First-Time Homebuyer? Start Here to the Learn the Essentials!

If you're embarking on the journey of purchasing your first home, congratulations are in order! This milestone is not just about finding a place to live; it's about creating a foundation for your future, investing in your dreams, and truly making a space your own. However, we understand that along with the excitement comes a stream of questions and uncertainties. That's why we're here to guide you through the process, providing you with essential knowledge and practical advice to empower you every step of the way. Whether you're still saving for that down payment or ready to start house hunting, this blog is your go-to resource for everything you need to know as a first-time homebuyer. Let's turn your homeownership dreams into reality!

Check Your Credit and Gather Paperwork

Before you dive headfirst into the homebuying process, there's a crucial step you need to take: checking your credit. Your credit score plays a significant role in determining your eligibility for a home loan and the interest rates you'll be offered. A higher credit score typically means lower interest rates, potentially saving you thousands of dollars over the life of your mortgage.

To check your credit score, you can request a free copy of your credit report from each of the three major credit bureaus: Equifax, Experian, and TransUnion. Reviewing these reports allows you to ensure there are no errors or discrepancies that could negatively impact your creditworthiness. You're entitled to one free credit report from each bureau every 12 months, so take advantage of this opportunity to stay informed about your credit health.

The next step after assessing your credit is to gather the necessary paperwork to apply for home loans and make offers on homes. Having these documents ready can streamline the process and demonstrate to lenders that you're prepared and organized. Essential documents include W-2 tax forms, pay stubs, tax returns, bank statements, and personal identification.

Familiarize Yourself with Home Loan Terminology

Understanding home loan terminology will help you navigate the homebuying process with confidence. Here are some common terms you should know:

1. APR (Annual Percentage Rate): The APR represents the annual cost of borrowing money, including interest and fees, expressed as a percentage. It provides a more comprehensive picture of the total cost of a loan than the interest rate alone.
2. Closing Costs: These are the fees and expenses associated with finalizing a mortgage loan and transferring ownership of a property. Closing costs typically include loan origination fees, appraisal fees, title insurance, and attorney fees.
3. Down Payment: The down payment is the initial upfront payment you make toward the purchase price of a home. It is usually a percentage of the total purchase price, with typical down payment amounts ranging from 3% to 20% of the home's value.
4. PMI (Private Mortgage Insurance): PMI is insurance that lenders require borrowers to purchase if their down payment is less than 20% of the home's value. PMI protects the lender in case the borrower defaults on the loan. (Although, members of Whitefish Credit Union will never be charged PMI, which could save tens of thousands of dollars off the loan.)
5. Fixed-Rate vs. Adjustable-Rate Mortgages (ARMs): A fixed-rate mortgage has a set interest rate that remains constant throughout the life of the loan, providing predictability and stability in monthly payments. In contrast, an adjustable-rate mortgage (ARM) has an interest rate that can fluctuate over time based on market conditions, potentially leading to changes in monthly payments.
6. Principal: The principal is the original amount of money borrowed in a mortgage loan, excluding interest and other fees. A portion of your monthly mortgage payments goes toward paying down the principal balance.

For further research and a deeper look into home loan questions, check out our blog about the most common home loan questions and answers. It's a valuable resource that covers a wide range of topics related to home financing.

Know How Much You Can Afford with Preapproval

Preapproval is a preliminary assessment from a lender that determines how much you can borrow and at what interest rate. Unlike prequalification, which is a rough estimate based on self-reported financial information, preapproval involves a thorough review of your credit history, income, and assets.

To help you better understand your financial capabilities, you can use our mortgage calculator to estimate your monthly mortgage payments based on different loan amounts and interest rates.

Why Preapproval Is Important

Preapproval gives you a clear understanding of your budget and helps you narrow down your home search to properties within your price range. Knowing your purchasing power can save you time and prevent disappointment by focusing your efforts on homes you can afford. Moreover, having a preapproval letter strengthens your offer when you find the perfect home. Sellers are more likely to take your offer seriously if they see that you have already been approved for financing. In a competitive market, this can make all the difference in securing your dream home over other potential buyers. Preapproval also streamlines the closing process, as much of the necessary paperwork and financial checks have already been completed. The faster closing timeline allows you to move into your new home sooner!

How to Get Preapproved

It’s simple for you to get preapproved for a mortgage. You’ll need to first collect all your relevant financial documents like pay stubs, W-2 forms, tax returns, and any bank and investment account statements that were mentioned before. After you submit a preapproval application with a lender (our application takes 20 minutes or less), the lender will review your credit history and score to assess your creditworthiness. This helps determine the interest rate you qualify for and whether you meet the lender's borrowing criteria.

Once you've completed these steps, you'll receive a preapproval letter from the lender stating the loan amount you qualify for, subject to certain conditions. Use your preapproval letter to confidently explore the housing market and make offers on your future home!

Make a List of Musts for House Hunting

To help make your house hunting a success, it's a smart move to define your must-haves and preferences before you start touring properties. Creating a list of priorities will help you stay focused and make informed decisions as you explore the diverse real estate market in the Treasure State.

Take some time to reflect on what you want and need in a home. Consider factors such as location, size, layout, amenities, and neighborhood characteristics. Are you looking for a quaint cabin nestled in the mountains, a cozy ranch house with vast open spaces, or a modern urban loft in downtown Bozeman? Think about your lifestyle, preferences, and long-term goals to guide your search.

While it's ideal to check off all of your wants in a house, flexibility in your non-essentials will, shall we say, “open more doors”...You may need to compromise on certain preferences, such as cosmetic updates or minor repairs, while staying firm on non-negotiables like location or essential features.

Communicate your priorities and non-negotiables with your real estate agent. That way, they can help tailor your search and identify properties that align with your criteria. Utilize online resources and tap into your network of friends and family for recommendations on reputable agents who specialize in Montana real estate.

Budget for Additional Costs

There are several additional costs associated with homeownership outside of the purchase price that you'll need to factor into your financial plan to ensure a smooth transition into your new abode.

One significant expense to keep in mind is closing costs, which typically range from 2% to 5% of the purchase price and include fees for services such as appraisals, inspections, title insurance, and attorney fees. Additionally, ongoing expenses like property taxes, homeowners insurance, and potentially HOA fees must be accounted for, with property taxes varying depending on location and homeowners insurance premiums influenced by factors like home size and location.

Be sure to have a nest egg that could cover three months of your living expenses in case of an emergency before spending all of your savings on a house. Owning a home can be expensive! From minor repairs to major maintenance projects, unforeseen issues can arise at any time, and having a financial cushion in place will provide peace of mind and protect your budget from being stretched too thin. Utilize our savings goal calculator to determine how quickly you can accumulate funds for your new home, ensuring you're well-prepared for the responsibilities and rewards of homeownership in Montana.

First-Time Homebuyer Loan from WCU

Whitefish Credit Union is the largest credit union in Montana and we are proud to support our members as they fulfill their most important milestones. We have a large range of home loans, including a first-time homebuyer loan. One of the greatest benefits of choosing us as your lender is that we don’t charge private mortgage insurance (PMI)—even if you put less than the standard 20% down. Not having to pay PMI saves you tens of thousands of dollars over the life of your loan. Plus, we have flexible down payment options and don’t charge commonly-found origination fees. You’ve worked hard to be able to buy a home and we want you to keep as much of your own money as possible!

Our local Montana loan officers are happy to discuss your specific questions and get to know you better. Start with a prequalification application and reach out with any questions along the way!