More money, time, and effort goes into purchasing a home than most likely any other purchase in one’s lifetime. Scope News spoke to local experts to create the ultimate guide for home buying in Kernersville. In this series, realtors, home inspectors, and recent homebuyers will share their experiences and expertise to help inform your purchase. 

First up, our mortgage loan expert will detail her side of the process, give tips on how to increase your chances of getting approved, and explain how today’s market is different than the market of yesteryear. 

What is a Mortgage?

Given the steep cost of a home, the majority of Americans choose to finance their purchase rather than buy it entirely with cash. According to the National Association of Realtors, last year 74% of buyers financed their home purchase, and among first time buyers, 91% opted to finance. 

The most common way to finance a home is through a traditional mortgage with a bank. The Consumer Financial Protection Bureau defines a mortgage as “an agreement between you and a lender that gives the lender the right to take your property if you don’t repay the money you’ve borrowed plus interest.”

Scope News contacted Local Favorites winner Truliant Federal Credit Union for some expert advice on this complex topic. Resident mortgage loan officer LuAnn Davis explained best practices for navigating the process. 

“The role of a mortgage loan officer is to use our expertise to see if you are mortgage-ready, and we look for the best mortgage product to meet your needs,” she said. “You should reach out as soon as you start thinking about buying a home. Talk with your loan officer about the price range you’re looking at. Start figuring out the purchase price for what you can afford [and] find out what your monthly payment might look like.”

Davis recommends factoring in commonly overlooked expenses like homeowners’ association dues — fees paid to a residential community group that maintains common areas like parks and pools as well as repairing private roads — and private mortgage insurance. 

Who Qualifies?

Davis explained that mortgage loan officers evaluate an applicant’s credit score, stability of income, and debt-to-income ratio. These evaluations reveal the important “Three C’s” of an applicant: Credit history, Capacity, and Collateral. 

• Credit history: a report detailing the applicant’s record of paying bills on time. It includes how long each credit account has been open, how much is owed, the credit amount used, and the number of recent credit inquiries. Your current credit score will affect how high your interest rate is as well as the amount of your down payment. 

• Capacity: an applicant’s ability to repay a loan when factors like income, employment history, savings, and monthly debts are taken into account. This is a holistic evaluation determining if income is and will continue to be stable even against monthly bills like car payments, student loans, child support, and more debts while still having enough in reserve for times of adversity. Usually, the loan officer will use three to five years of tax records, income statements, and cash flow statements to make their determination.
  •  Just barely managing a home purchase is never a good idea, Davis says: “When you close on a home and have $1,000 left in your bank account, that stresses me out because a home requires maintenance.”

• Collateral: This is usually the home you are purchasing. If your mortgage isn’t paid, the mortgage company can take possession of your home (foreclosure) and sell it to recoup the outstanding loan amount. 

Increase Your Odds

Davis pointed to credit history as the biggest place applicants can improve their chances of not only getting approved, but getting the best loan terms and interest rate — if they start far enough in advance:

“Ensure you have no late payments in your credit history in the last 12 months. It’s important to have a stable income to show you can afford to buy a home.

“When it comes to how you use credit and how it plays into the home-buying equation, it can be good to use credit sparingly; if your credit limit is $1,000, only use $100 or less of that credit limit. Some say don’t go over 35% of your credit limit. If you use too much, it can look like you’re maxing yourself out.”

For young people with little to no credit history, she recommended opening a credit card, regardless of the limit, and charge a low amount to it monthly in order to build that ideal 12-month credit history.

By federal law, everyone has the right to a free copy of their credit history every 12 months from each of the three nationwide credit bureaus: Equifax, Experian, and TransUnion. 

Find more information about the differences between the three here.

The 20% Down Myth

The National Association of Realtors’ 2024 Profile of Home Buyers and Sellers found the median down payment was 18% among all homebuyers, but only 9% among first-time homebuyers.

“You don’t have to have 20% for a down payment. We have programs with 100% financing,” Davis said. “We have programs that are only three percent down. We have Federal Housing Administration programs that are only 3.5% down. Many people don’t realize how much assistance there is to homeowners with different products out in the market.”

What’s Different Today?

“Right now, the challenge is that [interest] rates are higher than what a whole generation of people is used to. The three big headwinds in the industry right now are a lack of inventory, continued high interest rates, and housing affordability,” said Davis, whose 22-year career spans both the Great Recession and the pandemic. 

The National Association of Realtors reported last year the median age of first-time home buyers hit a record high 38 years old and median household income increased to $97,000. For comparison, in 2015 the median age was 31 years old with an income of $69,400. 

Although she concedes homeownership is not for everyone, she says if your situation allows it, it’s always the right time to buy a home despite the currently unfavorable elements of the market. 

“It’s one of the keys to building wealth. It’s the cornerstone of your household and the largest asset most of us will own. You can always refinance when rates come down.”

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