Common Questions from First Time Homebuyers!
Pre-qualification letter vs. Pre-approval letter... what's the difference?
The pre-approval process is a much more complete pre-qualification. A pre-qualification typically lays the groundwork for a pre-approval. It involves a conversation and a review of credit. Based on that income/asset/credit conversation, you are determined to be pre-qualified by your loan officer, and are given a letter. A pre-approval involves documentation and underwriting; it is essentially a full approval, less title and appraisal. This will help your offer stand out, but typically takes a day or two.
Can I buy a home with bad credit?
That depends on why your credit is "bad". If you have a low credit score, certain loan programs will be ruled out. It is ideal to have a 620+ to qualify without having major hurdles. If there are significant derogatory events in your credit, those could also cause roadblocks. The best way to determine whether you are eligible would be to contact your loan officer to review it together.
How much money do I need? What are the upfront costs?
That also depends! There are different loan types that require anywhere from 0-20% down. 3.5% down on the FHA, or 5% down on a conventional loan are the two most common first time homebuyer loans . You can also figure around 3% for closing costs (this is just for ballpark figure). On a $150k home, you can estimate $5000-7500 down, plus about 4500 in total closing costs.
There are ways to have the lender or seller help cover some closing costs, as well. That is an important conversation to have with your loan officer- if you are only short by a small amount, there's very likely a way to make it work!
What is a rate-lock agreement?
Once you have a contract, typically you'll look at locking in a rate. Depending on how far out from closing you are, you might secure your rate for 30 or 45 days. Basically, this allows you until the rate-lock is over to close your loan without any additional cost.
What lender should I choose? What is the difference between a broker and a lender?
You'll notice that most rates offered by various banks will be VERY similar. This is because we all get our monies from the same places, so are subject to the same base-rate. The differences between lenders will be insignificant, so you should really go with who you are most comfortable with, and who you have the most confidence in to close your loan on time. Also, a few notable things to look for is communication, open-ness and honesty, and hours of contact.
What types of loans are available to me?
You are NOT limited by being a first time homebuyer. You are able to qualify for any VA, USDA, FHA, or Conventional loan, assuming your credit and income stack up. Based on the amount you want to put toward your mortgage and what is housed in your credit history, your loan officer will make a suggestion. Conventional loans are typically the most efficient, but aren't 100% of the time the best choice. Again, this depends on you and your specific goals.
What is a "Good Faith Estimate"?
Once you pick out a loan and get in process, you will receive a set of disclosures to ensure you have everything you could want to know about the loan at your disposal. The good faith estimate is included, and outlines settlement charges. This is a standard form that all lenders MUST utilize.
What are points, and do I need them?
A point is 1% of the loan amount. You can pay points to "buy-down" your interest rate. Some days, points are a little more efficient than other days. The basic rule is to take the total cost of the points, divided by your monthly savings, to see how long until buying that point makes sense. This is something your loan officer will guide you through, but it's good to know about them upfront.
What am I responsible for, after the loan has started?
Once the loan has started, your lender will handle ordering the title work for your closing, as well as the appraisal. You will be responsible for any inspections (typically done during the first 10 days, or option period that you purchase), and anythign else the contract stipulates you do prior to closing. You will also be responsible for supplying any documents that the lender requests in order to get your loan closed. The conditions don't always make perfect sense, but it's best to do your best to knock them out.
What can I expect once the loan process has started?
I can't speak for all loan officers, but you can expect me to be very upfront and honest about what is needed, timelines, and expectations. If an issue comes up, we'll take care of it right then and there. You will receive an update from me everytime something notable happens, at least once per week. (ie. an appraisal event, something coming up in title, initial approval, conditions, clear to close, etc)
What happens at closing?
Closing is when all fees (except the appraisal, which you paid earlier) come due, and you sign all the documents to transfer title into your name and essentially begin your new home loan. This takes 35 minutes to an hour or so, depending on how thorough you are and how many questions you want to ask.
It can be a bit overwhelming. I make a practice to go to all of my client's closings to ensure things go smoothly.
If you have any questions that I might have missed, please send me a message via the contact form on the first page - or just email me! adamcgeiser@yahoo.com. I'd love to help you out in any way that I can.