So You Wanna Buy a Home?
(Q&A for Easy Reading)
Yesterday we had an opportunity to sit down with an old friend who had a few questions about how she should begin the process of buying a new home. In speaking with her, we realized that her questions were probably right in line with a lot of first-time home buyers (and even some veterans needing a refresher), so we decided to write out this Q&A to help you with the steps for the process of purchasing your dream home. If you have any further questions, don’t hesitate to give us a call or send us an email.
ROBERT COLE PROPERTIES
Q: What is the first thing that I need to do to set myself up for buying a home? This is a 2 part answer.
A: Part 1: The very first thing you need to do is find yourself a great agent that you trust. The beauty about hiring an agent to help you with your home buying process, is that it’s at absolutely no cost to you and you get all of the expertise and guidance that is pertinent for a successful transaction. Your Robert Cole Properties REALTOR® will be there to make the process go as smoothly as possible and make sure that you stay in compliance with any regulations.
Sometimes you find your dream home right away, and sometimes it can be a lengthy process that requires some patience. With all the time and work involved, you should have a Robert Cole Properties REALTOR® by your side that you can trust to find you the right home. Our friendly and knowledgeable agents can help you with your entire home buying process. Who knows…you may even gain a friendship out of it.
A: Part 2: To set you up for success and get you the best pre-approval possible, follow these guidelines:
- You want to show at least 3 months reserves of the mortgage payment you are applying for. For example, say your current mortgage payment, or your future payment is going to be about $2500; you want to show at least $7500 available in either one of the following accounts: Savings Account, Checking Account, 401K Account, etc.
- The lender will need to see one month’s current pay stubs. (You may need more pay stubs before your final approval)
- Driver’s License(s)
- 2 Years Tax Returns
- Loan Application (your lender can help you with this)
- Lender runs your full credit report
- Social Security Number of each applicant
- Names and Locations of past employers (past 2 years)
- Current address for the past 2 years
- Complete information for any real estate that you own
- Approximate value of all assets and personal property
- Certificate of Eligibility and DD-214 (for Veterans Only)
- You will need to pay for an Appraisal, and Credit Report
Q: How do I qualify and who do I use to get pre-approved?
A: So once you choose your REALTOR®, the next step is to be pre-approved before you start looking at homes. Your REALTOR® should have a lender that they recommend. That is typically the best approach. If your REALTOR® doesn’t have a specific lender in mind, you can always go with any lender of your choosing. A lender that is professional and knowledgeable will be best. Once you have chosen and been in contact with your lender, you will receive an estimated total amount that you qualify for, to purchase a home. Now you can start the best part; your home searching! (Agents prefer not to show homes until the pre-approval process is completed.)
Q: What if I don’t like the amount that I qualify for and want to get approved for a higher loan?
A: Your lender can help you out with this. He/She can advise you on steps you can take to help increase the amount of your approval; for example, by getting a Co-Borrower, changing loan programs, increasing down payment, and/or paying off debt. Remember that this is an estimated pre-approval. You will have to go through a final approval once you are in escrow with your dream home, so you may have time to fix things up on your credit, raise more money for your down payment, etc. Under certain circumstances, the lender may have additional options to improve your credit profile.
Q: What are the requirements/differences in choosing a home loan? Do I have to get a loan?
A: The requirements vary depending on the type of loan you choose to do, but I will go over the most commonly used ones:
- 3%-20% Down Payment
- No Mortgage Insurance with 20% Down
- Cancelable Mortgage Insurance when home equity reaches 20%
- Lower Monthly Mortgage
- Conforming Loan Amounts up to $424,100 for 2017 (different in other major cities)
- Purchase a Primary Residence, Second Home, or Investment Property
- Maximum Debt to Income Ratio should be no more than 43%
- FICO Scores Vary
- Flexibility in Interest Rates and Terms
- 3.5% Down Payment
- Loan Amount on a SFR cannot exceed:
- $636,150 – Los Angeles County
- $636,150 – Orange County
- $379,500 – Riverside County
- $612,950 – San Diego County
- Mortgage Insurance Required for the life of the loan
- Debt to Income Ratio has to be no more than 43%
- Lowest FICO score to qualify for 3.5% Down is 580 (this is the FHA minimum requirement. Lenders may have higher standards)
- FHA loans are available for people with a 500-579 FICO score with 10% down.
- Limited Closing Costs
- 0% Down Payment (100% Financing)
- Rural areas that qualify
- USDA Guaranteed
- Incredibly Low Interest Rates
- Mortgage Insurance among the lowest but Mortgage Insurance Premium of 1% of the loan (this used to be 2.75% prior to 2016)
- 0.35% Annual Guarantee Fee
- All household members income is considered in the loan and may make up to 115% of the area’s median income
- Only 30 year fixed loan rates available
- Seller to pay closing costs up to 3% of sales price
- Gift funds allowed with this document signed – https://mmi-fullbeaker.netdna-ssl.com/wp-content/uploads/2015/01/USDA-mortgage-gift-letter.pdf
- You cannot show that you can qualify for a Conventional Loan with 20% Down
- Debt Ratio must be under 41%
- FICO score must be 640 or above
- Check to see if your area qualifies here: https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do;jsessionid=-AnraDjmdjp4U6eOhCKWu0-k
- Much quicker escrow
- Show proof of funds
- 1-2% Deposit Upfront
- No Mortgage Payments
There are more loans available to home buyers. Ask your lender to inform you of which one best suits your needs.
Use the tips and tools above to start planning for your home buying adventure. This should at least get you headed in the right direction to having a smooth and successful transaction. If you have ANY questions, please don’t hesitate to call!
ROBERT COLE PROPERTIES