What to Expect When Purchasing a Home in Idaho: The Loan Process Explained

Purchasing a home for the first time can be both an exhilarating and daunting process, especially in the diverse markets of Idaho. And doesn’t help that the lending process is often obscure; many homeowners aren’t aware of it until they’re in the thick of it. From prequalification to closing, we will walk you through each step to ensure you are well-informed and prepared. Whether you’re looking to buy in Boise, the Treasure Valley, or beyond, you will feel empowered with the knowledge to navigate the path to homeownership confidently.

Prequalification for a Home Loan

Prequalification is your first step in the journey to homeownership in Idaho. This preliminary stage helps you determine how much you can afford, setting a realistic expectation for your home search. During this stage, a lender will provide a brief written assessment of whether you qualify for a loan after evaluating your financial status and credit history.  It involves a brief assessment of your financial status and an extensive credit report examination.

Understanding Prequalification – What is Prequalification and Why is it Important?

Prequalification, unlike preapproval, is more of an informal process to evaluate whether you’re qualified to proceed with the mortgage process for a house. During this time, a lender will evaluate your credit score and history, household income, debts, and assets to determine whether you will be a trustworthy loan recipient. 

Often, this is a quick process you can do over email or phone with a lender. However, prequalification is not a guarantee of a loan. Instead, it can estimate the loan amount you can expect if you decide to proceed. From here, you will proceed through preapproval, when a lender drafts a formal letter and documents that you will use in the house-buying process to prove to real estate agents and lenders that the lender has given preliminary approval for a certain amount of money to buy a property.

You shouldn’t skip either of these steps. You may even discover you don’t qualify for a loan during these early stages and will have to go back to earn more income, decrease the sum of your debts, or build your credit history to qualify in the future. To approach lenders, research various credit unions, mortgage brokers, and other financial institutions that offer mortgage loans. They’ll often have applications for their loans where you will have to offer essential documents such as a list of your assets, a recent pay stub, and W-2 forms. From there, they will provide you with an offer based on your qualifications, which you will evaluate to agree to the terms before proceeding to preapproval.

Choosing a Real Estate Agent

Choosing the right real estate agent is pivotal in your home-buying journey, especially in Idaho, where market dynamics can vary from neighborhood to neighborhood. They provide critical insights into the value of homes, advice on making competitive offers, and can identify potential problems with properties that you might overlook. They also handle negotiations and paperwork, significantly reducing the stress of purchasing a home. 

An excellent real estate agent will be honest and advise you if you’re making a good investment, regardless of their commission. Your real estate agent should also know of inspectors, service technicians, and other businesses that may be useful later. More than anything, your real estate agent should have plenty of negotiation and people skills to provide you with the best deal when placing offers.

Because your real estate agent needs all these qualities, you must scrutinize them before deciding. You can find one that suits you through the following methods:

  • Ask for referrals from family, friends, or colleagues who recently bought a home and were satisfied with their agent’s work. 
  • Check online reviews on websites like Realtor.com and Zillow.
  • Meet with several agents to discuss your needs and assess their understanding of your requirements.
  • Check the credentials and licenses of each agent so they’re in good standing with local real estate organizations.
  • Communicate your expectations to check if the agent is willing and able to meet them.

Once you decide on the right agent, they will be your tether in each stage of the buying process.

Documentation Preparation

Preparing your documentation is critical in home buying, especially as you move from prequalification to preapproval and securing your mortgage. Proper documentation helps smooth the loan application process and speeds up the approval timeline.

List of Essential Documents

During several stages of the house-buying process — the preapproval, your loan application, and the offer itself — you will need several documents for lenders to assess your creditworthiness and your financial stability, such as: 

  • Proof of income: This will include W-2 forms from the last two years, recent pay stubs, and other additional proof of income, such as tax returns, contract work, alimony, and bonuses. 
  • Bank statements: Some lenders may ask for recent bank statements from your checking and savings accounts from the last three to six months. 
  • Credit information: This will include a basic credit report, any current loans or debts you have, and open credit accounts you have.
  • Proof of assets: Lenders must know about investment accounts, retirement savings, or 401(K) statements to evaluate your financial situation. 
  • Personal identification: To corroborate your identity, you’ll need an official government-issued ID, such as a driver’s license or a passport.

In addition, as you proceed to different steps of house buying, you may need to provide additional documentation for real estate agents and sellers to proceed with your loan. For example, you must provide proof of home insurance, your loan application, a copy of the purchase document, and a closing disclosure when closing. After closing, you’ll need the deed or title of the home, the initial escrow statement, and a transfer tax document. 

This is a lot to keep track of, especially when you’re closing on a home. You’ll need to stay vigilant to keep track of all the documents. You can easily do this by keeping a digital copy of each document in a safe place, such as a removable drive or a cloud storage. You can also use a filing system where you clearly label each document so you can easily find it during every stage of the home-buying process. 

Photo of people standing in front of a Sold sign

Step 4: The Purchase and Sale Agreement

The purchase and sale agreement (PSA) is a crucial document in the home-buying process. It outlines the terms and conditions of the transaction between the buyer and seller and is legally binding once signed by both parties. Understanding this agreement is essential to ensure a smooth transition to owning your new home in Idaho.

Navigating the Purchase and Sale Agreement

A purchase and sale agreement (PSA) includes the following elements: 

  • Property details: A complete description of the property being sold, including its address, legal description, and any inclusions or exclusions, such as appliances or assets.
  • Purchase price: The agreed-upon sale price of the home.
  • Terms of sale: Details whether the purchase is contingent upon financing, inspections, the sale of another property, etc.
  • Deposit: Information about the earnest money deposit, including the amount and who holds it.
  • Closing and possession dates: When the sale will officially close and when the buyer can take possession of the property.
  • Contingencies: Conditions that must be met for the transaction to proceed, such as financing approval, home inspections, and the ability to obtain insurance.
  • Signatures: Signatures of both parties indicating agreement to the terms.

Read the PSA carefully, , you’ll want to clarify vague terms with your lender, real estate agent, and seller. You can also reach out to a legal advisor or a lawyer to help clarify — they may be able to spot anything in the agreement that you’ll need to know about. 

More than anything, don’t rush through the agreement. Although you may want to move into your house as soon as possible, the PSA establishes expectations for you and your seller. Most importantly, the PSA should include agreeable terms for the inspection. Even in a seller’s market, you shouldn’t agree to waive the inspection, as it often will reveal issues that could affect the property’s value or cause further complications later. 

Step 5: Loan Application and Underwriting

After placing an offer on a house and before closing on a house, you will have to complete a final loan application, and your lender will complete the underwriting process. From here, the lender will evaluate your eligibility for a loan and craft terms for the loan.

Submitting Your Loan Application

Lenders assess several critical factors in your application to determine your trustworthiness for a mortgage loan:

  • Credit history: Your credit score and credit history indicate your reliability in managing debt.
  • Employment history: Stable employment suggests financial stability, which is crucial for making consistent loan payments.
  • Debt-to-income ratio (DTI): Measures your total monthly debt against your gross monthly income. A lower DTI is preferable as it indicates a better balance between debt and income.
  • Down payment: A substantial down payment reduces the lender’s risk and can lead to more favorable loan terms.

Because lenders evaluate all of these aspects of your financial well-being, your loan application should be as accurate as possible to avoid delays in the approval process or, worse, denial of the loan. Do not change jobs or take out new debt during the loan process.

The Underwriting Process

Once lenders receive your application, the  underwriter will evaluate your application and other details and complete the following steps: 

  1. Credit, collateral, and risk assessment: The underwriter evaluates the risk associated with lending to you, considering factors like loan-to-value ratio and your financial history.
  2. Income, asset, and employment verification: The underwriter will corroborate with current IRS data, your employer, and  your credit information to check for accurate financial history information.
  3. Appraisal: After submitting your loan, you’ll need to hire an appraiser to document  the property’s value aligns with the price you’re paying. 
  4. Title and title insurance: An underwriter will also work with a title company to ensure the property’s title has no legal claim and is ready to be transferred. 
  5. Decision: The underwriter approves, denies, or requests further documentation based on risk assessment.

This process can be time-consuming and take longer if the lender and underwriter have to check with you to update your application due to incorrect information To avoid this, check with your lender regularly as you move through each step of the loan approval process, organize your documents, and respond quickly to any requests your lender may have. 

Step 6: Additional Home Buying Steps

Once a lender approves you for a loan, you still have some final steps to finalize the loan application process, including the following:

Home Inspection and Appraisal

Home inspections and appraisals often occur before your loan application receives final approval. The importance of both an appraisal and an inspection can not be understated. Both can flag any issues with the property that may affect its market value. As mentioned above, a lender can only provide a loan based on the house’s market value — not the amount you offered the seller. Therefore, if you aren’t aware of these issues beforehand and negotiate with the seller and plan accordingly, you could end up fitting the bill with little to no preparation.

You must pick qualified professionals with a trustworthy reputation to ensure that your inspections and appraisals are accurate for your protection and for your lender’s sake. Once you receive the reports, read them carefully and inspect for any inaccuracies. Then, you can address any needed repairs. 

Securing Homeowner’s Insurance

Not only is it required for a loan application, but homeowner’s insurance can be life-saving in times of disasters, accidents, or theft. Often, insurance companies will offer coverage for liability and medical  costs if someone were to injure themselves on your property or damage the house and property itself

When seeking homeowner’s insurance, you may seek multiple providers, as some may have differing costs and coverage options. Remember that some homeowners’ insurance may not cover things like flooding and other natural disasters, and other insurance may only cover certain areas or raise the cost if you live in some regions of Idaho. For example, if you live near a river, you may have to pay for more coverage in case it floods. 

During the insurance buying process, you’ll often hear the following terms: 

  • Premium: The amount you pay for your insurance policy, typically annually or monthly.
  • Deductible: The amount you pay out of pocket on a claim before the insurance coverage kicks in.
  • Exclusions: Specific events or circumstances not covered by the insurance policy.
  • Riders/endorsements: Add-ons to a standard policy to provide additional coverage for things like high-value jewelry or natural disasters.

Understanding these aspects of homeowner’s insurance will help you select a policy that best suits your needs.

Interest Rate Lock

The Federal Reserve, or the U.S. central bank, uses interest rates to stabilize and react to market conditions. Because of this regulation, interest rates can fluctuate daily, necessitating the use of interest rate locks. 

An interest rate lock is an agreement between the borrower and the lender that guarantees a specific interest rate on a mortgage for a predetermined period, typically 30 to 60 days. This lock protects you from rate increases while they process your loan. Often, they’ll strategically lock your rate at a low period so you can save money over the life of your mortgage. 

When going through this process, communicate with your lender about when to place the lock. You should also stay informed about regular market conditions that could change national interest rates.

Step 7: Closing Your Home Purchase

The closing process is a term that encompasses every step after you’ve gained approval from your lender for your loan. You and the house seller will complete the escrow process during this period. An escrow company will hold a portion of the down payment to ensure the sale proceeds and act as an impartial party to collect all legal and official documents for finalizing the sale. Let’s take a look at what you can expect during these days. 

Final Underwriting and Signing Closing Documents

Your lender will conduct a final underwriting to ensure your loan is accurate and provide the final documents. They will re-evaluate your financial condition and check to see if your credit, employment status, or any other significant changes have changed. They may also recheck the property to ensure it meets its market value.

After they’ve provided the final underwriting, they will also give you the following documents for you to sign: 

  • The mortgage or deed of trust: This secures the note and gives the lender a claim against the home if you fail to meet the mortgage terms.
  • The promissory note: This is your commitment to repay the loan.
  • The closing disclosure: This document provides final details about your loan, including the interest rate, monthly payments, and the costs associated with the closing.
  • Affidavit of the title: The document officially transfers the property title to your name.
  • Transfer tax declaration: This document transfers any taxes made on behalf of the property to your name.

You must also provide documents for your lender and the sellers, such as proof of homeowner’s insurance, a loan application, a cashier’s check for closing costs, and a government-issued ID. 

On closing day, you will sign all these documents. Once the Note and Deed of Trust are recorded with the county and the loan has been funded, you’ll receive the keys to your new home! 

Moving Into Your New Home

 Now, you can move on to the fun part of buying a house: moving! The best way to make this process easy for yourself is to prepare as much as possible. You may want to strategically plan how you’d like to pack all of your items and move them over. You could also hire movers if you need help moving, especially when moving heavy objects.

 Before moving to your new house, you must set up any utilities and services in your name for your official occupancy date. You can research your local water, gas, sewer, trash, and electricity providers to establish a reliable account to pay regularly. You must also contact a local internet provider to set up a router and plan.

Don’t forget to change your address for organizations with your information, such as medical providers or banks! Make sure to update your address with the post office, which will forward your mail to your new address. The post office will forward your mail for free for a year, and offers extended paid plans beyond that time. 

Even though this process has its ups and downs and plenty of chaos, don’t forget to celebrate! You’ve reached a pivotal milestone in your life and deserve more than just a pat on the back.

Photo of a couple moving in to their new house.

Special Programs Offered by NeighborWorks® Boise

If, at any point, you feel lost in the home lending and purchasing process, NeighborWorks® Boise is here to help. We offer educational classes, advisement, and possibly financial assistance to those who need it the most and can qualify — opening home ownership to all. 

First-Time Home Buyer’s Coaching and Assistance

NeighborWorks Boise is one of the few non-profits in the Idaho area that provides several different coaching options that can help in the home buying process and may be required if you’d like to apply to certain down repayment and first-time home buyers’ programs. In particular, we offer the following educational services:

  • Pre-purchase coaching: Here, an advisor will meet with you individually to evaluate your financial situation and homebuying goals and offer advice on achieving these goals. This may involve building your credit or budgeting further to increase your down payment. During this stage, they’ll also connect you with further financial assistance programs you can apply for.
  • Homebuyer education: This group class is open to anyone who wants to buy a house. We will cover topics such as how to tell if you are ready to buy a home, budgeting, building your credit score, and each step involved in the home-buying process.

These classes open doors for you to seek out loans and down payment programs and help you prepare for any financial hardships you might experience well into homeownership. 

Down Payment Assistance and Grants

Often, many homebuyers can afford monthly mortgage payments but struggle with building a down payment, especially with rising housing costs and interest rates. If you find yourself in this boat, you can find the following programs in the Idaho area

  • Shared equity programs: Some non-profits and lenders can offer shared equity programs, in which they can share home ownership with you and provide financial assistance to lower the loan to make mortgage payments more affordable. 
  • Community land trusts: Unlike conservation land trusts, non-profits like NeighborWorks will use community land trusts to provide affordable housing to those who need financial assistance during the home buying process. In these trusts, you will buy a house on a communal property with little to no down payment and still go through the traditional loan process. When you want to move, you get your portion of equity and a portion stays with the house to pay-it-forward to the next family.
  • Down Payment Assistance: Often NeighborWorks® Boise has access to various down payment assistance programs through their Lending Department.
  • Home$tart:  In this program, you will receive down payment assistance as a forgivable loan. However, you must live in the property for at least five years to receive loan forgiveness.
  • Homeownership Opportunity Program (HOP): If your household income is 50%- 80% of the Area Median Income (AMI) in the Boise area, HOP can provide financial assistance. 
  • Idaho Housing Second Mortgage: This program provides 7% of a home’s total cost for down payment assistance. You’ll treat it as a second loan with an interest rate of 2% higher than the rate of the 1st mortgage over 15 years. 
  • Idaho Housing Forgivable Loan: Unlike the second mortgage program, the Idaho Housing Forgivable program only provides 3% of a home’s total cost for a down payment. However, the organization will forgive the loan ten years after you contribute .5% of the mortgage. This loan increases the rate of the 1st mortgage it is paired with.

Often, a NeighborWorks Boise Housing Counselor can help direct you to apply to the right program. To receive financial assistance from these programs, you must apply beforehand. You must provide documentation such as your W-2 from the previous two years, government-issued ID, and other important information. You may also need to complete an educational course. When an organization reaches out to you, make sure to respond promptly to avoid any issues. 

No matter what you do, reaching out for financial assistance is perfectly acceptable! With rising interest rates and housing costs, buying a home may seem unobtainable.  Make sure to prepare so that you can qualify for a home.

FAQs About Home Loans in Idaho

What Is the Difference Between Prequalification and Preapproval?

Prequalification is an initial evaluation of your financial status to estimate how much you can borrow. Preapproval is a more detailed and rigorous process that includes a credit check and verification of all documentation.

How Long Does the Home Buying Process Take in Idaho?

The home-buying process can vary greatly but generally takes 30 to 60 days from the time your offer is accepted to when you close on the home, depending on loan type, and other factors.

Can I Buy a Home in Idaho with a Low Down Payment?

Yes, several programs are available for first-time home buyers in Idaho that allow low down payments. FHA loans, for example, can require as little as 3.5% down, and there are state-specific programs that may offer additional assistance.

What Should I Do If My Loan Application Is Denied?

If your loan application is denied, ask the lender for the specific reasons. This can include issues like credit score, debt-to-income ratio, or employment history. Address these issues and consider different loan programs that might be more accommodating.

How Important Is a Home Inspection?

A home inspection is crucial as it can reveal problems with the home that could require costly repairs. It provides an opportunity to negotiate repairs or price adjustments with the seller before finalizing the purchase.

What Credit Score Do I Need to Buy a Home in Idaho?

The required credit score can vary depending on the type of loan and the lender’s specific requirements. Generally, a score of 620 is the minimum for conventional loans, while FHA loans may accept scores as low as 580. It’s important to check with your lender for their specific requirements.

How Much Should I Save for Closing Costs?

Closing costs typically range from 2% to 5% of the home’s purchase price. This can include fees for the loan application, appraisal, title insurance, and more. Your lender will provide a detailed estimate of these costs.

Can I Use Gift Funds for My Down Payment?

Yes, many loan programs allow you to use gift funds from family members or close friends for your down payment. However, you may need to provide documentation, such as a gift letter, to show that the funds are a gift and not a loan.

What is Mortgage Insurance and Do I Need It?

Mortgage insurance protects the lender in case you default on your loan. If you make a down payment of less than 20%, you’ll likely need to pay for mortgage insurance, which can be included in your monthly mortgage payment or paid upfront.

How Does the Idaho Housing Market Affect My Home Buying Process?

The Idaho housing market can impact your home buying process by influencing home prices, availability, and competition among buyers. Understanding market trends and working with a knowledgeable real estate agent can help you navigate these factors.

What Are the Benefits of a Fixed-Rate Mortgage vs. an Adjustable-Rate Mortgage?

A fixed-rate mortgage has a consistent interest rate and monthly payment for the life of the loan, providing stability and predictability. An adjustable-rate mortgage (ARM) has a variable interest rate that can change periodically, which might start lower than a fixed rate but can increase over time.

Can I Refinance My Mortgage Later?

Yes, refinancing your mortgage is an option to consider if interest rates drop, your credit improves, or you want to change your loan terms. Refinancing can help you lower your monthly payment, reduce the interest you pay over the life of the loan, or convert an adjustable-rate mortgage to a fixed-rate mortgage.

What Happens If the Home Appraisal is Lower Than the Purchase Price?

If the home appraisal is lower than the purchase price, you may need to renegotiate the price with the seller, pay the difference out of pocket, or potentially cancel the purchase agreement. It’s important to include an appraisal contingency in your offer to protect yourself.

What Is an Escrow Account and Why Do I Need One?

An escrow account is used by your lender to collect and hold funds for property taxes, homeowners insurance, and mortgage insurance. This ensures that these expenses are paid on time and reduces the risk of default on your loan.

How Can I Improve My Chances of Getting Approved for a Home Loan?

To improve your chances of getting approved for a home loan, focus on maintaining a good credit score, reducing your debt-to-income ratio, saving for a larger down payment, and providing accurate and complete documentation during the loan application process.

Helpful Links

Here’s a collection of resources to assist you through the home-buying process in Idaho:

Idaho Housing and Finance Association

  • Provides information on homebuyer programs, including loans and down payment assistance.

U.S. Department of Housing and Urban Development (HUD) – Idaho

  • Offers resources for buyers, including information on buying homes, avoiding foreclosure, and fair housing.

National Association of Realtors – Tools for First-Time Home Buyers

  • Provides tips, advice, and tools for first-time home buyers nationwide.

Annual Credit Report

  • Provides free credit reports from the three major credit bureaus, essential for reviewing your credit status before applying for a mortgage.

From understanding the initial steps during prequalification to navigating the intricate details of loan applications, inspections, and closing procedures, each phase of the home-buying process requires careful attention and preparation. Despite this, it can be exciting as well! Homeownership is a goal many strive for, so be proud of that accomplishment. 

More than anything, don’t be afraid to reach out for help when you need it. We at NeighborWorks Boise want to help you achieve this pivotal milestone and will do everything we can to help you do so.