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Buying Your First Home – Step 2 Getting a Loan
When it comes to getting a loan, there are a number of loan programs available, so you need a really good mortgage broker to help you find the best one for you. Often first-time home buyers go on the internet and find what looks like the best interest rate and plan to get their loan online. Don’t do that! I’ll tell you why….
Buying your first home can be a pretty overwhelming process and you need to be working with someone you trust and can talk to face-to-face. Ask friends and family members in addition to your real estate agent for recommendations. Interview two or three people and choose the one you like the best. You’re the customer, and they don’t get paid if you don’t buy the house, so they’re working for you. You want someone who feels like a partner in this process.
LOAN APPLICATION
The first part of getting a loan is filling out the application. You can often do this part on-line. You will then be asked to come in for an interview and bring in documentation. Plan on submitting the following in addition to proof of your id and social security number.
• Bank statements for 2-3 months
• Last two years tax returns
• Last three pay stubs
• If self-employed, you will probably need Profit and Loss Statements in addition to tax returns.
• Rental and/or mortgage information
• Proof of all funds, including gift funds
If you hope to borrow some of your down payment or closing costs, some loans will not work for you. Gift funds may be allowed but be prepared to show proof of check and deposit from recipient and recipient may be asked to submit bank statements showing they had the funds to give you.
WHAT’S THE BEST LOAN?
When comparing loans, look at the APR for each loan to see which one is really the better deal. The APR includes the annual interest rate plus all the costs of the loan. Often the loan with the lowest interest rate isn’t the cheapest loan. Compare “apples to apples” by looking at the APR. By law, a lender is required to give you a Truth in Lending Disclosure, which will show the APR.
WHAT ARE YOUR COSTS?
Ask the loan broker to give you a list of all your costs that you will be expected to come up with at closing. Your down payment is your biggest expense but you will also have pre-paid interest, loan fees, homeowners insurance, property taxes, possibly HOA fees, title insurance, ½ of escrow and recording fees. You may be surprised by how much these additional costs will add up to. It’s best to be prepared ahead of time so you aren’t unpleasantly surprised a week before closing.
A FEW TIPS…
I know you’re excited about your house and want to start buying new furnishings and fun things to put into it. Hold off….don’t buy anything new until you’ve closed on your loan. The lender’s underwriters will be checking your bank accounts and credit report right up to the last minute. You want to show as much money in your accounts as possible and the least amount of money on charge cards or other loans.
Stay patient as they ask you for more and more documentation. It will seem never-ending but the underwriters have to be very careful that they don’t make a mistake and approve a loan to someone who can’t pay it back. The nice person who took your loan application isn’t the decision-maker but hopefully they can “go to bat” for you if you need some support.
APPRAISAL
Two things have to work together for you to get your loan….you have to qualify and the house has to qualify. The appraisal is how the lender determines if the home qualifies for the loan and different loans have various requirements. An FHA or VA loan will have much stricter criteria than conventional financing and will be looking at health and safety issues in addition to determining a value for the house. If the appraiser makes the appraisal contingent on work orders being completed prior to closing, or determines the value is less than sales price; negotiations with the seller may need to be re-opened and this is where having a good agent is invaluable.
VETERANS
If you are a veteran, there are a number of options available to you and I want to link you to this Veterans Home Buying Guide that explains them better than I can. Here’s another link to VA Mortgage Rates and one for VA Home Improvement Loans. There are some great programs out there!
I’ve linked above to one of the lenders I trust and I can send you a list of others. Please feel free to email or call me anytime…
Buying Your First Home – Step 1 Making the Offer
Recently my daughter entered into a purchase agreement for her first home, and I was reminded of how confusing buying your first home can be. We were texting or on the phone almost daily as she struggled to navigate the process. Even with an agent she liked and trusted, she was totally overwhelmed.
If you or someone you know is buying their first home, I hope this blog will help you….
STEP ONE –MAKING OFFER
• Finding an agent….You’ve found the perfect place and feel you have a great agent to help you. In most states, your agent will be a “Buyers Agent” but if the house is their listing, they will be a “Dual Agent”. This should be disclosed to you in writing before you sign any paperwork. If you don’t understand the difference, be sure and have them explain it to you. If you call the agent on the sign, you will be dealing with the “Listing Agent” for the Seller, who will become a dual agent if they write up an offer for you.
If you don’t have an agent, ask friends for recommendations or go online and read agent reviews.
Choose carefully as you will be working almost daily with this person for 1-2 months and you need someone you like and trust. Ideally, find someone who specializes in working with first time buyers.
• Determining the price you want to offer…
Do your research by first going to the county web site. Check the Assessor’s Office for assessed value and compare the description of improvements with the listing for the house. Next, go to the Recorders Office to see what documents have been recorded on that parcel. You should be able to see what the seller paid for the house, how long they’ve owned it, and any liens or judgements on the property. Ask your agent to do a quick CMA (market analysis) so you can see how much similar homes in the area have sold for and average time on the market. A new listing will probably have a much firmer price than one that’s been on the market for a long time.
• What inspections or contingencies do you need as part of your offer?
Most first time buyers will need to make their offer subject to financing and its really good strategy to offer a pre-qualification letter from a lender showing you can qualify for a loan for the amount of your offer. You will also want a home inspection, well and/or septic if applicable. If you need a little more time to research neighborhood or your use of the property, ask for a 7-10 day feasibility contingency, so you can have an “out” if your research reveals issues that aren’t readily apparent. During your inspection or feasibility period, visit the neighborhood at different times of the day. Meet the neighbors and check with the local police department about crime statistics, sex offenders, etc. If you have children, check out the schools and daycare and after-school programs available. I also like to know the percentage of rentals to owner occupied homes in the area.
• Strategies for negotiating offer….
Sometimes going for the cheapest price isn’t necessarily the best tactic. In my daughter’s case, she was scrambling to come up with the money for down payment and closing costs and she would’ve done better by offering closer to full price and asking the seller to pay a portion of her costs. Also, if you suspect the home needs repairs, and you negotiate really hard on the price, the seller may be less likely to pay for the repairs after the inspection.
• Buyers Remorse….
You see something you love, get excited and write an offer, and that night you can’t sleep because you’re terrified you’ve made a terrible mistake.
This is very normal and often happens to first-time buyers. It’s a HUGE decision and may be the biggest one you’ve ever made…your fears are justifiable, but take a deep breath…. If owning your own home is really something you want, you just need to take baby steps and know that you have an option to rescind the contract if new, unforeseen information arises.
Places in the transaction where you can walk away if you have to…
–During the Inspection or Feasibility Period if serious problems with the house are disclosed and seller is unable or unwilling to fix them. (you will lose cost of home inspection and any additional inspections or studies)
-During your loan application process if the loan you want is not available or you don’t have adequate funds, after all costs are totaled. (you may lose loan application fees)
-After the appraisal, if home comes in under value and seller is unwilling to negotiate a new sales price. (you will lose appraisal fee and any loan application fees)
If you back out of the contract at any time, other than those listed above, you may lose your earnest money and/or face legal ramifications. You should consult an attorney prior to considering this option. The inspection, feasibility, and loan application all have specific time frames to be adhered to. Ask your agent to give you a “timeline” so you don’t miss these very important dates.
