First Time Home Buyer
First Time Home Buyer - With just a little bit of information, knowledge, and guidance, even the most timid first time home buyer can be well on their way to overcoming any fear and on the road to making a home purchase.
One of the greatest challenges for a first time homebuyer is saving up enough money to make a down payment on their new house, especially in markets like San Francisco, Los Angeles, and New York. However, we now have programs which allow borrowers, even first time homebuyers with less than perfect credit, to purchase a home with little to no money down. Mortgage home loan financing is available as high as 97% or even 100% of the new home's value.
Being a first time home buyer has never been so easy. With the increasing number of mortgage programs available that require little to no down payment in order to purchase a home buying a home is a cinch. If you do not have money for closing costs or you want to put down a down payment many lenders will allow you to use money from a gift from a family member. This can save you from doing a seller concession and adding onto the amount you are financing and this can possibly help to lower your rate if your LTV, loan to value, is lower than 100%. Loan to value is the amount you are borrowing compared to what the home is worth. For instance if you are buying a home for $100,000 and you are financing $100,000 then your LTV would be 100%. However, if you only finance $95,000 then your LTV would be 95% and this may help reduce your interest rate or the structure of your mortgage loan, thus saving you money.
In addition to the abiliy of financing 97-100% of a home's value, you also have the ability with most loan programs to negotiate a 3% or a 6% seller's concession. This means the seller can agree to pay up to 6% of your loan's closing costs. This is espeoially helpful when dealing with a motivated seller. Instead of only negotiating a lower purchase price you can 'blend' a negotiated sale's price with their paying of your closing costs.
First Time Home Buyer Programs - A first time home buyer has more options available to them then ever before. A first time home buyer may also qualify for Down Payment Assistance Programs as well by qualifying for home loan from a lender who accepts grant funds from a nonprofit organization, or by purchasing a participating home from a seller who agrees to make a contribution to the program after the home closes.
Many first time home-buyers are even able to obtain 100% financing and can get a loan without having to put any money down for a down payment. Many times even when a first time home-buyer is obtaining a home mortgage loan that requires zero money down for a down payment there are still some closing costs that will need to be taken into consideration. There are usually ways to have the closing costs paid for as well; however some lenders may require that you bring some money to the closing table to pay for some closing costs. One such way, and probably the most common way, to have your closing costs paid for is through a seller concession. A seller concession is where you have the seller contribute the money for the closing costs.
Depending on the type of loan program you are considering, you can also receive a gift from friends or family members to help you pay the closing costs.
Fannie Mae has a program for first time home buyers that will allow 100% financing with limited or zero credit history and will allow stated secondary income up to 25% of your verified income which can help with debt ratios.
Many lenders participate in the Community Home Buyers Program sponsored by Fannie Mae, which is specifically tailored toward First Time Home Buyers. This type of loan provides loans for low to moderate income buyers who might not qualify for a traditional loan.
The opportunity of owning your own home today is at an all time high. With all the different programs and lenders available, the dream of owning your own home can be a reality. Take some time to speak with your mortgage specialist to create the exact scenario needed for your particular situation.
Check with your local city hall to see if there are any assistance programs for first time buyers, these programs assist in areas of closing costs and down payment assistance.
FHA or VA Loan For First Time Home Buyer Home Loan - If you are a veteran and are buying your first home you have many different choices when it comes to home loans. Both FHA and VA offer great first time home buyer loans to veterans. What home loan is better for the first time home buyer FHA or VA?
Both FHA and VA loans can be scored through Automated Underwriting Systems.(AUS) Your mortgage professional can score you through both types and give you a comparison of your payments, etc.
VA loans currently have a higher maximum loan amount at $417,000. FHA loan limits vary by county and range from $200,160 to $362,790 for single family homes. Consult with your mortgage professional at 415-617-5448 to see which program best fits your needs.
Both FHA and VA loans have a financed Mortgage Insurance Premium. For FHA, this is referred to as your Mortgage Insurance Premium (MIP) and for VA loans it is called a Funding Fee. The VA does not charge a monthly mortgage insurance premium and FHA uses has a .5% monthly MI premium. These fees often work out to be significantly cheaper than conventional financing MI premiums.
As a veteran, in some cases, you can only use your VA letter one time to obtain a VA loan.
Questions to Ask Your Mortgage Broker - If you are considering applying for a mortgage, it is important to ask questions and have your questions answered. You need to feel comfortable that the decision you are making is the right one. Here are some questions you might want to ask.
Is there a prepayment penalty?
A prepayment penalty means that if you pay off your loan within a certain amount of time (by selling or refinancing) you will have to pay a penalty. Usually this penalty is several thousand dollars. Prepayment penalties are not always bad. In fact, you can usually get a lower interest rate if you have a prepayment penalty. But if you think you will be selling or refinancing your home within the next few years, it may be in your best interest to avoid having a prepayment penalty. In any case, you should at least know if you have one.
What loan program based on my situation will be right for me? Your mortgage broker should be able to help you decide on a mortgage. There are numerous loan programs to choose from such as Adjustable Rate Mortgages (ARM), Fixed Rate Mortgages, and Pay Option Arms. They will also be able to help you determine what the length of your loan term should be; 15 year, 30 year , 40 year, or even 50 year.
Do you have any client references? One of the best ways to find out if your broker is going to be right for you is by speaking to previous clients. Were they kept informed throughout the process? Were they happy with the service? Did the broker put them in the right loan program? Were the fees reasonable? Any reputable mortgage broker would be more than happy to give you references. It means a) You're a smart borrower who wants to know all the options and you don't rush into things. and b) You're seriously considering using this broker and just want to make absolutely sure.
If your mortgage broker is recommending an Adjustable Rate Mortgage, an important question to ask is "What are the caps on this loan?" You will want to know the caps, or maximum adjustment, for the initial adjustment, for each adjustment period after that and for the life of the loan.
What are interest rates based on? If the broker answers either treasury bonds or the Prime, RUN do not walk away. Interest rates are based on mortgage backed security's. If your broker is watching the wrong rate then you could get a bad deal. The Prime rate has some influence on mortgage rates but does not accurately reflect what rates are doing.
Do you have access to live, real time, mortgage bond quotes? (If a broker/lender cannot explain how Mortgage Bonds and interest rates are moving in real time and warn you in advance of a costly intra-day price change, you are talking with someone who is still reading yesterday’s newspaper, and probably not a professional with whom to entrust your home mortgage financing. Would you work with a stockbroker who is only able to grab yesterday’s paper to tell you how a stock traded yesterday, but had no idea what the movement looks like at the present time and what market conditions could cause changes in the near future? No way!)
Be smart... Ask questions… Get answers!
More than likely, this is one of the largest and most important financial transactions you will ever make. You might do this only four or five times in your entire life… but we do this every single day. It’s your home and your future. It’s our profession and our passion. We're ready to work for your best interest.
Don't be afraid to ask your mortgage broker exactly how much he is earning from your loan. Ask if you are being charged any Yield Spread Premium and what effect it has on your interest rate. Mortgage brokers are required to disclose their fees in writing in the form of a Good Faith Estimate. Honest brokers should have no problem letting you know up front the amount of their fees for your loan. Also keep in mind that the lowest fees do not mean the best service. If you shop based on fees and interest rate alone you may end up working with the biggest liar, not the best mortgage broker.
Questions to ask a realtor - Before you hire a WI realtor to either help you sell your home or help you find a new one there are some questions you will want to ask to make sure the fit is right. You will first want to ask the realtor is they work in and have knowledge of the area that you are selling or buying in. A realtor who understand the area you are interested in will make the process more enjoyable.
When working with a Realtor one of the questions you should ask them is how long has he/she been a Realtor. An experienced Realtor who has been doing it for a long time has been there and done that, while a new Realtor will obviously be less experienced and may not be familiar with everything still. I would definitely be more apt to second guess something a new Realtor was doing versus an experienced veteran Realtor. This is not to say a new Realtor can not do his/her job as well or better than the veteran, but I would make a mental note of their experience in my head. An example where the seasoning of a Realtor may come into play: If you have a "unique" property that you are trying to sell, the veteran might have more experience or knowledge about selling this type of property than the newbie Realtor.
You will want to find out from the realtor if there are any other fees that you will need to pay besides the standard commission. The standard commission is 6% total, 3% goes to the listing agent and 3% goes to the buyers agent. You may be able to negotiate this fee with your agent, while these are the customary fees, there are many new companies that charge a flat rate or smaller fees, so some real estate agents will negotiate with you.
If you have children, feel free to ask the realtor about the local school system, daycare, etc. You shouldn't hesitate to ask your realtor about the basics either. Things such as where the grocery store is or the nearest dry cleaners, are all questions that your realtor can answer or find the answers for you.
One of the most important questions to ask your real estate agent is which neighborhoods appreciate higher than others. You don't want to buy a property in a neighborhood that has seen little to no appreciation.
If you're buying, ask about tax rates and trends in various area towns. They can vary considerably and will affect your total cost of ownership. Also, ask the realtor whether they work primarily with buyers or with listing. If you're a buyer, a buyer-only realtor may be a good bet.
Ask your realtor about Home Owners Associations and covenants for the neighborhoods you are considering. Ask if the neighborhood is part of any special taxing district.
Also, ask your realtor if there are any administration fees associated with the transaction. These are paid to the realty company at closing.
Frequently Asked Questions - Credit - One of the biggest factors in qualifying for a mortgage is ones credit profile. Often times reviewing your credit report or even how credit works can become confusing for those of us who are not familiar with all the jargon, graphs, and numbers.
Why is my credit score so low? I pay all of my bills on time and have never been late on anything.
This is one of the most common questions asked and there can be many different reasons why your credit score is not where it should be. The most common reason for a below par credit score, even if you have perfect credit, is due to having too much revolving credit. Revolving credit is debt such as credit card debt. If you have a lot of different credit cards and most, if not all, of them are maxed out to their credit limit then this can be a major reason for a low credit score. The ideal maximum credit limit to actual balance ratio is to owe roughly 20-40 percent of what your available credit limit is. An example would be if you have a credit card with a $1,000 maximum limit, to use only between $200 and $400 on that credit card. Another reason for a low credit score could be that you have just way too much credit overall or a poor mix of credit. A person who has 50 different open credit accounts on their credit with balances would be a higher credit risk than a person with 5 open credit accounts with balances. Having a nice blend of credit will help increase a credit score. A nice blend of credit would be to have a couple of revolving credit accounts, an installment credit account (or two), and a mortgage account. A poor mix of credit might be 5 installment accounts (such as car loans, personal loans, etc...) and no other open credit accounts. Another reason for a low credit score could be due to the fact that you may not have a long established credit history with "aged" accounts that have been open for a long time and are still open. Many people make the mistake of closing some of their credit card accounts once they pay them off or if they don't use them anymore or even if they just don't want to have the account any longer. This can be a mistake because your credit score is rewarded for long established accounts and penalized if you only have new credit. There are many other reasons why your credit score can be lower than you think it should be even if you have never missed a payment in your life. Consult a mortgage professional if you would like some help on learning more about credit and how to increase your credit scores.
What is a good credit score?
The answer to this question depends on a lot of things, but generally, scores of 720 and up will get you the best rates.
680-719 is another tier down, then 640-679. Scores under 620 are usually considered "subprime" loans and will require you paying a higher interest rate. Anything under 500 is extremely hard to get financing.
As a living expense budget consists of many factors, so does what goes into an interest rate and their credit score is only a part of it...We all know a person with a higher score, going stated on a rural property non-owner occ'd at 100% can pay a higher rate than someone with a lesser score financing 50% full doc living in the home...Once this is explained it can keep a client from dwelling on their credit, good or bad...
If you have a workable credit file, why would you ever tell them anything other than it's a good score?...Make them feel good about themselves and they will make you feel good by giving you their business!~
This account was charged off. Why is it still on my credit report?
A "charge off" is an accounting concept. It means the creditor is no longer counting the account as an asset. However, this account is still owed by you and will remain on your credit report for at least 7 years from the date of last activity.
Often you can negotiate a reduced payoff for a charged off account. Depending on the creditor, this could be anywhere from 10% to 60% of the balance. Further, a few creditors may change how this account is reported in order to get payment. Removing the account completely from your credit report would be the best choice. Changing reporting to "Paid as agreed" and not changing the "date of last activity" is a pretty good choice as well.
Do not disclose that you may be refinancing or purchasing a home because you lose leverage. Get any agreements in writing and agreed to by original creditor and any collection agency.
What is considered the "average credit score"?
The average credit score in the USA is around 680.
Your report my be wrong, or more diplomatically, your credit report may contain inconsistencies or innacuracies. One of the most common things we see on credit reports is "Account Closed by Credit Grantor". This is considered a negative, it's what someone would write about you if you didn't pay your debts in a timely fashion and you were being sent to collections. But we see this a lot on a store card you signed up for to get the 20% discount, never used, and never even activated. It's very easy to get this changed to the more positive "Account Closed by Consumer" and get a score improvement of anywhere from 2 to 20 points or more depending on the quality and quantity of the account being corrected (and you can ask us to do this for you if repairing your credit seems like something you'd rather not get involved with)
Frequently Asked Mortgage Questions - As a mortgage professional there are often times several questions that consumers tend to ask more frequently than others.
To discuss these or any other mortgage questions you may have, please feel free to call me at 415-617-5448, or by email at [email protected].
Below is a list of these questions along with a brief answer:
Why is my payoff so much higher than my mortgage loan balance?
There are many reasons as to why your payoff balance is higher than your current loan balance on your mortgage statement. The first reason is that interest accrues on your mortgage loan each and every day. When you receive your monthly statement, the balance on there reflects the loan balance on the day the monthly statement was prepared. When you have a payoff prepared they take into account the interest for every day up until the mortgage loan is paid off in full. Another reason the payoff may be higher is because of certain fees your lender charges that are associated with your payoff. Some of these fees may include, but are not limited to a statement fee, unpaid late fees, recording fee, etc... Finally, one last reason your payoff may be higher that your loan balance is because you may have a pre-payment penalty associated with your current mortgage loan. If you have a pre-payment penalty and you pay your loan off before the pre-payment penalty expires you will be assessed a penalty. If you have any further questions or need any further help please contact your personal mortgage loan officer at the phone number or email listed above.
What is a good faith estimate (GFE)?
A good faith estimate is an estimate of the closing costs for your loan. By law, you must be provided a good faith estimate, and the accompanying truth in lending statement, within three days of applying for a mortgage loan.
What is a Yield Spread Premium?
A yield spread premium is a form of mortgage broker compensation that is paid by the Investor in exchange for offering a particular loan program and interest rate to a borrower. This compensation is paid outside of the closing but is disclosed on the HUD settlement statement and the Good Faith Estimate.
Should I sell my home with a Realtor or on my own?
This is a very common question asked by many Americans. While the cost of utilizing a Realtor can be quite costly, using a Realtor can save you both a lot of time, aggregation and money. However, there is not clear cut easy answer to this question. Whether you decide to sell your home on your own or with a Realtor truly will depend on what you and your family decide is in your best interest and how much time and effort you are able to put into selling your house. There are many advantages and disadvantages to both ways of selling your home. The majority of people who try selling their home on their own end up listing with a Realtor though. Consult your mortgage loan officer to assist with any further questions you may have.
What Is An Escrow Account
When you purchase a home most homeowners prefer to make your property tax, and hazard insurance payments as part of their mortgage payment. This portion of your monthly payment that is held by your lender in a special account called an escrow account. Your lender will then pay your property taxes and home insurance automatically without you being required to do anything. When you sell your home, or choose to refinance the lender will refund any monies remaining in this account directly to you.
Why is the Interest Rate on the Truth-In-Lending different from the one I was quoted?
The rate on the Truth-In-Lending is derived from taking all the costs associated with your loan and stating them as an interest rate so borrowers can see the true cost of borrowing money.
What is the difference between a Soft Pre-payment Penalty and a Hard Pre-payment Penalty?
Soft Prepay means that the mortgaged property cannot be refinanced during the Prepayment Penalty period. But, it can be sold at any time without becoming liable for a penalty.
Hard Prepay means that the mortgaged property cannot be sold or refinanced during the Prepayment Penalty period.
Should I take the ARM with the lower interest rate or the 30 year fixed loan?
A somewhat complicated question best explained in detail from a mortgage professional. In general, a good determining point is what your plan is for the property. Do you plan to live in this house, or at least own it, for the entire 30 years? Do you plan to live in the home for a couple of years and then upgrade/sell? Typically, ARM's have lower interest rates than fixed products. The risk is that, at the end of the introductory fixed period, your loan turns to an adjustable interest rate. If you plan to sell or upgrade the home before the end of your fixed period, the ARM can save you considerably each month that you're there. For long term benefit and safety, take the fixed rate.
One other consideration is where the market is currently at. As rates remain incredibly low from a historical standpoint, locking in a fixed rate at this point can save you considerable money in the long run. As rates continue to rise and begin to reach relative high's and you've purchased or refinanced in the period, an adjustable rate might be the best option as you'll most likely refinance again when the rates get low.
Does a lower interest rate mean that I am getting the best deal?
A lower interest rate is not always an indication of the best loan for you. Lower interest rates often mean higher fees if you plan on keeping you property for longer than it takes recoup the fees than it may be a good offer. However, many borrowers end up with inflated loan amounts and other "features" such as prepayment penalties to get those low rates. Be sure to weigh the benefits before making your final decision.