Borrowers getting ready to buy their first home are often surprised…for different reasons. I find that some are surprised to learn that they do qualify for a home in their price range and some are disappointed to learn that they have a little work to do before they can buy a home. Getting preapproved with a mortgage professional helps take some of the “surprise” out of the process.
Are First Time Home Buyers Missing Out?
December 11, 2012 by Leave a Comment
A recent survey shows that those buying their first home are making up a smaller percentage of home buyers. From US News:
The Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, released last week, found that first-time home buyers were purchasing only 34.7 percent of the homes sold in October. That’s down from 37.1 percent in September, and is the lowest percentage ever recorded by the survey.
This decline surfaces as purchases of non-distressed homes—houses that are not in foreclosure—have increased dramatically in 2012. The report shows that the vast majority of the homes being sold are regular purchases—accounting for 64.7 percent of all houses sold in October, up from 55.7 percent in February. The increase is a sign of strength in the housing market, as fewer people are buying homes in foreclosure.
The article continues to speculate that part of the reason why first time home buyers are not participating as much as other buyers is partly due to tightening underwriting guidelines. If someone has been considering buying their first home, I highly recommend they get started with the pre-approval process early.
Lenders want to avoid another mortgage meltdown and want to make sure that borrowers qualify for the new mortgage. That might sound like a silly or obvious comment, however during the “subprime era” many home buyers did not qualify for the mortgage. Ultimately, underwriting guidelines are intended to measure a borrowers capability to repay the mortgage and to not have the home become a “distressed property”.
Underwriters are looking for a borrowers financial strengths and weaknesses when reviewing an application for a mortgage. In an article I wrote a few years ago, I compared this to a chair with each leg of a chair representing a financial quality that underwriters consider: credit, employment, income and assets.
First time home buyers don’t need to be discouraged, they do need to be prepared. Mortgage rates are extremely low making this a great opportunity to buy if one wants to.
I’ll share some tips on what first time home buyers can do in a follow-up post.
Stay tuned!
What Do You Need for a Preapproval?
February 16, 2012 by 5 Comments
If you’re considering buying a home, many real estate agents and/or sellers will require a preapproval letter. A preapproval letter is different than being “prequalified”. Being prequalifed means that you have provided verbal information to a mortgage originator to get an idea of what you qualify for. Being preapproved means that you are providing documentation that supports the information you have provided. Income, employment, assets and credit are verified for a preapproval.
Some preapproval letters aren’t worth the paper they’re written on. Especially if the mortgage originator you’re working with does not require supporting documentation before preparing the letter. If you have not provided supporting documentation (listed below) to your mortgage originator – you’re probably just prequalified and not actually preapproved.
Here is a list of documents you may be required to provide in order to obtain a preapproval:
The Low Down: Comparing FHA to Fannie Mae Homepath Mortgages
September 13, 2011 by Leave a Comment
EDITORS NOTE: Fannie Mae is no longer offering the FannieMae HomePath mortgage program. If you are considering buying a Fannie Mae HomePath property (foreclosure that is owned by Fannie Mae) in Washington state, I’m happy to help you.
If you’re thinking about buying a home with minimum down payment requirements in the greater Seattle area, you may be considering a property that is owned by Fannie Mae and eligible for the Fannie Mae Homepath Mortgage or using an FHA insured loan which most properties qualify for. When home buyers contact me about a Fannie Mae Homepath mortgage, they often ask how it compares to an FHA insured loan. Both are great programs and the benefits may vary depending on credit score, down payment and the type of property.
Shallow Credit can leave you in the Deep End when Qualifying for a Mortgage
August 5, 2011 by 2 Comments
When in comes to qualifying for a mortgage, lenders are generally looking for borrowers who have established a history of paying their obligations on time. Ideally this would consist of four accounts that have been open and used for the last one to two years. When someone does not have active accounts, or when their accounts are all new, their credit history appears “shallow” to some lenders. [Read more…]
The Mortgage Process: Contemplating Buying a Home to Getting Preapproved
November 9, 2010 by Leave a Comment
For a while now, I’ve had this idea floating around in my head that with four years of articles at Mortgage Porter, I really should organize the post by the actual mortgage process. Right now, my blog is traditionally organized chronologically and by categories. I’m not changing that at all…what I am planning on doing is reposting the articles I most commonly refer to for my clients in an order that follows the mortgage process. This will be a post I will continue to update with new content via links to the article…it’s a work in progress!
In my opinion, someone considering buying a home should start researching the process months before actually entering into a purchase and sales agreement. So that’s where we’ll start:
Considering Buying a Home?
Getting on Track to Buy Your Home
Tips for Improving Your Credit Score
Game Plan for if your credit score is low.
Getting Preapproved
Are You Really Preapproved or just Prequalified?
Debt to Income Ratios (aka DTI)
Do I Really Have to Provide All Pages of My Bank Statements?
What is required to document income?
Documentation for Self Employed or Commissioned Paid Borrowers
Why it pays to get preapproved early: You may think you know your credit score
What should a preapproval letter contain?
Relocating to Washington State and getting preapproved for a mortgage
Is my Preapproval Letter Still Valid wth all the Rate Changes?
Planning Your Funds for Closing
Funds for closing when you’re buying a home
How much do I need for a down payment?
Gifts from Parents: FHA and Conventional
We’ve just started the process with this post addressing considering buying a home to getting preapproved! Watch for future post where I’ll organize articles I’ve written on being in a transaction.
Did You Know that FHA Mortgages are Assumable?
April 14, 2010 by 2 Comments
One benefit of FHA insured mortgages is that they are assumable to qualified buyers. This means that if you have an FHA insured mortgage at today’s low rates and you’re selling your home during a higher mortgage rate environment, being able to offer a lower rate to potential buyers could provide a distinct advantage over other competing listings. [Read more…]
How Much Home Can I Afford?
October 8, 2009 by 2 Comments
This is a common question from first time home buyers. When working with home buyers who are just beginning the process, after discussing credit and other information, I like to ask in return:
- What type of monthly mortgage payment would you be comfortable making?
- How much money are you planning on using for a down payment and closing costs.
To me, it’s better to solve for your potential sales price rather than finding a home or getting your heart set on a certain sales price first before knowing what you actually qualify for.
For example, Seattle Sally has saved up $75,000 and would like to use $40,000 towards a home purchase. She has been paying anywhere from $2,200 – $2,000 a month for rent and would like to keep her payment around $2000.
NOTE: Rates quoted below are from October 2009 and are outdated. If you would like a current mortgage rate quote for your home located in Washington, please contact me.
Beginning with a conventional scenario, a payment of $2038 (principal, interest, estimated property taxes, estimated home owners insurance and private mortgage insurance) with about $40,000 for down payment and closing costs would produce a sales price of $325,000. This is based on a 30 year fixed rate of 4.625%* (apr 4.790).
A sales price of $365,000 with a 10% down payment and the sellers contributing towards closing costs would produce a payment of about $2283.
The only issue I would have with the conventional financing is that private mortgage insurance is that these days, pmi underwriters are picking all mortgages to pieces.
FHA would provide a total payment of $2076 with about $40,000 for down payment and closing costs and a sales price of $325,000. This is based on a rate of 4.875% (apr 5.400).
If we have the seller pay most of the closing costs and prepaids, a payment of $2287 would produce a sales price of $365,000 with Sally bringing in approx. $38,000 for down payment and closing.
One thing to consider, beyond more forgiving underwriting, with FHA is that your mortgage will be assumable. Imagine having a rate of 4.875% a few years from now when rates will most likely be much higher. If you are a seller competing with other similar home on the market, and you can offer an assumable mortgage at a tempting rate–this will be a serious advantage. Once inflation happens, mortgage rates will be much higher.
If Seattle Sally’s credit score comes in lower than expected (this is all based on very preliminary information) FHA may become a better option as well.
*rates quotes are as of 1:30pm on October 8, 2009 and are based on mid credit scores of 740 or higher. Rates can and do change often. Follow me on Twitter to see live rate quotes.
For your personal rate quote on a home located anywhere in Washington, click here.
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