When I represent buyers the first thing I want to know are the questions and concerns they have. Any real estate agent can ask how many bathrooms you want in your new home. I like to take the time to get to know my client’s goals and priorities. My role is to help point out all the pros and cons for all the decisions being made throughout the home selling/buying process and beyond. I will even tell my clients things they may not want to hear because as their agent, I want my clients to make informed decisions. My value is as a “problem solver” - anticipating concerns and resolving them.
What is the first step a home buyer should take?
The number one step for a buyer financing a purchase is to be Pre-Approved for a home loan. Pre-approval should not be confused with pre-qualified. The Pre-approval process can be done in less than an hour by sending the required documents to your lender.
A Pre-Approval shows a lender has done a credit check, verified income and assets and is a written commitment for financing up to a certain loan amount.
It’s helpful to work with lenders that not only offer competitive rates but can be reached outside normal business hours. I have had conference calls with clients and lenders as late as 11PM on a Sunday night. Having an accessible lender is important as questions and concerns need to be addressed in a timely manner. It is recommended to have a Secondary Pre-Approval as a backup if there is a policy change with the first lender or delay which may affect the purchase agreement terms.
Sellers wants to know the buyer is financially able to purchase the property, therefore any offer submitted without a Pre-approval letter, FICO score and Financial Statements to show cash payments for Down Payment and Closing Costs will not be considered. Some listing agents require buyers to have a secondary Pre-Approval with one of their lenders as a condition when submitting an offer.
PROOF OF FUNDS INCLUDE:
Loan Amount (If applicable)
Earnest Money Deposit (EMD) - Usually 3% of purchase price
Down Payment - Inclusive of the Earnest Money Deposit
Closing Costs - Typically 2% to 5% of the purchase price
Possible Appraisal Gap Monies
Inspection costs
For A Cash Purchase Of Property - Proof of funds on Financial Letterhead to be inclusive of closing costs of 2% - 5%
For A Loan Property Purchase - Pre-Approval on Lender Letterhead inclusive of closing costs of 2% - 5% and FICO score(s)
Will being Pre-approved for a loan lower my credit score?
Seeking loan pre-approval from multiple mortgage lenders isn’t going to kill your scores. Credit bureaus have come to expect rate shopping. Rather than count every mortgage credit pull against you, most scoring formulas treat all of these hard inquiries within a certain time period as one, big credit pull - ask the lender about the time periods to inquire about your scoring.
Keep in mind that different lenders use different credit scoring models to get you approved. This gives buyers a solid period of time to work toward pre-approval among multiple lenders. You’ll get a good look at their rates, terms and estimated closing costs without worrying about your credit score taking a nosedive.
Don’t let the fear of losing a couple points from an inquiry keep you from starting the mortgage-shopping process. It’s important to understand that pre-approval isn’t a binding step. You can work toward a pre-approval letter from as many lenders as you like. Buyers mistakenly believe they have to close with the first lender that pre-approved them. You can always have a chat with a mortgage lender about affordability and loan terms without having a hard inquiry, especially if you’ve checked your credit scores recently and know where you stand. Information is your best protection.
Tell me more about FICO® scores?
FICO® scores are the credit scores most lenders use to determine your credit risk and the interest rate you will be charged. You have three FICO® scores, one for each of the three credit bureaus – Experian, TransUnion and Equifax. Each score is based on information the credit bureau keeps on file about you. Lenders use your FICO score and not credit scores from sources as Credit Karma.
If the mortgage company pulls credit from two credit bureaus, the lower credit score will be used. If you have a 700 credit score on Experian and a 680 on Equifax, the 680 score would be used.
If the mortgage company pulls credit from all three bureaus, the middle score will be used. If you have a 700 on Experian, 680 on Equifax and 660 on TransUnion, the 680 score would be used.
If you have a co-signer, the above methodology (lower of two or middle of three scores) will be used for each applicant. The lower credit score of the two borrowers will be used.
If you are applying for a mortgage, your credit score will be a critical part of the process. Your score will determine the interest rate charged. Someone with a 620 score will most likely pay an interest rate higher than someone with a 740 score.
What Is a Home Appraisal?
A home appraisal is an unbiased report on the worth of a house in the fair market, performed by a trained and licensed individual. Appraisals are a requirement of a mortgage lender and are needed to ensure the homebuyer, the home seller and the mortgage lender receive the accurate and true value of the real estate in question.
In most residential property transactions you are able to choose your real estate agent and your lender, but you cannot choose your appraiser. Instead, the appraiser must be chosen by your lender to provide a level of independence from the buyer and seller.
Typically, the final report of value will cover the following items:
Size and condition of the house
Comments about serious structural problems, like cracked foundations, wet basements, windows that need replacement and roofing that needs repair
Permanent fixtures, such as lights, ceiling fans and plumbing, including faucets
Details about any home renovations such as updated kitchens, bathrooms or new flooring
Comments about the surrounding area, including positive and negative local features
Maps, photographs and sketches of the property, both inside and out
A detailed current market analysis, including recent sales of comparable homes
What is the difference between Pre-qualified rather than Pre-approved?
Mortgage Pre-qualification and mortgage Pre-approval may sound alike, but they’re completely different. Pre-qualification entails a basic overview of a borrower’s ability to get a loan. You provide a mortgage lender with information—about your income, assets, debts, and credit—but you don't need to produce any paperwork to back it up. In return, you’ll get a rough estimate of what size loan you can afford, but it's by no means a guarantee that you'll actually get approved for the loan when you go to buy a home.
Mortgage Pre-approval, meanwhile, is an in-depth process that involves a lender running a credit check and verifying your income and assets. Then an underwriter does a preliminary review of your financial portfolio and, if all goes well, issues a letter of pre-approval—a written commitment for financing up to a certain loan amount.
Bottom line? If you're serious about buying a house, you need to be pre-approved, since sellers will accept offers only from pre-approved buyers.
What is Desktop Underwriter (DU) and Loan Prospector (LP)?
DU (Desktop Underwriter) as well as Loan Prospector (LP) are two computer applications used when analyzing your loan application and credit. Basically, all of your financial, personal and work information is analyzed and returns a recommendation as to whether or not your loan meets minimum guidelines.
DU and LP does not always guarantee for FULL loan approval.... it's always subject to a preliminary title report on the property, appraisal and all information must be verified by a real underwriter. If the information that was fed into the system was incorrect then it could result in a decline. It’s a look at a buyer’s financial situation without verification.
Closing costs are the expenses, over and above the price of the property, that buyers and sellers normally incur to complete a real estate transaction. Costs incurred may include loan origination fees, discount points, appraisal fees, title searches, title insurance, surveys, taxes, deed-recording fees and credit report charges. Prepaid costs are those that recur over time, such as property taxes and homeowners' insurance. The lender is required by law to state these costs in a "good faith estimate" within three days of a home loan application.
Closing costs occur when the title of property is transferred from the seller to the buyer. The total dollar amount of closing costs depends on where the property is being sold and the value of the property being transferred. Home buyers typically pay between 2% to 5% of the purchase price, but closing costs may be paid by either the seller or the buyer. Closing costs are not part of the down payment.
What are the Do's and Don'ts of the Mortgage Process?
While you are considering the purchase of a new home, you should not do anything that will have an adverse effect on your loan from this point through the rest of the process. The key is to contact your loan originator if you think you will be making any changes to your financial situation; even the seemingly most logically beneficial moves can backfire and cost you thousands of dollars or even your ability to obtain financing at all.
The Do's:
Do - Provide all documentation for the sale of your car, personal items, if any current home, including sales contract, closing statement, employer relocation/buy-out program if applicable
Do - Keep all originals and have access to all of your pay-stubs, bank statements and other important financial documents
Do - Always watch your new credit report. It could be pulled just prior to closing escrow
Do - Provide your Earnest Money Deposit from your own personal bank account or acceptable gift funds. Business accounts need to be approved prior to being utilized
Do - Notify your Loan Originator if you plan to receive gift funds for closing
Do - Notify your Loan Officer of any employment changes such as recent raises, promotion, transfer, change of pay status, for example, salary to commission
Do - Stay employed if employment income is used for loan approval
Do - Save money to your account provided for verification of assets
Do - Make timely payment on all current debt obligations, including any current mortgage, car, student loan or credit card
Do - Notify loan officer regarding any changes to your employment status, (i.e., promotion/demotion, job loss)
Do - Notify loan officer of any loss of income
Do - Notify loan officer of any depletion of funds needed to close
Do - Notify loan officer of change of current address, phone or email
Do - Notify loan officer of any deposit you expect to made not related to your payroll, pension, SSI or income tax refund
Do - Notify loan officer if you expect to receive gift from relative, employer, union hall or non-for-profit organization
The Don'ts:
Don’t- Close or open any asset accounts or transfer funds between accounts without receiving the correct documentation required for your loan
Don’t - Change jobs/employer without inquiring about the impact this change might have on your loan
Don’t - Deposit any monies outside of your payroll deposits, particularly cash or sale of personal property. Many guidelines require substantial documentation as to the source of these deposits
Don’t - Open or increase any liabilities, including credit cards, student loans or other lines of credit during the loan process
Don’t - Make major purchases prior to or during your contract, such as a new car, furniture, appliances, etc. as this may impact your loan qualification
Don’t - Take advance of any cash from credit card or borrow funds for closing
Don’t - Change your legal name
Don’t - Take any unpaid time off
Don’t - Schedule any vacation or time off for any reason if all possible before closing
Don’t - Alter any documents in any way
How much do I need for a down payment?
While the broad down payment average is 11%, first-time home buyers usually put down 3 to 5% on a home. Several first-time home buyer programs don’t require big down payments. A longtime favorite, the FHA loan, requires 3.5% down. What’s more, some programs allow down payment contributions from family members in the form of a gift. Some programs require even less. VA loans can be made with zero down. However, these programs are more restrictive. VA loans are only made to former or current military service members.
For many years, conventional loans required a 20% down payment. These types of loans were typically taken out by repeat buyers who could use equity from their existing home as a source of down payment funds. However, some newer conventional loan programs are available with 3% down if the borrower carries private mortgage insurance (PMI).
Do I need a home inspection?
When I represent a client, I strongly recommend my clients have a home inspection whether they are the buyer and/or the seller.
For buyers a home inspection is not required for FHA, VA, or conventional loans. Although the Federal Housing Administration does not require FHA borrowers to have a home inspection, they strongly encourage it as do I. Home buyers intending to finance a home purchase with a Federal Housing Administration (FHA) loan may be surprised to learn that they won't be allowed to purchase a particular property if it doesn't meet FHA requirements of safety, security and soundness. FHA home buyers would be wise to have a complete "regular" home inspection separate from the "health-and-safety" inspection conducted by the FHA appraiser (the FHA appraiser's inspection is mandatory).
When it comes to a VA loan, VA appraisers are looking for potential issues that revolve around the three S’s: safety, sanitation and structural integrity. There’s a host of Minimum Property Requirements that VA appraisers consider, including things like mechanical systems (heating & cooling), a reliable potable water supply, domestic hot water and a safe method of sewage disposal. The VA wants homes that are move-in ready. Problems with the property generally have to be corrected before a loan closes. VA borrowers whose prospective property fails to meet the Minimum Property Requirements will be hard-pressed to secure VA financing.
To recap, home inspections are highly recommended because they can reveal defects in the home that are not easily detected. Home inspections bring peace of mind to one of the biggest investments of a lifetime.
What is private mortgage insurance?
Private mortgage insurance, also called PMI, is a type of mortgage insurance you might be required to pay for if you have a conventional loan. Like other kinds of mortgage insurance, PMI protects the lender—not you—if you stop making payments on your loan.
PMI is arranged by the lender and provided by private insurance companies. PMI is usually required when you have a conventional loan and make a down payment of less than 20 percent of the home’s purchase price. If you’re refinancing with a conventional loan and your equity is less than 20 percent of the value of your home, PMI is also usually required.
There are several different ways to pay for PMI. Some lenders may offer more than one option, while other lenders do not. Before agreeing to a mortgage, ask lenders what choices they offer. The most common way to pay for PMI is a monthly premium. This premium is added to your mortgage payment. Sometimes you pay for PMI with a one-time up-front premium paid at closing. If you make an up-front payment and then move or refinance, you may not be entitled to a refund of the premium. Sometimes you pay with both up-front and monthly premiums.
Lenders might offer you more than one option. Ask the loan officer to help you calculate the total costs over a few different timeframes that are realistic for you. There are factors you should consider when deciding whether to choose a loan that requires PMI. You may be able to cancel your monthly mortgage insurance premium once you’ve accumulated a certain amount of equity in your home. PMI can help you qualify for a loan that you might not otherwise be able to get. But, it may increase the cost of your loan. And it doesn’t protect you if you run into problems on your mortgage—it only protects the lender.
Lenders sometimes offer conventional loans with smaller down payments that do not require PMI. Usually, you will pay a higher interest rate for these loans. Paying a higher interest rate can be more or less expensive than PMI—it depends on a number of factors, including how long you plan to stay in the home. You may also want to ask a tax advisor about whether paying more in interest or paying PMI might affect your taxes differently.
Borrowers making a low down payment may also want to consider other types of loans, such as an FHA loan. Other types of loans may be more or less expensive than a conventional loan with PMI, depending on your credit score, your down payment amount, the particular lender, and general market conditions.
You may also want to consider saving up the money to make a 20 percent down payment. When you pay 20 percent down, PMI is not required with a conventional loan. You may also receive a lower interest rate with a 20 percent down payment.
Ask lenders to show you detailed pricing for different options so you can see which option is the best deal.
Warning: Private mortgage insurance protects the lender—not you. If you fall behind on your payments, PMI will not protect you and you can lose your home through foreclosure.
What documentation is needed when submitting an offer?
Your full, legal names - including co-buyer(s) name(s)
Your current mailing address for escrow purposes
Phone number(s) for each signer(s) so that myself or escrow can contact you
Email addresses for signer(s) - used for correspondence as well as for electronic signature of documents
If CASH PAYMENT - Proof of funds on Financial Letterhead inclusive of closing costs usually 2% - 5%
For Loans: Name and contact information for your lender and your permission to speak directly to the lender regarding your loan. This can be done by sending your lender an email with me cc'd explaining that I am representing you on the offer and have your permission to discuss the loan and the terms with the lender.
Your Lender Pre-Approval letter
Your FICO scores if not included on the Pre-Approval letter
How much your down payment will be
How much your loan amount will be and any points
What interest rate you are approved at (I can discuss this with your lender directly)
What type of loan will it be (e.g. Conventional, Cash, VA, FHA, Other). I can discuss this with your lender directly
How much your Earnest Money Deposit (EMD) will be usually 3% of purchase price
Any additional financing terms which might apply: Gifts with Gift Letter, etc.
Bank Account/Money Market Accounts showing
Sufficient Funds to cover down payment, closing costs (2% to 5% of purchase price), possible appraisal gap, property insurance and expenses such as inspection fees
Statement must show your name(s) on the accounts
Statement must be on Financial Letterhead without missing pages or information. I will be crossing out your account numbers and any other personal or sensitive information prior to submitting these documents. Your privacy is my priority.
