Buying Your First Home

Many of life’s significant firsts happen naturally — your first steps, your first day of school, your first date. Buying your first home can be a little trickier. Mark Sargent, regional retail mortgage manager at Zions Bank, has advice to make the process a little simpler.

“I love to spend time with my customers outlining the process,” Sargent says. “I like to help them know what to expect. I hate surprises, and I don’t like my customers to be surprised at the closing table.”

If you’re one who hates surprises — especially the kind that could cost you thousands of dollars — here are five financial considerations to understand before you apply for a home loan.

Home buyers need a credit score of at least 620 to be considered for most loans. This score is determined by how long you’ve had credit (at least three credit lines for two years is ideal), your history of making payments on time, credit utilization (best to keep it under 10 percent of the credit line if possible), and the number of inquiries into your credit (keep that number low as well, though most companies consider several inquiries for one purpose — like buying a home — to be acceptable).

“One common mistake I see is ruining credit right before closing or during the loan application process,” Sargent says. “I suggest waiting until the loan closes to buy furniture or other large ticket items.”

This can be a major barrier to home ownership for young families. Accumulating enough cash to cover part of the loan — typically 3 to 5 percent, depending on loan type — can be a long process. However, some loan types allow buyers to receive cash gifts from family members to meet this requirement. “There are even some community programs buyers may qualify for,” Sargent says. “They generally serve lower-income families and contain income restrictions.”

Even if a buyer has a good history of making loan repayments, banks need to know that a buyer has money coming in regularly. Specifically, a bank will ensure that a person has enough income to cover all recurring debt payments, including the mortgage.

“We look at house payments, car payments, student loan payments and credit card payments,” Sargent says. “Expenses — phone bill, utilities — are not included.”

Even if a buyer has plenty of money coming in, banks must protect themselves against the unexpected. “Oftentimes, you need to have the equivalent of one to three months of payments in reserve,” Sargent says. This requirement depends on loan type.

Loan applications take two years of employment history into account. Self-employed applicants may require special consideration. In most cases, self-employment requires two years of tax returns to verify that business is going well. If a person is losing money it can be difficult to get a loan.

“Being self-employed is a bit more difficult, because some people have the tendency to want to write off as much as they can in order to pay less in taxes,” Sargent says. “But that can make it difficult to get a loan, because the tax returns are showing less income. I recommend consulting with a CPA prior to filing taxes to discuss upcoming goals and plans.”