Recently I sat down with local lender and friend, Chad Thille. Chad is a Mortgage Loan Originator with American Capital Corporation located in El Segundo, California. We got on the topic of first time home buyers and discussed different questions that often come up. Below is a quick Q&A we did regarding some of those questions.
Why should I buy, instead of rent?
The simple answer to this is buy because you will start building equity and have a solid investment. However, this decision has many moving parts and varies depending on the individuals current financial situation. Some factors to consider when deciding to buy vs. rent are location, down payment, how long you plan to live in your home, the cost of renting a similar home, and your financial predictability. There are plenty of rent vs. buy calculators that can help with this decision, but I would highly recommend talking to a trustworthy mortgage or real estate professional to assist with this decision.
Can I become a homebuyer even if I have I've had bad credit, and don't have much for a down-payment?
Yes, but it will depend on how bad your credit is. If your credit score is above 600, there are definitely programs available for first-time homebuyers that have lower down payment options. There is a really great program available through Fannie Mae for first time homebuyers called HomeReady and they only require 3% down and a minimum credit score of 620. If you have bad credit, don’t count yourself out for being a homeowner. It takes time to repair your credit score, but by buckling down and coming up with a plan, anything is possible.
Are there special homeownership grants or programs for first time home buyers?
The most difficult step in the home buying process is saving for a down payment. There is a Down Payment Assistance Programs (DPA’s) that provide DPA in the form of a non-repayable grant and can assist first time homebuyers with their down payment. It can also help with closing costs, up to 5% of the loan. Some other features of the DPA program is affordable interest rates and variety of grant levels; FHA, VA, USDA & Conventional mortgage loan options; DPA grant never has to be repaid. There is also
the Good Neighbor Next Door program which is sponsored by HUD and provides housing aid for law enforcement officers, firefighters, emergency medical technicians and pre-kindergarten through 12 th -grade teachers.
How much money will I have to come up with to buy a home?
If you are eligible for the VA program, you can get into a home with ZERO down payment. Using the DPA programs can also get you into a home with coming up with anything down. There are also programs that will only require 3% down. Just remember, the more you have down, the lower your mortgage payment will be. Reach out to a mortgage professional to get more information on available programs.
How do I know if I can get a loan?
You don’t until you talk to mortgage professional. Many home buyers go straight to a real estate agent when they are ready to start the home search process. There is nothing wrong with this, however, how do you know what you can afford? If you are ready to start the home buying process, it is extremely important to talk to a loan officer. They will be able to tell you what you can afford and if you will be able to get a loan. After you know your purchasing power, you will have a much better idea on the areas and homes that you can afford. This will save a ton of your time and the real estate agents time.
I just started a new job (or became self-employed) can I still get a loan?
This is a great question and depends on a couple different factors. Some questions you will need to answer include: Were you employed before you started your new job? If so, how long were you unemployed in between the two jobs? When it comes to being self-employed, underwriters will want to see consistency in your income over the past few years. So being newly self-employed may be a bit more challenging to get you loan because they will want to profit & loss statements for past 2-years, as well as, tax returns, bank statements, etc.
What sort of documentation do I need to apply for a mortgage?
It order to get a pre-approval, you would need to provide the following documentation: copy of driver’s license and social security card, bank statements, pay stubs, tax returns, W-2 forms and profit & loss statements (if self-employed). Just a side note, as loan process moves along and your file is submitted to underwriting, there may be more documentation requested by the underwriter.
How long does the application and approval process take?
This all depends on the lender that you are working with and how fast you are able to get them all the required documentation. I always like to fill out as much as the loan application as possible for my clients to save them time. I then go over it with them and get any remaining information needed before they sign. In regards to the approval process, there are different stages for this. I can pre-approve a client the same
day they provide me with all their financial documentation. However, getting a conditional approval from an underwriter usually takes about 2-3 days depending on the investors turn times.
What is the difference between the interest rate and APR?
In a nut shell, the interest rate is tied to the amount of money you borrowed and is the interest that you will pay on that money during the life of the loan. The APR includes the interest rate plus other charges, such as, fees, points and closing costs. That is why the APR is higher than the interest rate because it includes all the cost to borrow.
What is the difference between a pre-approval and pre-qualification, and which do I need?
These terms are often used interchangeably, however, there is a difference between the two and one of them brings more validity when it comes to writing an offer. A pre-qualification simply means that you have spoken with a loan officer and informed him of your credit score, income, and monthly debt obligations. Based on that information they will tell you want you are able to afford based on what you have told them. You don’t need to provide any financial documents to get pre-qualified. A pre-approval means that you have provided the loan officer will all of your financial documents, they have ran your credit and have checked that all the ratios meet the investors’ guidelines. You will want to get pre- approved if you are ready to submit an offer on a property. In simpler terms, the pre-qualification is the first step of the mortgage process and the pre-approval is the second. They both are very important when you begin your home search.
I know there are lots of types of mortgages - how do I know which one is best for me?
You won’t know which one is best until you speak with a mortgage professional. The reason there are so many types of mortgages out there is because investors are finding different ways to provide financing for many different situations. So, until a professional looks at your financial situation and guides through the programs, you will drive yourself crazy digging through all the options out there.
What sort of fees are there associated with getting a mortgage?
Commission and closing costs are the two categories of fees associated with a mortgage. Closing costs include: credit report, appraisal fee, underwriting fee, processing fee, escrow and title fees. A rule of thumb is closing costs are about 3% - 5% of the loan amount. Fees vary from investor to investor.
Once I find my new home how quickly can we get the mortgage together?
I always advise people to speak with a lender or mortgage professional before starting your home search. However, since many people don’t do that, a mortgage can be put together very quickly depending on who you are working with and how fast you provide the documentation needed. Your file can be put together within a day or two once all the necessary items have been collected. I can’t stress the importance of speaking with a mortgage professional when starting your home search. It will not only save you time, but it will make the whole process much smoother and less stressful!
Please reach out to myself or Chad with any additional question you may have, or start the home buying process by completing a loan application over the phone.
Chad Thille | Mortgage Loan Originator NMLS #1651196
2245 Campus Drive, El Segundo, CA 90245
Office: (310) 252-7228 | Fax: (310) 524-0473