Tag Archives: first time buyer

What to Expect when You’re Expecting to be a Homeowner

A little play on a book title, but if you’re like me, you feel better about taking on something new when you’re prepared –whether it’s going to college, starting a new job, becoming a parent or buying your first home. When you understand the process, the task itself isn’t so daunting.

The first thing to realize, as you leap into home-ownership, is the need to get pre-approved for financing. The lending industry is under scrutiny in an effort to protect you, the buyer.  Due to this, lenders are required to prove you have the ability to repay the loan.  This means you will be required to provide supporting documents.  This can become quite cumbersome, and frankly, frustrating.  We understand – believe me!  Our goal is the same as yours … help you get a loan.

The first step is the loan application. To make this convenient, we can gather this

courtesy of Stuart Miles|freedigitalphotos.net

information over the phone, on our internet site or in-person, whatever is best for you.  We need information such as your name, contact information, addresses and employers for the last two years, income, assets and your debts.  The application enables us to obtain credit to determine if you meet today’s credit guidelines, which vary by program and financing type.

From there, if all looks good, we gather supporting documents, such as paystubs, bank statements, etc. This information will initially be reviewed by the loan officer for validity and to determine if income matches what’s on the application, among other things.  It’s important to meet with your loan officer to discuss your options, the costs of buying a home, and most importantly, your comfort level in terms of a payment.

Once pre-approved, you’ll look at houses, and hopefully, will find one you want. At this point, you and your Realtor will draft a purchase agreement stating the terms of your offer – price, closing date, what you may want the seller to pay toward closing costs, earnest money amount and any contingencies you desire, such as having a home inspection.  Assuming you get the “your-offer-was-accepted” call, we move on to the next steps.

You may have chosen to do a home inspection. You will pay the inspector directly; this is not part of the closing costs the lender would have gone over with you.  The inspection will help you determine if you want to move forward on the purchase or not.  Hopefully, you are full speed ahead!

Now that you have a property address and aren’t just a TBD (to be determined) anymore, there will be disclosures that are generated for you to sign. Your lender may mail these, email you a link or sit down with you to sign depending on their process.  At this point, you will receive a loan estimate, which will outline all your costs, including down payment and seller paid costs or down payment assistance, if applicable to your situation.  Your lender most likely went over a similar type estimate at your pre-approval meeting so you had an idea what your costs would be.  The loan estimate is still an estimate but is much closer to actual figures now that we know the price, taxes, rate (if you locked) and closing date.

 

At this point, you can lock in an interest rate. Your loan officer will check to see what rates are for the program you’ve decided to use.  Keep in mind, if using a first time buyer program, they publish their interest rates right out on their sites – so the rate is the same with any lender.  Rate locks have expiration dates – that means we must lock the rate long enough to cover you through your closing date.  And something very important – once locked, you’re locked.  If rates go down after locking, you cannot get a better rate and if they go up after locking, the lender must honor that rate.

Depending on how long the time-frame was between your initial pre-approval and the accepted purchase agreement, the lender may ask for updated paperwork – items that get old, like paystubs and bank statements. Eventually, when your earnest money clears, we will prove that left your account.  And, if your credit report has, or will, expire before your closing date, new credit will need to be pulled.  The life on the report is 120 days.

The lender will process your file, order verifications of income, flood certification, appraisal on the home and title work, among other things. Depending on the lender, the file may go directly to the underwriter, or may hang back while the ordered items come in.  The best advice here – if the lender needs any additional information from you, please provide it in a timely manner to keep your process going as smoothly as possible.

Once all documents are in, including an acceptable appraisal and title work, your loan will go back in for final approval. Either after this, or prior to this, the lender will provide you with a closing disclosure, which you must have in your hands three business days (includes Saturday) prior to closing.  Some lenders require you sign this to acknowledge receipt in that time frame.  This will give you the final figures for your closing.

Now the fun — going to closing and getting the keys to your home! You will sign a bunch of documents, get a check or send a wire for money needed at closing (dependent on your program, down payment, etc) and will possibly have a chance to chat with the sellers to find out more about your new home, and maybe the scoop on your new neighbors!

For most people, this process, starting with the application, will take you 60-120 days depending on your situation and motivation. And for some, it may take nine months or longer J  Either way, hopefully this has given you a little more information on what to expect when you expect to be a homeowner!

Need Money for Closing Costs?

Most of the first time buyer assistance programs require that the assistance you receive, for down payment and/or closing costs, is paid back. Usually it’s paid back over a period of time or the repayment of it is deferred until the house is sold or no longer your primary residence.  Either way, the entity providing the funds gets their money back to help the next home buyer in need.

MN Housing just announced a new grant program which doesn’t require any money to be paid back!  As with all MN Housing programs, there are eligibility requirements.  These vary depending on WHICH MN Housing program you use and there are three of them – Start Up, Step Up and MCC (Mortgage Credit Certificate).  The grant works with all three of their programs AND you can pair it WITH the assistance!

In any case, you still must meet guidelines set forth by the underlying loan type you are securing — FHA, VA, RD (Rural Development) or conventional. If you meet those guidelines, then we look to see if we can layer the loan type with the MN Housing program.

Generally speaking, they have income limits that your household must be under, and as with the underlying loan program, there are minimum credit score requirements. Being a first time home buyer is a pre-requisite for two of the three programs – Start Up and MCC.  And the definition of a first time home buyer is not having ownership interest in a principal residence in the last three years.

The grant is only available when using a conventional loan with your MN Housing program. It cannot be used with VA, FHA or RD.  The grant amount will differ depending on which guidelines your underlying loan is following – Fannie Mae or Freddie Mac.  Who are Fannie and Freddie you ask?  These are the agencies that provide the guidelines lenders follow for conventional financing.  Your lender will determine the best underlying loan for your needs and situation.

To be eligible for the grant, you must have annual qualifying income under $72,320. Qualifying income is the income your lender uses to determine your qualifications for your loan.  For instance, if you are the only one on the loan, but your spouse is not, then the qualifying income is just your income.  This limit is for the 11-county metro area, which encompasses Anoka, Carver, Chisago, Dakota, Hennepin, Isanti, Ramsey, Scott, Sherburne, Washington and Wright Counties.  Income limits are lower in the remaining MN counties.

If using Fannie Mae, the grant amount is a flat $1,500 to use toward your closing costs only.

If your lender determines Freddie Mac guidelines are your best fit, the grant will vary based on the loan amount you’re securing and qualifying income – (which still needs to be below the aforementioned limits).  The grant can be used for BOTH closing costs and down payment.  Minimally, you would be looking at ½% of the loan size, but you could be eligible for a larger grant if your income meets lower limits set for the program.  Any lender participating with MN Housing can give you further details.

As always, when working with a lender, make sure they offer these great programs with MN Housing and any other agencies to help you get into your house with as much assistance as possible. And who can say “no” to grant money!?!

Worth Repeating for Smooth Loan Sailing

Getting financing for a new home can sometimes seem a little daunting. It seems like you’re on this never-ending wheel of providing your life history on paper – and then when you think you’ve provided the last of it … the lender wants more.  It’s all to help you get your loan approved so you can realize your homeownership dreams.  Believe me, we don’t want to keep asking you for documents any more than you want to provide them!

Another way to realize those dreams sooner is to keep your nose to the grindstone on a few items that could affect your chances of approval throughout the process. The process of buying a home starts the day you apply for the loan all the way until closing.

This blog is a re-do of a blog I did about three years ago – and it’s worth repeating because even though I go through these items with my buyers, they still “fall off the wagon” and miss some simple steps. My goal is to make it so that you know exactly what NOT to do while you’re in the loan process.

First, and foremost, credit is very important – not only on the day you applied, but even at the time of closing. Lenders will pull credit a few days within closing (called a credit refresh – no scores are pulled) to make sure you haven’t increased any balances, opened any new credit (big or small) or incur any new derogatory items.

So, it should go without saying, continue to pay your bills on time; don’t open any new credit and certainly, don’t increase balances on current credit. Oddly enough, don’t close any accounts either as this could have a negative effect on your scores.

Credit reports are good for 120 days, so if your process takes longer than that, you may need to have a full credit report (with scores) pulled again. If credit does need to be re-pulled, lower scores could mean not qualifying for the program you want, increased interest rate or increased monthly PMI.  It’s important to keep your credit as shiny as possible just in case.

Here is the list of items to avoid while you’re in the process relating to your credit. Some items may be unavoidable, so it’s always best to chat with your lender about these or any future changes.  Your lender is your ally – we are all trying to get you to the finish line!

  1. As mentioned, don’t open any new credit – credit cards, interest-free accounts for new furniture, etc, cars, co-signing for someone – anything. Just say “no!”
  2. Don’t close any accounts – this is something you can do after you close on your home if you really want the account to no longer be available to you. But again, it could bring your scores down temporarily.
  3. Don’t increase balances – you basically want all credit card balances to stay status quo during the process – a little up or down is okay. Believe it or not, just an additional $25 added to your debts could make it so you cannot qualify for your loan any longer – and that is NOT what you want to find out a few days before closing!
  4. Please don’t buy or lease a car – refer to #1
  5. Don’t pay off any collections unless your lender has advised you to do so.
  6. Try not to incur any collections. I realize this isn’t something you have control over, BUT, if you happen to get a past due notice during this process, please pay your bill so it doesn’t go to collection.

And what about your assets or your bank accounts? Believe it or not, changes to those could possibly affect your loan approval.  For instance, with many first time programs, the buyer is required to have $1000 of their own money into the transaction.  If there are a lot of cash deposits into the account, the lender will have a hard time proving the money is theirs, since cash is not acceptable for the transaction.

Here are the things to avoid with regards to your bank accounts.

  1. Don’t make any cash deposits. Though the money may be yours, we have no way to prove this. If you need the money for closing, the best advice is to use your cash for bills and spending money so your employment income can just keep building in your account. That is easily verifiable.
  2. Try hard not to bounce any checks. This can be a sign of money mismanagement.
  3. Please copy any checks you deposit that might not be from your work. Better yet, contact your lender first to make sure putting that money in is okay – they will advise what to do in order to document this is your money.
  4. Talk to your lender FIRST before receiving any money as a gift. There are steps to follow and it’s much easier to document forward vs. having to chase down paperwork.
  5. Don’t deposit any unsecured funds. Loans you take out not tied to your 401K or cash advances on a credit card are unacceptable sources of money for closing costs or down payment, so please don’t do that. 401K loans are acceptable and please discuss with your lender if you intend to go this route.

Last, your job could change things too. A few days before closing we will contact your employer to confirm you’re still employed.  SO, the simplest advice is to KEEP YOUR JOB.  If you have the opportunity to change employers or change positions within your company, please let your lender know first.  A change in pay structure, like going from salary to salary plus commission, could affect your chances of getting your loan.  Or, if you’re doing a first time buyer program, a raise in income (though a GREAT thing) could put you over income for a first time buyer program, taking away your down payment assistance.  It’s best to chat with your lender so you know what your options are before making a job move.

Ultimately, as a lender, we want your loan process to sail as smoothly as possibly. With the right current and rudder to guide you (information above), you should have no problems making it to your homeownership destination!

Increased Payments on the Horizon with FHA Financing

Something is always changing with financing, especially with the ever-popular, government-backed FHA loan.  FHA stands for Federal Housing Administration.  They have been the icon for low down payment loans and allowing people with not-so-perfect credit the opportunity to get financing.  FHA works well with the many first time buyer programs out there, as well as their popular 203K loan — a great rehab loan to help fix up a home to the way you want it, or to make it habitable.

Per Congress’ mandate, FHA needs to keep their Mutual Mortgage Insurance Fund alive in order to continually insure loans.  And when I say alive, I mean they need at least a 2% reserve threshold.  Last year, FHA increased their annual mortgage insurance (MI) and decreased the Up Front Mortgage Insurance (UFMIP) in an effort to build the reserves back up.  After recent review, FHA realized another increase is needed with BOTH the annual MI and the UFMIP.

Starting with case numbers assigned April 1, 2012 or after, the new numbers will look like this:

  • Monthly MI will go from 1.15% to 1.25% (of the loan size)
  • The UFMIP will go from 1% to 1.75% (of the loan size)

In layman’s terms, what does this mean to you, the buyer??  Not a ton, BUT it will affect your payment.  On a $125,000 loan, your payment will go up about $15/mo with the combination of the UFMIP increase and monthly mortgage insurance increase.  Again, not a ton, but when you’re buying your first home, EVERY little bit makes a difference.

In order to get in under the old percentages, you’d need a purchase offer accepted prior to April 1 so your loan officer can get a case number assigned from FHA.  It’s something that can usually be done the same day, but I don’t suggest waiting until the last minute to get the offer accepted if you really are adverse to the payment increase.

FHA will still continue to be a great option for home financing.  There is no doubt about it.  And for some people, or based on the shape of the home, FHA will be the ONLY option.  Alternatively, if you have good credit and meet conventional guidelines, you may want to consider conventional financing as this option will absolutely have a lower house payment.  Again, it’s all about what you qualify for in terms of credit and if the home needs work or not.  Sometimes, conventional financing isn’t an option.

To find out more about YOUR options, what first time programs you’re eligible for or to find out what you qualify for, please don’t hesitate to give me a call.  My goal is to educate on the options and help you make the right financial decision … even if that decision is to not buy anything at all.