Tips for preparing to buy a home

It takes a lot of preparation to buy a home. I know, I know, thank you Captain Obvious, right? But if you’re going to be searching for a home in 2017, I want you to be ready for what is headed your way!

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From our friends at Bank of the West, here is a list of great tips for preparing yourself to buy a home. See my summary below:

1. Fix Your Credit

Your credit is one of the first things a lender will look at when approving you for a mortgage loan. You can get a free credit report once every 12 months from each of the three credit bureaus: Equifax, Experian and TransUnion at annualcreditreport.com. Make sure to check for mistakes and file a dispute with the business in question, as well as the credit agency, if you find any inaccuracies. They must investigate within 30-45 days.

2. Maintain Your Credit Score

Your FICO score is the most common number used by mortgage lenders to rate your creditworthiness. You can get your credit report with a FICO score for free, or for a small fee. Anything above a 740 FICO score will help you secure better interest rates. If your score is lower, you may still qualify for a mortgage, just with a higher interest rate attached. Your first instinct may be to find ways to boost that credit score. Here are two things NOT to do:

– Don’t close lines of credit – it may indicate credit risk and actually hurt your score

– Don’t open new lines of credit – the uncertainty of your spending habits with a new card might indicate risk and cause your score to tick up

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3. Get a Big Down Payment

You’ll get a better interest rate on a mortgage if you have a larger down payment because lenders will think you’re less likely to default on your loan. Aim for a down payment of at least 20 percent of the selling price. This will also protect you from paying private mortgage insurance (PMI), which protects lenders if you default on a loan.

4. Get Pre-Approved

Meet with a mortgage specialist before you start shopping. They can help you determine an accurate budget and decide what kind of home you can realistically afford. Get a pre-approval letter and add it to a good credit report, income verification and a maximum allowable loan, and home sellers will take you most seriously among the suitors.

5. Keep Track of Your Money

You’ll have lots of documents, bank statements, etc. during the pre-approval and underwriting processes. These will be examined closely to verify income and expenses. If your records show unusual activity, you’ll be asked to explain it and you’ll have to jump that hurdle before continuing the approval process.

If you need a recommendation for outstanding mortgage brokers.  I have a few that I highly regard.

 

Mortgage Terminology 101

mortgage-1 Buying a home, even for those with experience, is already a tricky process to navigate. Add choosing a mortgage on top of that and things can get really stressful. Luckily, Keith Loria of BHG posted a great list of basic mortgage terminology to help guide buyers through this process. Check out our lightly edited version:

“Mortgage Lenders” – lenders make the loan and provide the money you’ll use to buy your home. You’ll need a lot of financial background information when you meet with a lender so he or she can set mortgage interest rates and other loan terms accordingly.

“Mortgage Brokers” –  brokers work with multiple lenders to find you the best loan. This can be confusing, but their jobs are essentially to get you the best rate and terms on your loan.

“Mortgage Bankers” – most lenders are bankers, which means they don’t actually lend their own money, but borrow funds at short-term rates from warehouse lender. Some larger mortgage bankers will originate their own loans and sell directly to Fannie Mae, Freddie Mac or investors.

“Portfolio Mortgage Lenders” – they originate and fund their own loans, offering more flexibility in loan products because they don’t have to adhere to secondary market buyer guidelines. Once these loans are serviced and paid for on time for at least one year, they’re “seasoned,” and can be sold more easily on the secondary market.

“Hard Money Lenders” – this may be your last resort if you’re having trouble getting a mortgage and working with a portfolio mortgage lender. They are private individuals with money to lend, though interest rates are usually higher.mortgage-2

“Wholesale Lenders” – they cater to mortgage brokers for loan origination but offer loans to brokers at a lower cost than their retail branches offer them to the general public. For you, the loan costs about the same if it were obtained directly from a retail branch of the wholesale lender.

“Correspondent Mortgage Lenders” – these lenders have agreements in place with one or more wholesale lenders to act as their retail representative. They lend directly to buyers and use wholesaler guidelines to approve and close loans with their own money. They will also buy back any loans they close that deviate from those guidelines.

“Direct Mortgage Lenders” – direct mortgage lenders are simply banks or lenders that work directly with a homeowner, with no need for a middleman or broker.

How to Ensure a Smooth Home Purchase

5 steps 3If you’re planning on purchasing a home this year, you’ll will want a transaction as smooth as possible. That’s what us agents are for! We want to help you find the perfect home and then ensure the process becomes as pain-free as possible.  You don’t realize how important this is until you have the transaction from Hell!

Taken from a Better Homes and Garden’s article and repurposed with some of my insights, here are five tips for a smooth home purchase:

Tip 1: Communicate with Your Agent

You spend a lot of time with your agent in a finite window, so, you should work with a real estate agent you are comfortable with. They should be straight up and express everything you want and need in your new home. By communicating your desires from the beginning, your agent won’t waste time showing you homes that don’t fit your criteria. If you know you want an updated kitchen or two baths, make that clear. It is also a process; sometimes what you want and what your budget can afford creates a discovery process, but when it comes to finding that perfect home, clear communication is key. And if you run into any problems along the way, be sure to speak with your agent to iron out any issues.

Tip 2: Be Reasonable with Expectations

If you’re searching for a three-bedroom home located in a certain neighborhood that has the right schools, and your agent shows you a property with a color you don’t like that only has 1.5 baths, don’t simply write off the home. When searching for the home of your dreams, you may have to give something up or make some changes once you move in. No home will be perfect and, again, it is a process to find that out.

Tip 3: Don’t be Discouraged

Don’t expect to find your dream home overnight. Buyers often get frustrated because nothing pops up in their price range for two weeks or they have written five offers and none of them were accepted, but remember, it is a process. And, this is the Bay Area! 5 steps 2Buyers usually course correct, change their expectations, get a quick education on the market and – voila! – the universe unfolds, the right house pops up and your offer is accepted! Woo-hoo! Now the rubber hits the road and you are in contract!

Tip 4: Play the Money Game

If you offer $375,000 on a home that’s listed at $400,000 and the seller refuses to budge, be prepared to negotiate. Wait!!! This is the Bay Area! When you offer $650,000 on a home listed for $620,000 and you are one of nine offers, you need to have some wiggle room for a counter offer. Before making an offer, discuss your strategy with your agent as he or she will be able to tell you whether your offer is fair or not. It’s also important to check out comps in the neighborhood so that you can make a reasonable offer from the get-go. Don’t forget how important a good lender is and the reputation they have with other agents. This may make the difference in your offer getting accepted over the other eight.

Tip 5: Get Your Mortgage Pre-Approved

This could be the smartest thing you do all year. By having a mortgage approved before you even begin looking at houses, you’ll be ready to make an offer as soon as you find the home of your dreams. Not all lenders are equal, and a good lender may give you the upper hand over other buyers who may be interested in the same house. Can they closer faster than 30 days? Do they get all the paperwork upfront and desktop underwrite you so there are no surprises? Are they responsive to your calls?

If you have any interest in purchasing a home this summer, and are looking for an agent who can guide you through the process smoothly, I am at your service and I have a great lender or two to refer!

Top 5 Must-Do’s for First-Time Home Buyers

first time home buyer featuredSo you’ve finally made the big decision. You’re going to buy a house!

You are aware of the long road ahead, but excited to take on the challenge and have a home you can call your own.

It’s a stressful process, however there are a few things you can do to help prepare for your first time through the home-buying process:

Determine your budget.

There are many online calculators available that can help you to get an idea of what your monthly mortgage payments should be, based on how much money you are looking to borrow. Don’t forget to include property taxes, though – estimate 1.25 percent of the purchase price for a yearly property tax estimate. If you are looking at a condo or a townhouse, then you most likely will have to consider a monthly HOA fee. Also, look at what your income, debts and assets are; this is where I strongly recommend you speak with a lender. The good ones break that all out for you and can help you work up a budget.

Examine your credit and credit score.

You want to get yourself in the best position to qualify for the lowest interest rates and best mortgage terms and one way to do that is to beef up your credit score. If your score is less than perfect, look for ways to increase your score. If you have limited credit history, look for ways to build positive credit before you apply for a mortgage loan. This is another area that a good mortgage broker can give some suggestions to improve your credit. No matter what your score is, review your credit report to ensure that there are no errors on your report which ay impact your ability to qualify for the mortgage you want.

Where will your down payment come from? And how much will you need?

Buying a home is a big financial commitment, which can often require a big cash down payment. Where will you be getting your down payment from – savings, a 401(k) or IRA withdrawal? As a gift from family? Although FHA loans are often an attractive option for first-time homebuyers because they only require you put 3.5 percent down, you’ll still need to roughly determine how much 3.5 percent will be and where you’ll be getting those funds from, while still saving enough for closing costs. All the while, you must keep your debt-to-income ratios in line with guidelines.

Begin to gather up all the documents you’ll need to qualify for a mortgage.

When you apply for a mortgage you’re likely going to need to show your lender proof of your identity (passport, driver’s license or similar) as well as recent pay stubs from your employer and copies of your past year (or two years) of tax returns. Each lender will have their own requirements, but gathering together these basic pieces of information can help make the mortgage application process go smoothly. Again, a good lender will send out an introduction email with a list of the things that are required.

Get preapproved for a mortgage before you begin house hunting! 

This is a MUST! Home sellers want to know that you’re serious about buying, and one of the best ways to show them that is by submitting an offer that comes with mortgage pre-qualification. In some hot housing markets, sellers won’t even accept offers without a pre-qualification or DU Approval. A good real estate agent will also help guide you through this process, which can include an informative face-to-face about the whole process or a good lender recommendation.

Excerpts of this blog generously borrowed from The Orland Group Realtor Coaching.