How Do I Buy My First Home in Maine or New Hampshire?

Being a first-time homebuyer can be an overwhelming proposition, and can come with a lot of unknowns. What do I do first? Are there important steps I’m missing? Am I taking advantage of programs that could make things easier and keep costs down? The process can seem confusing, but it doesn’t have to be stressful. You’ve come to the right place! 

Norway Savings Bank has been assisting individuals and families considering the purchase of their first home for 159 years. It’s your turn to find the right home in Maine or New Hampshire that will help you live the life you choose. So let’s get started!

To learn more about mortgages, read What Are the Different Types of Home Mortgage Loans? 

Assess Your Finances

A mortgage is a loan agreement between a lender (Norway Savings Bank, for example) and a borrower (a home buyer) that will finance the purchase of a home or property. The lender provides the necessary funds to purchase the home and the borrower agrees to repay the loan over a specified period of time.

Lenders will check on certain information to determine whether you qualify for a mortgage and what interest rate to offer you. In advance of house hunting, evaluate your financial situation:

How important is my credit score?

Your credit score is an important factor in a mortgage lender’s decision and is one of the first factors that a lender considers. Borrowers with scores below 620 generally have trouble qualifying for a loan and might want to improve their credit before applying for a mortgage. The best way to boost your credit score in the short-term and long-term is to manage your payment history. Pay on time.
Don’t run balances too high or overextend yourself with loan payments as staying below your credit limit can help you get and keep a good credit score. Your lender can also provide suggestions on how to improve your credit score.

What is my DTI ratio?

Your debt-to-income (DTI) ratio is a percentage that compares your total recurring monthly debt obligations to your gross monthly income. It’s a figure that assesses your ability to manage debt obligations. It’s important to note that monthly payments such as utilities, insurance costs, and groceries are not included in this calculation. To calculate your DTI, add up all of your monthly payments and divide them by your gross monthly income. A DTI of 36% or less is usually considered healthy, while 43% or higher might indicate too much debt to a lender.

How much should I have for a down payment?

Your down payment is the initial amount you will pay in cash towards the purchase price of the home. It can range upwards of 20% and beyond, but plan to have at least 3-5% of the home’s purchase price for a down payment. Later in the process, you will talk to your lender about what will work best for you. If the down payment is less than 20% of the home’s purchase price, lenders may require Private Mortgage Insurance (PMI) to protect the lender from losses if a borrower defaults on the loan. PMI adds an additional cost to the monthly mortgage payment until the borrower reaches a certain level of equity in the home. PMI can also be seen as a tool for borrowers to reach a reasonable level of affordability when purchasing a home. It can be used as an alternative to bringing a large sum of cash to closing.

How much of a mortgage payment can I afford?

Typically, lenders want your mortgage payment (including property taxes, homeowners’ insurance, and other expenses) to stay below 30% of your gross monthly income. For example, if your gross pay is $50,000 per year (roughly $4,100 per month), that gives you a max payment of $1,148 per month. Remember that just because you qualify for a specific payment doesn’t mean it’s right for you. Your lender has no idea how much you spend on other things like groceries, savings, and vacations. It’s up to you to decide how much of a cushion you need to keep in your budget. The lower your monthly mortgage payment equals more financial flexibility.

To get an idea about how much home you can afford, use this online financial calculator.

Should I worry about closing costs?

Closing costs are the fees and expenses associated with finalizing the mortgage loan. They typically include loan origination fees, appraisal fees, title insurance fees, and other costs associated with getting a mortgage. Closing costs are usually paid by the borrower at the time of closing. Always factor them in as they can range from 3-6% of the purchase price of the home.

Getting Pre-Approved

You’ve assessed your financial situation and understand how much you can afford in Maine or New Hampshire. Now it’s time get pre-approved for a mortgage. Before searching for a home, borrowers can seek a pre-approval from lenders. This involves an evaluation of your financial information and creditworthiness to determine the maximum loan amount you qualify for. Being prepared with a pre-approval strengthens your position when making an offer as it shows sellers your interest and ability to buy their home. This step can be achieved by contacting a lender like NSB and providing documentation that verifies details such as income, assets, and employment so the bank can grant you pre-approval.

Let the Shopping Begin

Engage a local real estate agent that is familiar with the Maine and/or New Hampshire markets where you are interested in living. Talk to several real estate agents before making your selection. Personal references are important and checking out their reviews online is also a useful exercise. The bottom line is that an experienced, respected agent will be able to efficiently guide you through the exploration, negotiation, and closing processes, and finding someone with whom you are comfortable will make the experience more enjoyable. Together, you can identify properties that fit what you are looking for in a home. Utilize online resources to aid in your search as well. Consider a variety of factors in your assessment like location, proximity to work or school, design, and even future resale value. Always remember that waiting to find the “perfect home in every way” is not necessarily the best approach. Find a home that meets your most important needs or requirements and be open to the idea that you can make enhancements in the months and years to come.

We Found Our Home!

You’ve found a home that meets your personal requirements and preferences. Now it’s time to make a competitive offer. Be prepared to negotiate terms with the seller. Each situation is different, which is where an experienced real estate agent can play a key
role in determining whether you should bid lower, match the asking price, or offer more. Submitting the right kind of offer can help you stand out in crowded bid environments like Maine and New Hampshire.

Home Inspection

Congratulations! Your offer has been accepted! It’s time to hire a qualified professional home inspector to evaluate the structure and inspect the property for any potential issues or unplanned expenses that might otherwise occur down the road. An inspection also allows the buyer to potentially negotiate a lower purchase price to account for the repairs that will need to be done. Typically, buyers have 10-30 days after an offer is accepted to have a home inspection completed. Among the many items an inspector will look for include missing siding, lowered eaves, faulty windows and doors; foundation cracks; stair or porch damage; flaws in the roof or chimney; insulation or ventilation issues; structural failures throughout the house; water or moisture damage in the basement; healing and cooling system operation problems; wiring, circuit breaker, and overall electrical function; rusty pipes or damaged plumbing; flooring; visible signs of mold as well as many other considerations. The cost of an inspection typically runs between $200 and $600. Both Maine and New Hampshire have certifications for home inspectors.

Applying for a Mortgage

In addition to having the home inspection completed, you must choose a mortgage loan and lender. There are many types of mortgage programs, and the lending experts at Norway Savings Bank can help you find the mortgage that will best fit your life in Maine or New Hampshire. If you already have a pre-approval in place, contact your lender and let them know you have found your home! NSB also offers affordable down payment assistance programs to eligible borrowers. The mortgage you select will affect any required down payment and interest rate. It’s important to consult with local lenders to get accurate and up-to-date information about home mortgage loans in your area.

MaineHousing and New Hampshire Housing also help make homeownership affordable for residents, offering financing alternatives with little or no down payment options along with down payment and closing cost assistance programs. These are options your lender can guide you through as the homebuying process continues. MaineHousing does require first-time homebuyers to complete an eight-hour homebuyer education course which covers budgeting, credit management, and mortgage options. You can take the class in person or online through the hoMEworks Program.

Home Insurance

Home insurance should be purchased as soon as possible after signing a contract to buy a home, typically within a few weeks before closing. This allows time for comparison shopping and policy acquisition before the home ownership transfer. It’s generally required by lenders to provide proof of insurance before closing.

Appraisal

For lenders to fund your new purchase, they will schedule an appraisal to determine the value of the property. An appraisal helps to protect the buyer and the lender by ensuring the home is worth the amount being financed. It is also used to decide things like interest rates and required down payments. Once the appraisal has been completed, a lender is required to provide you with a copy of the appraisal as soon as reasonably possible, but no later than three days prior to closing. If you believe your property appraisal was not accurate or have an appraisal-specific complaint, you would contact your lender to request a “reconsideration of value.”

Closing the Deal

The “closing” refers to the final stage of the homebuying process when the legal transfer of ownership of the property takes place. During the closing, the buyer and seller, along with their respective representatives, gather to complete several important tasks, including the signing of legal documents and the exchange of funds. Your lender will help you review and understand all documents associated with the sale before you sign. Note: more on closing costs can be found earlier in this article.

That Sounds Good, But I’m Still Overwhelmed

With Norway Savings Bank, you’ll never have to go it alone. The first-time homebuyer experience, securing a home mortgage loan, accessing down payment assistance, and even eventually knowing the benefits of mortgage refinancing, are all experiences that NSB is here to help you navigate. We understand every homeowner has unique needs and circumstances. With Norway Savings Bank MortgageGO, you can find a mortgage that’s just right for you. Not only will you get competitive rates, you’ll get a supportive, dedicated, local mortgage professional who will help you every step of the way. Plus, NSB’s new and enhanced technology makes going through the process easy and efficient! So when you’re ready, let us help you! Check out MortgageGO or contact a mortgage loan officer in your area.