Homebuying Myths vs Facts
If you think you can't afford to buy a home, think again! So many people who want to buy a home don't always know the facts when it comes to qualifying for a mortgage.
Compare the myths with actual requirements for a down payment, credit score and maximum debt-to-income ratio.
NOTE: Some requirements may vary by lender.
Taken from the FannieMae Website
Whether you’re a first-time buyer or an experienced homeowner, buying a new home can be an exciting, somewhat daunting, stressful, AND overwhelming process, IF you don't have your ducks in a row with the right team. REALTOR experienced in the Fannie Mae home buying process, Lender experienced in the Fannie Mae home buying process, appraisers, title companies, home inspectors, to name just a few.
Before you begin your home search, you really should do some homework so that the process for you will have little stress or no stress at all.
Let's Get Ready For Home Ownership
How much home is within my budget?
To begin with, you need to know what’s affordable, whats within your budget. Bare in mind that when you’re buying a home you have to pay a down payment, also known as EMD (earnest money deposit) and closing costs. Be prepared for these expenses. There will be more detail on this in the Qualify for a Mortgage section. Let's begin by using this Mortgage Calculator to help you estimate what you can afford.
Where do I want to live?
Think about the neighborhoods! where you want to live? type of homes, amenities, schools (if you have children), driving distance to and from work. Be aware though that you might have to expand your search based on your price point, but it does help to have a starting point.
What do I want/need?
How many bedrooms and bathrooms do you need? what type of construction should the home be? what type of utilities such as city water, well water, septic, sewer? Would you prefer to live in an HOA (Home Owners Association) Community or not? Do you want a single family home, multi family home, condominium or townhome? The list goes on. You may not be able to get everything on your buyers wish list because of price point, but having all these things in mind sure helps a lot when searching for YOUR home.
What do I need to start?
When you are ready to begin your search, you will need a REALTOR experienced with this loan type to help you get your mortgage financing in order. We’ll go through these steps in detail, but it’s a good idea to start gathering your financial records (pay stubs, W2s, bank statements, etc.) and have them ready. Have a co-borrower? Their information will be required, too.
How much do I need to put down?
With the Home Ready Mortgage, the down payment is as low as 3% of the purchase price. Please note that when the down payment is less than 20%, you have to pay Mortgage Insurance (MI) each month until you reach 20% equity in the home. Ask your mortgage company about specifics for MI cancellation.
What about my credit?
It's important to know your credit score here and clean up any past issues to make sure there are no mistakes and or misunderstanding that may cause YOU a costly and stressful delay in you owning the home you now see you and family and the future in. To qualify for a mortgage, you’ll need to meet the lender’s credit qualifications, among other things which varies by lender, but you typically need a minimum credit score of 620.
Qualify for a Mortgage
Now to the important part of the financing! As stated previously, before you begin your home search for your dream home, it's time to to talk to a lender to get a more accurate assessment of what you can afford, and learn about what types of loans are available. It also helps to have a grasp on some mortgage basics.
Fixed-rate or adjustable-rate mortgage? To escrow or not to escrow? Pre-qualification vs. Pre-approval? Mortgage financing can seem confusing, but it doesn’t have to be.
Pre-qualification or Pre-approval, what's the difference?
This is when the lender will ask some basic questions like, what is your income, what debts do you have, what assets you have, and so on. From the information you provided verbally they will look at your overall financial situation and may be able to provide you with an estimate of what loan terms you may qualify for with a pre-qualification letter.
Be aware that you won't know if you actually qualify for a mortgage until you get pre-approved. Pre-qualification is when the lender doesn't review your credit report or make any determination if you can qualify for a mortgage, they just provide the mortgage amount for which you MAY QUALIFY. Pre-qualifying give an idea of your financing amount (and the process is usually quick and free),
This is when you complete a mortgage application and provide the lender with your income documentation and personal records. You usually have to pay an application fee (paid at closing), and the lender pulls and reviews your credit. A pre-approval takes longer than a pre-qualification as it’s a more extensive review of your finances and credit worthiness.
Pre-approval is a more powerful tool from the lender in the home buying process. If you qualify for a mortgage, the lender will be able to provide you with the loaan amount, potential interest rate and you'll be able to see an estimate of your monthly payment.
Why get pre-approved? Often, if there's competition for a home, buyers who have their financing in place are preferred because it shows the seller you are a serious and qualified buyer, that you can truly afford the home and are ready to purchase, and the likelihood of the deal falling through because the financing fell through because you didn't qualify after all is slim to zero. You also don't get disappointed at the end.
What's included in my monthly payment?
Your mortgage payment typically includes PITI:
Principal – What dollar figure you borrowed to purchase the home
Interest – What the lender charges you to borrow the money used to purchase the home
Taxes – What you pay in property taxes
Insurance – What you pay to insure your home from damages (fire, natural disasters, etc.). There is also Private Mortgage Insurance (PMI) which is usually required on most loans when your down payment is less than 20%. PMI is paid monthly until you reach the 20% equity.
What are points?
Mortgage points are fees a buyer pays a mortgage lender to trim the interest rate on the loan. This is sometimes called “buying down the rate.” Each point the borrower buys costs 1% of the mortgage amount. One point is equal to one percent of the total principal amount of your mortgage. For example, if your mortgage amount is going to be $225,000, then one point would equal $2,250 (or 1% of the amount financed).
What's an APR?
Most home buyers only think about the interest rate, but there is also an annual percentage rate (APR) which is a broader measure of the cost of borrowing money than the interest rate. The APR reflects the interest rate, any points, mortgage broker fees, and other charges that you pay to get the loan. For that reason, your APR is usually higher than your interest rate.
If you have applied for a mortgage and received a Loan Estimate from one or more lenders, you can find the interest rate on page 1 under “Loan Terms,” and the APR on page 3 under “Comparisons.”
How are my property taxes paid?
Property Taxes and Insurance are held in an escrow account held by your mortgage lender and paid by them when due. Your monthly mortgage payment payment goes into the escrow account and is split into principle, insurance premiums, taxes. This can be very helpful as you set aside a set amount each month instead of having a large, semi-annual or annual out-of-pocket expense.
IMPORTANT: When shopping for a mortgage loan there are fixed rate mortgages and adjustable rate mortgages.
Fixed-rate mortgage – Interest rate remains the same for the life of the loan providing you with a stable and predictable monthly payment.
Adjustable-rate mortgage – Interest rate is flexible and subject to adjustments, either on specific dates (3, 5, 7 year adjustments) or based on market conditions. An adjustable rate mortgage may provide you with a lower rate in the beginning of the loan, but, the payment may increase over time.
Finding a Lender
Now that you have an idea of what you can spend, it’s time to find a lender. Unless you are paying cash for the home, you’ll need to work with a lender to secure financing. You should talk with a few lenders to find the best fit for your situation. Remember, while the interest rate you’ll pay is a big factor, it shouldn’t be the only factor. This is the largest financial investment you’ll make, so shop around and be sure to ask them for an estimated breakdown of the interest, APR, Loan generation fees, all fees closing costs from their side.
Types of Lenders:
Online Mortgage Broker/Lead Service: There are multiple online services (i.e., LendingTree.com, Bankrate.com) that don't actually lend money, but will work with multiple financial institutions to help you find the best deal.
Mortgage Broker: Similar to above, a broker doesn't work for a particular financing institution. Instead, they work with multiple lenders to find you the best rate or loan product to meet your needs.
Financial Institution (Bank, Credit Union, etc.): Most major and local banks offer mortgage products, and it's always a good idea to check with your current bank or credit union when looking for a lender. Many times they may offer their current customers preferred rates or discounts.
Non-bank mortgage lender: If your bank or credit union doesn’t offer you the mortgage product you’re looking for, be sure to search for a non-bank mortgage lender. There are many companies that specialize just in financing for homes.
Still need help finding a lender? Ask me. I am partnered with a many different lenders. Also, search the Internet for a mortgage lender and ask if they are an approved Fannie Mae lender.
Once you find a lender, you’ll want to get pre-approved. Even if you have an idea of what you can spend, you’ll want to work with your lender to determine the exact amount of financing. I advise that just because you are pre-approved for a specific amount, you may not want to go as high as that amount. We can discuss much more in a buyers meeting.
Shop for a Home
Now that you're pre-approved, it's time to start house hunting!
Find a Home
There are multiple ways to find your new home. MLS on market and coming soon to market, multiple types of online home sites that have inaccuracies (to name a few). The home buying process can be confusing, especially if you’re a first-time buyer. I am an experienced real estate professional that guides you through the noise.
House Hunting Basics
It’s usually recommended that home buyers work with an experienced real estate professional. Not only will I assist you in your search, but I am be able to provide advice and support throughout the process, contract negotiations, financing, home inspections, closing, etc.
When you're purchasing a home, I will represent you in the transaction. Likewise, the listing agent represents the seller, the owner of the home you are purchasing.
Working with a me is free, the seller will pay both agents (buyer and seller) a commission, our wages when the sale closes.
So you think you've found your new home, now the next logical step is to make an offer! Every market is different, but if you've found the right one, it's best not to wait. I will determine the best offer price by pulling comparable properties that sold in that neighborhood and comparable neighborhoods along with condition of property, age, utility types and so much more for the home that will make you money and work hard negotiating that price for you, WHY? because I don't want to see anyone else in your home, PERIOD!
Some things to consider when determining an offer amount:
How long has the home been on the market and its current condition?
What's the current market like? When rates are lower, more buyers are apt to make an offer and, possibly, submit higher bids.
Are there any other offers on the property? Multiple offers can influence the price, often pushing it higher.
So much more
If you and the seller agree to the terms of the contract and is signed by both you and the seller, then the offer is officially accepted (executed) and and you’re on the way to purchasing your new home! But before you get to closing, you’ve got a few more things to do.
Now the contract has to be sent to the lender. They will update your application and finalize the loan process. The lender will ask you for more documentation to update their files and keep updating to closing, all the time working hard behind the scenes for you.
You now have 3 business days to pay the EMD “earnest money deposit” to the title company. This EMD which shows the seller you are serious about buying the home. The earnest money deposit is usually around $500 - $1,000 or a certain percentage of the offer price. The EMD will be applied to the home purchase price at the closing table.
Now it's time for the inspections required for this type of property, all of them should have a General home inspection, WDO (wood destroying organism) and termite inspection plus a 4 point inspection (if applicable at that time) that will be needed to help save you money on your homeowners insurance. There are other instances where other types of inspections may need to carried out required by lender, or just for your benefit. These inspections allow you to uncover any potential issues with the home, structural, plumbing, electrical or anything else that may not have been readily observable when you visited the property.
The inspection period is defined in the contract, and you must have the inspection completed within that time frame. If some non observable issues are uncovered during this time, you can walk away from the property and not have to forfeit the EMD.
PLEASE NOTE: Inspections are not meant to pass or fail a property, they are for pointing out things that may need to be addressed if you proceed toward closing.
Contract's can be renegotiated.
When you’re working with a lender to finance the home, the lender will typically order an appraisal on the property. The lender uses a licensed real estate appraiser to evaluate the property and complete a Uniform Residential Appraisal Report, Form 1004. This report shows the calculation of the fair market value of the home by comparing the property to recently sold homes in the neighborhood. The report should also show the market value based on a “cost approach to value” calculating the value based on the value of the land plus what it would cost to build a house of similar size and quality. In addition, the report should list detailed information about the property and the neighborhood.
Hire a qualified professional to inspect the property you don't want to cut corners here!
I can point you to reputable inspectors.
Review the inspection report with your me to determine what repairs (if any) you will ask the seller to remedy. Keep in mind, the seller doesn't have to make any repairs, but you can also walk away from the contract if you aren't satisfied with the inspection/resolution.
Don't ignore any potential issues. Just because you love the home, it doesn't mean you should overlook potential problems.
Normal wear and tear should be expected (especially if you are purchasing an older home), so don't assume the seller will replace older (but still working) items.
Close on Your Home
You’ve found your dream home, your offer has been accepted, the financing is in place, and the inspections are complete and accepted. Now, there’s just one more key step in the process.... closing!
The closing occurs when all the conditions of the contract have been met (full loan approval, evidence of clear title, mortgage insurance is in place, etc.).
Prior to the actual closing date, expect to review the list of fees and the terms and conditions of the contract. In addition, you'll need to know the amount that you'll need to bring to closing via a wire transfer to the title company's escrow account. I, along with your lender and title company will assist you with this process.
IMPORTANT: Please DO NOT wire any funds that I have not confirmed with you is legitimately from the title company. This is due to fraudsters.
The lender arranges the closing and ensures that the closing agent has all the necessary documents in place. Some closings may be required to take place in a room at a title or escrow company. Closing can also be mail away.
At the closing, the lender “funds” the loan with a draft or wire to the closing agent who disburses funds in exchange for the title to the property. This is the point at which transfer of ownership occurs and the buyer receives possession of the property.
Remember to carefully review all documents before signing, ask the closing agent if you have any questions or concerns.
Now you have taken pride in home ownership.
Now file your Homestead Exemption
State law allows Florida homeowners to claim up to a $50,000 Homestead Exemption on their primary residence. The first $25,000 of this exemption applies to all taxing authorities. The second $25,000 excludes School Board taxes and applies to properties with assessed values greater than $50,000.