Identify the most appropriate selling apps, then take a photo of the item with your phone, post a description, and sell your items. Split the profit 50/50 for each item your kids donated, and use the remaining money to pay down debt or add to your savings account.

Keep selling until you’ve reduced your unwanted items. You’ll have reduced the clutter around your current home and made it easier to move when the time comes to buy your new home.

Start gathering your documentation

Whether you are buying your first home or selling a home and buying a new home, there is a basic set of documents that all mortgage lenders will require for your loan application. Start gathering the documents now, and upload them to be stored securely in the Document folders in your FinLocker. When the time come to apply for a loan, you’ll be able to select which documents to share with your lender, and transfer them securely for your loan application.

Income

Pay stubs covering the past two pay periods or 30 days
Leave and Earnings Statement (military)
Past two years’ W2s
Federal tax returns for the past 2 years, if you are self-employed, own a business, a commissioned employee (25% or higher), an employee with unreimbursed business expenses or real estate income.
Divorce decree and settlement paperwork for separate maintenance (if applicable)

Assets

Statements covering 60 days for checking and savings accounts, investment and retirement accounts. FinLocker users can transfer accounts connected in their locker to their lender for asset verification.
Information for real estate already owned (use, income, if it’s on the market, estimated value, mortgages)

Credit/Liabilities

An explanation for credit mishaps. Bankruptcy and discharge paperwork (if applicable)
Divorce decree and settlement paperwork for child or spousal support expenses (if applicable)
Documentation disproving any erroneous items on your credit report

Personal Documentation

Driver’s license
Social security number
Certificate of Eligibility (military)

Reconsider renewing your lease

If you are currently renting, review your lease for an “early termination” clause and compare any costs of changing to a month-to-month or six-month lease when the time comes to renew. If you love the home you currently rent, you could even make your landlord an offer to buy the property.

5 Ways To Fill Your Pipeline With Millennial Homebuyers

Business Building Center / By Diana Mulhall / December 28, 2020 January 4, 2021 / create customers for life, first time homebuyers, increase referrals, saving for down payment, student loan debt

At the conclusion of 2019, prior to the Coronavirus changing the way we live and work, Millennials – those born between 1981 and 1996 (turning 25 to 40 in 2021) – had a 47%¹ share of primary home loan originations of the market.

As 2020 progressed, and office workers began working from home, with many arrangements now becoming permanent, Millennials seized on the opportunity provided by low rates to stop renting in expensive cities and purchase a home in an affordable suburban neighborhood or small town.⁵ This change has seen the year ending with Millennials now making over 60% of the home purchases.²

In 2021, a significant wave of millennials will be 30-35³, the prime homebuying age for first-time buyers. How do you fill your pipeline with Millennial homebuyers and position yourself to capture their repeat business and referrals? Here is what we know about this group of homebuyers and how a custom-branded FinLocker can turn loan originators into trusted advisors with customers for life.

1 – Millennials are struggling to save for a down payment.

Student loans, car loans, credit card debt, and increasing rents make it difficult for most homebuyers to save for a down payment. Debt delays 75% of buyers aged 22 to 29 from saving for a down payment or buying a home for 1-3 years, and 48% of buyers aged 30 to 39 years are delayed 5 or more years.⁴ Yet for 85% of buyers aged 22 to 29 and 72% of buyers aged 30 to 39, their savings is the primary source for their down payment.⁴ To become a homeowner, Millennials first need to learn to manage their debt and start saving.

How FinLocker can help Millennials save for their down payment:

The FinLocker financial super-app provides practical budgeting and saving tools to keep Millennial homebuyers focused on their homeownership journey. Whenever there’s a change to their credit score, they keep their budgets on track (or get off track), and make progress towards achieving their savings goals, users will receive a notification through the FinLocker mobile app.

2 – Millennials are burdened by student debt.

According to the National Association of Realtors, 76% of consumers claim student debt impacts their ability to purchase a home⁵; 38% of homebuyers aged 30 to 39 years have student debt with a median amount of $34,000.⁴

Student debt often affects a homebuyer’s debt-to-income ratio, contributing to a low credit score. These two factors were cited by 55% of buyers aged 22 to 29, and 67% of buyers aged 30 to 39 as the reason their mortgage application was rejected.⁴

How FinLocker can help Millennials overcome their student loan debt:

Rather than turn away over half of your Millennial clients for not being mortgage ready, nurture them with a FinLocker. When your clients enroll their credit and debit accounts, the FinLocker Spending Analysis will categorize each transaction to identify where they can cut back on spending, pay down their student debt and credit cards, and begin to save for their down payment. With regular engagement, FinLocker customers will start to see their credit score improve and their debt-to-income ratio lower.

3 – Millennials are tech-savvy and expect their homebuying vendors to be, too.

Millennials are keenly aware of the convenience of online shopping, digital tools, and apps. They expect the vendors involved in their home buying transaction to provide the same convenience. The first step of most millennial homebuyers as they begin the home buying process is to look online for properties for sale (43%), followed by looking online for information about the home buying process (17%), with few (7%) contacting a bank or mortgage lender first.⁴

How FinLocker can help you to attract and engage tech-savvy Millennials:

Target your online marketing to Millennial homebuyers who are early in their homebuying process. Promote the offer to give first-time homebuyers a free financial super-app, aka your custom-branded FinLocker, to every new client that gets pre-qualified. Once they are pre-qualified and you’ve identified any impediments to them purchasing a home in the short term, invite your clients to create a FinLocker to interact with the app’s financial tools to correct the barriers you identified.

4 – Millennials need assistance overcoming the most difficult steps of the home buying process.

Millennial homebuyers in 2020 cited “finding the right property,” “paperwork,” “understanding the process and steps,” and “saving for the down payment” as the four most difficult steps of the home buying process. What’s more, 63% of Millennials found the home they purchased on the internet.⁴ The internet is filled with websites that Millennials can use to obtain homeownership education, but if they stumble across the lead gen resources created by your competition, how likely are they to return to you for their mortgage?

How FinLocker can help Millennials get mortgage ready:

A custom branded FinLocker will help you remain top of mind with your borrowers as they engage with the app to address each step in the home buying process. When they’ve saved their down payment and have taken the readiness assessment, they can begin their Property Search in the app. FinLocker also provides secure Document storage, so the homebuyer can securely transfer their financial documents and assets to their loan officer when they are ready to complete their mortgage application.

5 – Millennials can be a top referral source.

An investment in customer satisfaction is an investment in your company’s future. Satisfied clients are more loyal and will be the promoters of your business. In 2020, 87% of consumers began their lender search with a referral or an existing relationship.⁶ How will you become the mortgage lender your clients recommend to their homebuying friends and colleagues? Stand apart from the competition by becoming a trusted advisor who provided your Millennial clients with the financial tools to improve their credit score, help them save for their down payment, and ultimately increased their purchasing power.

How FinLocker can help your Millennial homebuyers become customers for life:

Client engagement with your custom-branded FinLocker doesn’t end at the closing table. Homeowners can continue engaging with their FinLocker indefinitely as they save for future home repairs, build an emergency fund, and plan to achieve their next financial goals. As the provider of this useful financial tool, you’ll remain their lending contact, keeping you top-of-mind when they are asked for a referral to their mortgage lender.

To find out how a custom-branded FinLocker can be used to attract more Millennial clients to your loan officers, contact us to schedule a demo.

1 Realtor.com, Q4 2019 Generational Propensity Report: Generation Z Enters the Housing Market
2 Ellie Mae, Ellie Mae Millennial Tracker
3 Deloitte Insights, U.S. Census Bureau International Demographics via Haver Analytics
4 National Association of REALTORS®, 2020 NAR Home Buyer and Seller Generational Trends
5 National Association of REALTORS®, The Impact of Financial Literacy on Homeownership: Student Loan Impact
6 STRATMOR Group, How to Become the Mortgage Lending Choice of Millennials