DO NOT BUY A HOME, UNTIL AFTER YOU READ THIS!!!

My dear friends, class is in session. Buying a home can be a daunting task. It can also be a very rewarding experience, but also one of great stress, headaches, and problems, especially for first time home buyers. This area is designed to alleviate some of the fogginess of home buying.

In today’s market we have seen some drastic changes take place, as far as mortgages go. Many programs that borrowers have become accustomed to are no longer an option, and new ones are springing up every day to replace them.

In the past, there have been countless cases of broker’s misinforming their borrowers or not disclosing some the downsides of certain programs. Homeowners were left holding the bag, which resulted in a reshaping of the way the industry does business.

There has always been this fiduciary relationship between broker and borrower; one of trust. Now trust is a good thing, but if you’re anything like me, why leave anything to chance, why not arm yourself with information?

First time homebuyers are the most vulnerable to mishaps, simply due to inexperience but I hope after you read through Homebuyer 101 you leave with a better understanding of how the process works. Pay attention…there will be a test on this…no really, there will be.

 

The Loan Process

(Order of Operations)

Purchase

• Get pre-approved
• Fill out application
• Choose loan program
• Go to contract

• Order title report
• Order appraisal
• Submit final application
• Satisfy conditions

• Loan gets cleared to close
• Schedule closing
• Move into your new home!

Many potential buyers do not know where to start. They have no understanding of what the process entails or where to get answers from. That’s alright…your first home purchase is not only a financial transaction, but also a learning experience.

Trust me, by the time you’re moving in, you will have become an expert, and when it comes time to buy your investment property or second home, it will be much easier.

Here is a detailed description of each of the steps in the loan process.

1). Pre-Approval

The first step is to really do some thinking to make sure this is a move you are ready to make. Go over financial records, break out the calculator, consult with financial advisors and accountants, and make sure that if you decide to move ahead, you are mentally prepared for a 4-10 month time period before you close on your home.

You will want to contact a mortgage broker or banker ASAP in order to find out what you can afford. At this point you should allow the broker to pull your credit (BUT ONLY ONCE- TOO MANY CREDIT PULLS WILL BRING DOWN YOUR CREDIT SCORE). Also ask the broker to mail you a copy of the credit report if possible, but at least find out your scores and go over what is on the credit report. A broker is supposed to notify you of ALL derogatory (negative) trades so you can address them.

This is the time when the broker will ask you qualifying questions to see if there is a very probable chance that a lender would offer you financing. PLEASE NOTE: THIS IS NOT AN APPROVAL. Answering the broker’s questions truthfully will save you and him/her time, because all of this information will have be verified, and re-verified numerous times.

The broker should give you a quote, a price range that you qualify within, and an actual pre-approval certificate if you are pre-approved.

Now some companies work differently, at this point they may contact you in few hours to go over certain loan programs, or have you fill out a 1003 (formal loan application), or advise you to find a home first and then come back to them once you do that.

2). Home Search

At this stage you should contact a realtor, to help you find the home of your dreams in your area of choice. Since you know what price range to shop within and have a rough estimate of your monthly payments you’re ready to go house shopping. Now you can go about this in a few ways:

-Ask your mortgage broker to refer some one

-Look for homes yourself. Drive through your neighborhood, go online, look through newspapers, and ask friends or relatives. FSBOs (for sale by owner) are great finds when the seller is motivated. Sometimes not working with a realtor may be better for you, it really comes down to what you feel most comfortable doing and how much work and time you want to put in.

Understand that realtors are very useful and remove the hassle of finding a home yourself. They are professionals at finding good deals and experienced in the art of negotiation.

-Ask people you know who purchased a home to refer some one to you.

-Fill out our DREAM HOME FINDER form! J

Once you have found your realtor of choice, make sure you are a good fit. Voice your desires and stick by them. Clearly outline what type of home you are looking for and the price range you are looking within. Also provide the realtor with a copy of the Pre-Approval Certificate to show that you have someone willing to help you get financing.

3). Offers, Bids, and Seller Acceptance

Once you have been pre-approved, found a solid realtor, and have now found the home of your dreams, you will place an offer on the property, which the realtor will do for you. What this means is that you negotiate with the seller on the actual sales price and terms by placing a “bid” or offer on the house.

Now the seller may accept, counteroffer, or refuse the amount or terms. Hopefully they accept and they sign an acceptance form.

Many realtors will try to take you to their own mortgage broker, knowing you are already working with someone. Now maybe I’m biased because I’m a mortgage broker myself, but I think this is a big mistake for the borrower. You’re giving one group too much control over your deal, and the realtor is doing this obviously to get a kick back in many cases, and to maintain more control over the deal. In my opinion it is better to keep the realtor and financier completely separate. However if you start looking for a home and have not sought financing yet, this can be very beneficial.

Once the offer is accepted you should contact your broker right away so he/she can start the formal loan process.

4). Contract

Now that the offer was accepted you should retain the services of a real estate attorney. Your broker should be able to provide you with one, or you can ask family or friends.

The attorney may request a retainer fee or just collect the entire fee at closing. He/She will be responsible for reviewing the contract. When all the terms are suitable you will sign it, write a check for the deposit amount, and your attorney will send it to the seller’s attorney.

Please Note: In many cases the realtor will have the borrower and seller sign the contract, then it will be reviewed by the attorneys. It varies depending on location and customs within the state.

5). Financing

Now that you are ready for the fun to begin understand that this process can take anywhere from a few short weeks to 5 months. It all depends on the terms, how easy it is to get financing, and how fast the lender’s demands can be met. This time period can be sped up if you work with a competent broker who outlines your responsibilities. You also will have to put in work by supplying the necessary supporting documents to close the loan. Some of these may be:

-W2, 1009, Pay stub, Bank statements, etc.

If you haven’t filled out the 1003 (formal loan application) you will now. The broker will also order appraisal, you can also have an inspection done on the home, which is always recommended.

You will be supplied with disclosures. Pay attention to the GFE (Good Faith Estimate) as this clearly outlines your closing costs and pre-paid items. Pay close attention to ALL these forms and ask questions!

The broker will then send a complete package to the lender which will contain:

-Income documents

- Signed Disclosures

-Completed appraisal

-Contract

-Loan application

-Any other relevant documents needed for submission to lender

6). Approval, Conditions, Underwriting, and Processing

At this point the lender should issue a Conditional Approval which states that your loan will fund, pending certain conditions are met. Now this can take anywhere from 1-72 hours for the underwriter to supply this.

Here you may be put in contact with a processor at the mortgage company who will assist you and the lender in satisfying these conditions. Typical things that are needed at this point are:

-Verification of Deposits (what’s in your bank acct)

-Verification of Employment

-Verification of Rent or Mortgage

-Homeowners Insurance

-Title (your attorney will take care of this)

-Any additional documents requested by the lender

7). Cleared to Close

Once ALL conditions have been satisfied the lender will then give a clear to close, meaning that the closing can be scheduled and the money will fund pending final forms are signed at the closing table. Smile because your days away from becoming a proud homeowner.

ENJOY YOUR NEW HOME! THIS IS THE BEST INVESTMENT A PERSON CAN MAKE. CHERISH IT, TAKE A DEEP BREATH, EXHALE…AND PAT YOURSELF ON THE BACK.

CONGRATULATIONS!

 

Top 5 Biggest Mistakes

#1- Overextending Yourself Financially

In America it’s all about image; what the neighbors think. Throw that thought away and choose to get a home within your means. Too many people see this dream home they want, but can not afford, and push themselves to their limits, only to foreclose on the property shortly after closing. PLEASE I BEG YOU, DO NOT MAKE THIS MISTAKE. Make sure you can afford the home you are trying to buy. If you can’t, then don’t jeopardize your credit, family, and sanity trying to do so.

#2- Mistaking a Mortgage Broker for a Lender

Understand that the responsibility of the mortgage broker is to unite two parties together; the borrower and the lender. They are not responsible for lending the money themselves, UNLESS they are a Mortgage Bank. They are just professionals on originating loans, aiding in the finance process, lender guidelines, and step by step guidance in acquiring a home loan. They are also at the mercy of the lender and have to comply with their demands as well, just like you.

#3- Buying at the Wrong Time

There may be some impeding reasons why someone HAS to buy a home right away; divorce, severe home damage or loss, or moving to a new location or job, but make sure you are up to the challenge of acquiring a home.

If your credit is horrible, it may be better to spend your time, energy, and money addressing bills and debts before attempting to purchase a home. This will put you in a much more beneficial position when these issues are cleared up. Don’t rush yourself…this is the biggest investment a person can make in their life. Take your time.

#4- Thinking this is a Simple 1,2,3, Easy Breezy Process

Purchasing a home requires money, time, and effort not only by your surrounding aids; attorneys, brokers, and realtors but also by YOU. This is a process and not just a simple transaction. You will be required to do your part if the deal is going to close. Do not think that everything will just be “taken care of” by itself. Remember that from beginning to end this can take weeks, even months.

#5- Not Asking the Right Questions

It is the responsibility of the broker, attorney, and realtor to educate and advise you throughout the process, but remember that these people are not mind-readers. You will have to do your due diligence and ask questions. A good broker will answer them all, but of course no one knows everything but they should no how to get you the answers you are seeking.

I’ve had countless clients say to me, “I’m sorry to keep asking so many questions, but…” I love these types of clients because it makes me feel confident that they are fully aware of what they are getting into and have taken into consideration all the variables. This will help you make the right decision throughout the process and protect you from problems down the road. Remember that this is an educational process as well as a financial one. ASK QUESTIONS! DON’T FEEL STUPID…IT’S BETTER TO ASK NOW RATHER THAN REGRET LATER!

 

Things You Should Know

Before starting this process, do yourself a favor and get acclimated with a few basic terms. Your broker will be saying them constantly and if you understand their meaning it will makes things much easier for both of you.

Please refer to the LOAN PROGRAMS and BASIC TERMS pages for more in depth information, but here are some basic terms you should know:

LTV (Loan to Value ratio) - this is a comparison of what the actual property is worth

(appraised value) in accordance to how much the borrower actually wants to borrow. This can also mean how much the property sales contract is written up for in accordance to how much the borrower is looking to finance.

DTI (Debt to Income ratio)- This is the comparison of how much a person makes on a

monthly basis in comparison to how much they have to pay for ALL bills including monthly mortgage payment.

FULL DOC- This is when the lender will be using income docs to prove the real income of a borrower. This results in:

1). Better rates

2). Higher LTV’s

3). Lower DTI’s.

4). Access to better products

The client will have to provide their last 2 W2’s, 1099’s, most recent pay stub, and/or bank stmts for either 12-24 months.

STATED INCOME DOC- This is when the client states their income, and doesn’t have to verify it. This results in:

1). Worse rates

2). Lower LTV’s

3). Higher DTI’s

4). Less access to better products

The TEST

(See told you I wasn’t joking!)

This test is designed to test your knowledge. It should be used as a learning tool and will be updated every month. I would recommend reading over the LOAN PROGRAMS and BASIC TERMS page prior to taking this. In order to get the answers just send an email to: info@accessgrantednow.com and the answers will automatically be emailed to you right away!

1). What is the first step in the home purchase process?

a. Conditional Approval

b. Pre-approval

c. Cleared to Close

d. Contract

2). What does D.T.I. stand for?

a. Debt to influx

b. Detrimental to income

c. Debt to income

d. None of the above

3). If I’m buying a home worth $120,000 and the sales price is $100,000 but I’m putting down 20%, what is the loan amount?

a. $80,000

b. $100,000

c. $96,000

d. $60,000

4). _______________ Doc means that we are proving your income.

a. Stated

b. No

c. Full

d. Verified

5). It’s always a good idea to go with the mortgage broker referred by your realtor, even if you are already working with a broker you are comfortable with?

a. True

b. False

6). F.S.B.O. stands for “FOR SALE BY OWNER”?

a. True

b. False

7). Buying a home that cost more than you would like to spend is fine if you plan on making more money later?

a). True

b). False

8). A mortgage broker can lend money?

a. True

b. False

9).A mortgage where the interest rate is not fixed, but changes during the life of the loan in line with movements in an index rate is known as a:

a. Fixed rate loan

b. Equity

c. Adjustable Rate Mortgage

d. Amortization

10). A payment plan which enables the borrower to reduce his debt gradually through monthly payments of principal is:

a. Buy down

b. Discount point

c. Down payment

d. Amortization

11). _______________ protects against damages caused to property by fire, windstorms, and other common hazards.

a. Homeowners insurance

b. Privatized mortgage insurance

c. Security

d. Sales Contract

12). _________________ prohibits discrimination in housing sales or loans on the basis of race, religion, color, national origin, sex, familial status, or handicap.

a. Fair Housing Act

b. Real Estate Settlement Procedures Act

c. Housing Authority Act

d. Biased Crime Infraction Act

13). Failure to make mortgage payments as agreed to in a commitment based on the terms and at the designated time set forth in the mortgage or deed of trust is known as default.

a. True

b. False

14). When doing a deal, it is the sole responsibility of the mortgage broker to aid in satisfaction of conditions required by lender?

a. True

b. False

15). When buying a home the ____________ aids in the negotiation of sales price and initial terms.

a. Mortgage Broker

b. Realtor

c. Attorney

d. Lender

Email info@accessgrantednow.com for immediate answers to see how you did!