This article breaks down what first-time homebuyers can expect when starting the mortgage application process. The first step is getting pre-approved, and we will discuss the steps to pre-approval and how first-time homebuyers can be prepared, knowledgable and less stressed during this process.
by Christian Scully
There are two types of first-time homebuyers that I meet a lot in my work as a mortgage loan originator:
Some buyers reach out seeking a mortgage for the first time, excited and motivated to start shopping for their first home and have an expectation that they can simple fill out a quick application and be handed a couple hundred thousand dollars to go pick out the home of their dreams.
Others reach out absolutely terrified at the idea of applying for a mortgage, either based on bad experiences their friends have had, or general anxiety when it comes to finances or credit.
These two polar opposite attitudes when it comes to applying for a mortgage are both extremes. The problem with expecting the process to be super fast and easy is that they tend to be surprised at the need for some of the necessary steps in the mortgage process. This can cause frustration and even anger at times. And the issue with being frightened of the process and expecting a nightmare is that it causes unnecessary stress on the buyer and already begins the experience with negative attitude.
Let's take a very simple, quick overview of how to start the mortgage application process and hopefully help set your reasonable expectations and provide a clear path to your goal of purchasing a home. The first phase of the mortgage application process involves getting pre-approved for a home loan. This should be every first-time homebuyer's first step in the home buying process as well. Before you can start seriously shopping homes, you need to know if you are in a financial position to actually be approved for a mortgage, and know exactly the maximum price of a home you can afford, and what type of loans might be the best option for your needs and goals.
When we purchased our first multifamily home in Providence, RI in 2017, we decided to take advantage of a loan product called the FHA 203k loan. This type of loan helped us complete a couple of the major renovations needed on the house. Over the couple months of the mortgage application process and then for a time after closing, we learned the pros and cons of the FHA 203k. This article will give an overview of the FHA 203k loan program, pros and cons, tips and discuss whether or not I would recommend this type of loan to buyers.
by Christian Scully
What is an FHA 203k loan?
The FHA or Federal Housing Administration is a government agency that insures loans made through FHA-approved lenders throughout the US. FHA loans offer some great benefits. FHA loans are generally easier to qualify for, providing a great option with borrowers who are lower income, have higher debt to income (DTI) ratios and/or lower credit scores. For these borrowers, the interest rates are generally lower than conventional loan products. FHA loans also allow the borrower to make as little as a 3.5% down payment.
The FHA 203k loan is a type of FHA loan that also includes funds for renovations. The borrower closes on one mortgage, that includes enough to purchase the home and additional funds to cover any repairs or improvements needed. There are two types of 203k loan: the Limited and the Standard. The Limited 203k is the easiest way to go and can provide up to $35,000 in funds for any improvement that is non-structural. Anything beyond that and the borrower would need a Standard 203k loan. Let's look at some of the advantages of using a 203k loan.
Is the interest rate the most important thing when deciding to purchase a house and applying for a mortgage?
This article answers a commonly asked question by new borrowers when going through the mortgage process. Interest rates are similar to credit scores in that they often make no sense and change all the time for no obvious reason to the consumer. But when purchasing a home and applying for a mortgage, interest rates are not the most important piece of the puzzle. I discuss a simpler way to think about interest rates and how you should go about deciding whether or not it is a smart move to purchase a home.
by Christian Scully
So you've been pre-qualified for a mortgage, you have walked dozens of houses with your realtor and finally you've found the perfect house. Your realtor submits your offer and you nervously wait to hear the seller's decision. The call comes.
The seller selected your offer. You're under contract to purchase the home!
The next step is the mortgage application process. Yes, you already likely submitted some documentation and maybe even filled out an online application, but now all the pieces need to be put together by your loan officer, then processed and submitted to the underwriter, who will ultimately decide if your loan will be approved.
Along the way, your loan officer will be communicating with you about the interest rate. Interest rates are impossible to predict, but there can be trends. If rates are trending down, your loan officer might suggest holding off on a rate lock. But if you qualify for a great rate on any given day, it may be in your best interest to lock it in. Why not wait?
What if your loan officer presents you with an interest rate that is higher than you heard of on the news, read about on social media or otherwise expected? Is it still a smart move to purchase the home? I've been asked this question many times, and for me, it is a really simple answer.
One of the areas of most confusion for borrowers is that of closing costs. I find that borrowers don't know what they are for, how they are determined, if they can vary from lender to lender, and if there is any help available to pay for them. In this article I will break down the different types of fees that could appear in your "Closing Costs".
by Christian Scully
So you’ve got your credit score where it needs to be, you’ve saved your downpayment funds, you’ve been pre-approved for a mortgage loan, you’ve found your dream house and you are about to put an offer in… but wait! Closing costs! Do you have enough extra funds to cover them or will you need to roll them into your loan? Wait, you can do that?
Closing costs are exactly what they sound like: the costs associated with actually closing your loan and finalizing the transfer of property from the seller to you. They primarily consist of three things: loan origination charges, the settlement services that are needed to finalize your purchase or refinance and finally any pre-paid and/or escrowed funds.
Let’s look at both of these in a bit more detail:
This article details several ways you can research the property tax history for any real estate property in the United States. Using publicly available resources, a homebuyer is able to easily locate the property tax history. We recommend that a homebuyer then verify that is the correct information by researching the most recent local tax assessment value, the local property tax rate and then checking if there are any applicable tax exemptions.
by Christian Scully
Property tax data is part of the public record.
A lot of property information is a made part of the public record, making it available to anyone who knows where to look. It used to be that you would have to venture all the way down to your local city or town hall to request any property records. As more and more towns and cities throughout the country digitize their records, and online database systems improve, it is becoming increasingly easy to find all the information you need in a few minutes right on the web. Here are a few ways to find and verify this information:
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Thoughts, ideas, lessons-learned, inspiration, how-tos and more from a journey to own and invest in real estate, and helping borrowers navigate the mortgage process as a licensed loan originator.