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As a business and community focused bank working all day, every day with business leaders, we discuss what's effective in highly successful businesses today. Each episode features an interview discussing business practices on topics such as: company culture, fraud prevention, change management, economic data, wealth management tips, and more.
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Northwest Bank. Equal Housing Lender. Member FDIC.
Hello again, and thank you for joining me on another episode of the Northwest Bank podcast. I'm Luther Lampert, director of digital banking strategies with Northwest Bank. On today's episode, we're gonna cover some of the big questions that first time homebuyers face when they decide to enter the housing market. What do you need to know about credit scores, income verification, debt to income ratios, and everything else you need to understand to work towards purchasing your first home? To help you today, I'll be talking to Noah Slagter, mortgage loan originator with Northwest Bank.
Luther Lampert:Noah has been a lender with Northwest Bank for two years and enjoys working with young borrowers looking to purchase their first home. As a young homeowner himself who recently went through the home buying process for the first time, Noah understands the questions and challenges that face first time borrowers, and he enjoys getting the chance to navigate that journey with them. Noah, thanks for joining me today.
Noah Slagter:Absolutely.
Luther Lampert:During your time with Northwest Bank, you've had several opportunities to work with first time homebuyers.
Luther Lampert:What do you enjoy most about working with customers who are at that stage of their life?
Noah Slagter:For me, personally, I I mean, I love working with first time homebuyers. That's my preference in in clients. I mean, I'm willing to work with anyone, but, I mean, I'm I'm 24 years old. I mean, a lot of those first time homebuyers, you know, are around my age from what I've been seeing down here, and it is just fun to work with them. I personally bought a I bought my first home last May, and I'm officially a homeowner.
Noah Slagter:So I get to I to tell them all these tips and tricks now. And for me, I mean, you asked me fifteen years ago, and you asked, do you think you would have bought your first home at 23? Absolutely not. I mean, I didn't think it would be obtainable on anything like that. And that's the great part, especially working at Northwest Bank is we do have so many different products available for homeowners where in my situation, I didn't think I'd be able to get into a home, you know, my early twenties.
Noah Slagter:But with a lot of these first time homebuyer programs, they make that dream more or less a a reality. I know I personally was working with, a few clients, excuse me, about six months ago, and they're in their situation, they thought there was no way that they can get into a home at all. They recently just had a kid. They didn't think much of it. I know she was working part time.
Noah Slagter:And I know we were able to find a product that they were able to get into that home, and they were extremely comfortable with that monthly payment. Something that turned into a long shot turned into, you know, them stepping in into that new house a month and a half later from when we had that first initial conversation. So even if you're on the fence with something, let's say you're you're in an apartment, you know, you think you might extend rent, extend your rent for another year. I guess I always say, let's just have a conversation first and see, you know, can we get you into a home with still that monthly payment? We have the tools available.
Noah Slagter:I and the thing too that I always say is my job is to make the home buying process as simple as possible for you as the borrowers. I mean, I'm gonna I'm gonna hold your hand throughout the entire process. I can promise if if documents get sent your way, I'm gonna be shooting you a text or giving you a call explaining what are these documents, what do you need to do with it, doesn't even pertain to you type of deal. So I always hang my hat on being able to pick up the phone at any time. I know I always have my cell on me, and I wanna be more than just an outlet throughout that process.
Noah Slagter:I wanna also be a friend. If you have questions about you know, what type of lawnmower do I have to buy now? Guess what? I might not have the the answer to that, but I'm gonna I'm gonna get you hooked up with someone. You know, what insurance do I what insurance do I have to get?
Noah Slagter:I'll get you hooked up with someone. I want to be that one stop shop where you could have questions about anything. I'm gonna refer you off to people that can help with that and obviously help you just through the mortgage process as well.
Luther Lampert:So looking at buying your first home can be intimidating if you don't know where to start. You have a lot of experience working with first time homebuyers. When they come to you and ask you what they need to have ready, where do you even tell them to begin?
Noah Slagter:I guess for me personally, the first step to, you know, starting the home buying process is like you were saying, giving me a call first. From there, I'll be able to send them over my application. They will then be able to fill everything out. They'll be able to list their current income, what's your job look like, assets you have. I'll be able to pull credit score, everything like that.
Noah Slagter:Once I have that application, then I'll go ahead and start requesting those initial documents. Those documents are going to look like W-2s, pay stubs, bank statements, the simple photocopy of your driver's license, tax returns, basically all those basic income documents that we just need up front. Once I have all of those documents, then I'll really begin all my work. I'll be able to go in, finalize the file, really square away those income assets that I was mentioning, and then from there, I'm gonna see how much you qualify for. The biggest item that myself as a lender look at is a thing called a debt to income ratio.
Noah Slagter:Here, we take a look at all of your monthly debts, so everything that will report on a credit score. And then we're going to divide that by that gross monthly household income that you have. From there, all of our investors need to see that ratio under 50%. So after I get that, assuming everything looks good, the next question that I'll ask and the main question is, what do you want that estimated monthly payment to be around for your mortgage? From there, I'll be able to go in, kind of pinpoint a purchase price range that you might wanna look at when you begin really searching for homes with the realtor.
Noah Slagter:And then from there, yeah, you get that that purchase price you want, you find that dream home, you get an accepted offer, and then the bus starts going after that.
Luther Lampert:So what are all the sorts of things that you take into consideration as you're putting together, say, that that homeowners or your applicant's budget? You know, is it just the the cost of the house that they're looking at or what other considerations go into that to help you and the borrower determine what they can afford?
Noah Slagter:So the main thing that I'm looking at is that debt to income ratio, you know, making sure that's under 50%. Another big one that I'm looking at too is, you know, how much do you guys have, you know, for a down payment? You know, with with first time homebuyers, there are a lot of first time homebuyer grants out there in which they can receive some down payment assistance. But just looking at that debt to income ratio and the and how much they can use for their down payment, those are the two biggest items that I look for when trying to pinpoint. You know, first, how much do you qualify for?
Noah Slagter:And then what is that specific purchase price range that you'd feel comfortable with, with that exact, monthly payment? Because a lot of the times, you know, you can qualify for a lot of house, but let's just say, for example, you can qualify for a $300,000 home, but that monthly payment is $500 more than what you want. Well, that's when I go in and I try to pinpoint, okay. It looks like, you know, a $250,000 home is maybe where you'd feel more comfortable with. Yes, you can qualify for more, but what, you know, are you going to feel comfortable with at the end of the day?
Luther Lampert:What other financial considerations does a borrower need to take into account before they come to you? How do they even know what they're looking at for for down payment that they might have to have ready?
Noah Slagter:Yeah. Great question. Kinda going back to what I previously was, you know, was mentioning with being a first time home buyer, there are there are a lot of different first time home buyer products and programs out there, especially I mean, these products are especially used for down payment assistance. So with these first time homebuyer programs, one there's two main programs that I like looking at. The first one is called the Home Ready program.
Noah Slagter:With this Home Ready program, there is a minimum 3% down payment. If you qualify for this program, you also get a reduced interest rate and also some reduced private mortgage insurance as well, and I'll kind of touch more on that in a little bit. The second program that we really look at utilizing and something that I've seen pretty common and pretty popular over the past year is a so we partner with an investor called the Iowa Finance Authority, and they have a program that allows the borrowers to essentially bring almost $0 to closing at the time of closing. So this program, to go into it, so it is called the second loan program. So for example, if let's say the purchase price of the home is $100,000 this program will give you a second loan up to 5% of the purchase price.
Noah Slagter:So going back to my example, purchase price of $100,000 they will give you $5,000 to use for the down payment and closing costs. So with this program too, it is a minimum 3% down payment. So going back to my example, that $3,000 will be used for the down payment, and then that extra $2,000 will be helped towards closing costs and everything like that. Typically, I have seen many different times borrowers being able to use this program, And like I was saying earlier, they have to bring $0 to the closing table. Now with everything, there is a mini catch in a way.
Noah Slagter:So this second loan is repayable at the time of sale of the property or at the time of refinance. So what it's really doing is is this program is meant for borrowers that might not have, you know, a ton of assets right now. You know, it allows them to get into the home and then over time build up that savings account. So then when they do decide to the home or if they are looking to get into a lower rate, you know, assuming rates come down eventually, at that time, then it will have to get paid off. So it really just allows that those first time homebuyers to get into the home.
Luther Lampert:How about well, you you touched on this briefly, just kind of what all the steps in that home buying process are, but can you talk a little more in-depth and into what all goes into it from application to closing and what that timeline looks like?
Noah Slagter:Yeah. So the timeline, you know, when you get a accepted purchase purchase agreement to, you know, the closing day is typically around four weeks, so a full month. Kind of going back at the very start of that process, you know, that first that first initial conversation, that can be held on phone, over email, in person with me. We'll just get a rough idea, okay, what is your timeline? How much are you thinking you can afford?
Noah Slagter:What is that monthly payment like I was mentioning? From there, you'll send over all those documents, and then I will send you over what's called a prequalification letter. You will need this prequalification letter to be able to put an offer in on a home. This prequalification letter will say something as simple as John Smith is prequalified through Northwest Bank for the financing of a home up to X amount of dollars. What this letter does is it lets the seller agent and the sellers of the property, it lets them know and assures them that you already have financing in place, and essentially financing isn't going to fall through throughout the process.
Noah Slagter:I always joke it's essentially telling the sellers that you're not wasting their time, that you are already qualified. Once you have this letter, you will be able to put an offer in on a home. Assuming you get that accepted offer, now the work on my side of things really begins. So from there, I'll be able to go in and order an appraisal and all the title work. If you aren't familiar what an appraisal is, it's when a person goes out and determines the total value of your home.
Noah Slagter:All the title work, that gets done on my end. You don't need to worry about any of that. From there, assuming we've collected all income and asset statements, I will then send the file over to my underwriting team. Well, they will start to look at the file with a magnifying glass, making sure we have all documents. They might have a few questions that'll come up that'll just need some explanation to, and then you can just answer that at that time or resubmit any documents that we missed initially.
Noah Slagter:From there, assuming that the underwriters are all good with everything, they'll then give us the green light and give us full approval. At that time, we are ready for closing. Typically, you know, a turnaround time, assuming we can get all documents collected, we'll get that collected pretty quick and upfront. That underwriting time can take around two, I'd say two weeks to get that full approval. From there, it's just waiting until the closing date.
Noah Slagter:For the actual closing date, I know down here in West Des Moines, we'll go to a attorney's office, and from there, an attorney, myself, and then you two and the realtor will all be in the room. You'll sign a few closing documents, and then you'll officially be homeowners.
Luther Lampert:How important is my credit score when I'm looking at purchasing my first home? And what are you looking for, and and what are things that I can be doing to help?
Noah Slagter:Credit scores are a major impact in interest rates, so your credit score does mean a lot in the home buying process. I know here at Northwest Bank, we can work we can have a minimum credit score of 620 and up. So with a lot of those first time homebuyer programs that I previously mentioned, they do have credit limits. I know with that popular IFA second loan program, that is a minimum credit score of 640. Typically, higher credit score, the better interest rate you'll receive, and the lower credit score, the slightly worse credit score you'd receive.
Noah Slagter:So, yes, it is a credit score is a very big, thing in the home buying process. For you to have a good credit score, it's as simple as paying your bills on time. That's what I always tell everyone. Those late payments can really affect that that credit score negatively.
Luther Lampert:So, Noah, there there's certainly a lot that goes into purchasing your first home, but it sounds like if somebody's out there and they've got questions, whether it's around credit score, if it's around their debt to income ratio, if it's around what they can expect to pay for their monthly mortgage payment, that you as their lender are there to help calculate that, provide more feedback, and give answers to those big questions that any potential borrower has. So as you have somebody who's coming to you looking for help, what is the biggest piece of advice that you can offer to a potential first time home buyer?
Noah Slagter:One of the biggest mistakes that I've seen personally with first time home buyers is they find a home on Zillow. They then go ahead and tell the realtor, I want to go show it. They have no financing plans at all. And then they fall in love with the house, then they come to me and they find out they can't qualify for the home at all. And that's what I go back just for any first time homebuyers, I would highly recommend reaching out to a lender for seeing how much you can qualify for before you start searching that way, you know, going back to that example, you don't fall in love with a dream home that's unfortunately just out of your per out of your purchase price range at that time.
Noah Slagter:So, yeah, always feel free to reach out to a lender first just to see how much you need qualifying for.
Luther Lampert:So regardless of where you're at in the home buying process, Northwest Bank can help. You can visit us online at nw.bank. You can use our mortgage loan payment calculator and help determine how much house you can afford. You can sign up for CreditSense and check your credit score and receive tips on how you can increase your score. You can also sign up for RateWatch to see our latest interest rates and find a list of our amazing mortgage loan originators who can help answer any questions you may have surrounding the home buying journey.
Luther Lampert:We are here to help. Noah, thanks for answering some questions for us today.
Noah Slagter:Absolutely. Thanks for having me.
Luther Lampert:And thank you for listening. Keep checking nw.bank for more episodes of the podcast. You can also find us on YouTube, Spotify, and on Google and Apple podcasts. Subscribe today and get notifications every time we release a new episode.