HomeBuyer University: Buying a Home, Just Got Easier
Whether you are a first time homebuyer or not, learning about core concepts and understanding the process can make the experience fun, easy, and stress-free. Since this is one of the largest purchases you will ever make, and it is a significant life event, we have created a one-stop resource to guide you through the home buying process.
Important: This course is in addition to the one-on-one attention, support, and guidance your dedicated Loan Officer will provide each step of the way. Please contact a licensed Loan Officer today by calling 1-860-236-5626.
COURSE 1: The Home Buying Process
Your first course at HomeBuyer University will help you become familiar with the overall home buying process, and provide you with useful tips to consider. Understanding what stage you are at, and the activities to come, is crucial for planning and piece of mind. Please call your Loan Officer directly with any questions you may have.
Understand Your Price Range
Loan requirements and interest rates can vary. A pre-approval will give you a clear understanding of the programs and alternatives that you can use, what your expenses will be, and more importantly, what you can purchase. Without this, you may waste valuable time looking at properties that do not fit your financing or that are basically beyond your affordability. Knowing your price range also minimizes the emotional distress of seeing and falling in love with a home that you cannot purchase. This is one of the most important reasons why buyers should obtain pre-approvals before seeing properties.
Strengthening Your Position
A pre-approval gives you the option to act on a hot property. When you submit an offer, you usually must include a pre-approval letter. This ensures the seller that you are ready, willing, and able to buy. It is unlikely that a seller would consider an offer and take the chance on a buyer without any indication that a buyer can even pay for the property. In multiple offer situations, a pre-approval is even more vital.
A pre-approval saves time when making an offer on a home. Since most sellers will not look at an offer without a pre-approval, not having one prepared may lead to delays in submitting your offer and may result in a missed opportunity. In addition to this, pre-approvals involve reviewing documentation of income, and assets. Starting and addressing this step early on will also save significant time when processing your loan and achieving a quick closing.
Tip – How To Get An Accurate Pre-Approval
Incorrect pre-approvals can waste your time and money, and lead to frustration and disappointment. You should choose a loan officer and lender that are able to accurately assess your situation, so there are no surprises down the road. How do you know your pre-approval will be accurate?
Good indicators that the loan officer can provide an accurate pre-approval for you are:
- Your loan officer reviews key documentation – Merely looking at a credit report and asking you about your income, tax returns, and assets is not enough. When your loan officer reviews your actual physical documents, he or she is verifying other key components that are critical to providing an accurate pre-approval.
- The loan officer is licensed – Licensed Loan Officers go through rigorous education and testing. They must pass national and state exams, which are extremely challenging to ensure only the most qualified professionals obtain a license. (Currently, over 50% of individuals taking these exams fail). In contrast, other loan officers are only registered with the National Mortgage Licensing System (NMLS). They never go through the classes or pass the tests. They only pay a fee and register with the NMLS.
- Your loan officer and lender have years of experience in the industry – The mortgage industry is complex and ever-changing. Experienced loan officers and lenders keep up with the changing loan program guidelines to ensure pre-approvals they issue are accurate.
As a home buyer, you have the advantage of hiring a real estate agent to provide advice, negotiate terms, find the right home for your needs, and protect your best interests when making an offer on a home. Since aligning yourself with the right agent is so important, you should approach the selection process with care and diligence.
Here are some tips on how to find and select a real estate agent:
- Ask family and friends to refer you to a good agent. Family and friends can be a good source for a referral, because they care about you and the experience you will have during the home buying process. The people close to you have probably worked with an agent at one point or another, and can give you an honest assessment of the agent’s ability and knowledge.
- Ask your lender to refer you to a good agent. Some lenders have developed relationships with agents across your state, and work together on several mutual clients throughout the year. For example, First World Mortgage works with hundreds of some of the most exceptional real estate agents on an ongoing basis. We can often refer you to several great agents in the area that you are looking to purchase your new home.
- Do your own search via the internet, and interview a few agents. You can approach this like hiring someone for a job by interviewing real estate agents. This gives you a chance to speak with several different agents to determine which one will best meet your needs. The down side to this is how much time it can take to find and interview qualified candidates. (The first two options listed above are more common methods and usually work out best).
Real Estate Agent Duties
Federal law requires that real estate professionals carry out certain duties to their clients after they formalize an agency relationship. Merely meeting with an agent does not automatically mean that person represents you. Generally, there will be documentation outlining the agency, duties of the agent, and your duties. Below is information on the importance of getting representation from real estate agents.
Agents must maintain confidentiality of client information. They must not reveal information about your financial or personal affairs, or your goals unless authorized by their clients. The real estate agent’s responsibility to keep your affairs confidential extends past closing on your home or contracts.
Real estate professionals have a reasonable amount of knowledge of real estate topics and on the real estate process, but they do not have expertise in all real estate related fields (such as legal issues or home financing). For information outside of their knowledge base, they must direct clients to the proper experts.
Adhering to Client’s Wishes
As long as clients’ instructions do not break any laws, real estate agents must follow their client’s instructions. For instance, you instruct your real estate agent to submit a low offer, and your agent feels it’s too low. Even though your agent disagrees with the offer, he or she must still present that offer to the seller.
Your Real Estate Agent must follow the transfer of any money pertaining to a real estate transaction. This refers to earnest monies given and the return of such funds when necessary.
Your Real Estate Agent will retain the best interests of their clients above all other individuals, including themselves.
Real Estate Agents will complete responsibilities and comply with client requests in a reasonable time frame. This can be critical when multiple offers are present. It is also important after a contract is in place with specific deadlines.
Disclosing all material facts about a property is required by all agents. This includes any information that can affect how parties make decision and negotiate terms or purchase price.
In addition to the before mentioned items, real estate agents play a crucial role liaising between the buyer and seller. Buying or selling a home is an exciting time, however, it can be stressful and complex. That’s why having the guidance of an individual who recognizes your best interests, but who is emotionally detached, can lead to desirable conclusions.
Searching for a Home
At this stage in the home buying process, your real estate agent will ask you questions to uncover you needs, preferences and criteria for your new home. Each person or family has unique needs, which requires the agent to diligently hunt for prospective homes in the geographic areas their clients are interested in. Once your agent finds properties that you might be interested in, he/she will show you those properties. If you are only viewing one property on a given day, it’s common for you to meet up with the agent at the property and at an agreed time. If you are viewing multiple properties in one day, your agent may offer to meet up with you and drive you to each property.
In addition to the hard work your real estate agent puts into searching for your dream home, there are things you can do too. Although you won’t have access to all of the listings when searching on your own, the internet gives you immediate access to homes for sale – and searching is relatively easy. Searching online is fun, and helps you sort out what you like and don’t like.
Using third party websites are a great way to search real estate listings, but keep in mind that local real estate agents have direct access to MLS and can grant complete access to every real estate listing in MLS. Real estate brokers can either filter listings on your behalf or grant you direct access to MLS through their account.
Deciding What to Use as a Resource
Now that you understand where third party websites get their real estate listings from and how that compares to what a real estate professional has to offer, you can decide the preferred method that you would like to use for searching real estate for sale online.
While searching for homes, your loan officer and real estate agent will be in regular contact with one another. They will work together to make sure you find a home, and can obtain financing for that specific property. It’s common for a home buyer to be interested in a different type of property, or in a different location, than what was originally outlined in your pre-approval letter. Your real estate agent should contact your loan officer to review the property information prior to making an offer. Here is a scenario to illustrate the importance of reviewing the pre-approval on a specific property prior to submitting an offer.
Scenario: You are pre-approved for a 100% financing USDA loan. For this loan option, you can buy a home in most counties in your state. The county you currently live in, which is where you want to purchase a new home, is an eligible county for this loan program. Your real estate agent calls you with exciting news that he found a property that meets all of your criteria, needs, and preferences. However, it’s located in the neighboring county. Check with your loan officer to confirm the neighboring county is an eligible area for the 100% financing loan program. You don’t want to waste your valuable time looking at properties you don’t qualify for.
Negotiating – What You Need To Know
Whether it’s a buyer’s or seller’s market can affect your power to negotiate. In a buyer’s market, potential home buyers have an advantage because of the volume of other properties available. Sellers should be more generous in attempt to secure an offer on their home. In a seller’s market, buyers should put their best foot forward in order to successfully compete for a desirable property.
A number of things can affect bargaining position. For instance, private matters such as divorce can expose the motivation and give the other person an advantage. It is critical to keep this information from the other party. The introduction of multiple offers can also affect who has leverage. Understand your power before determining a negotiation plan, since you may have no chance to change your position afterwards.
Look Beyond the Price
When buying or selling a home, price is only one aspect of successful negotiations. There are terms of an offer/contract to include: commitment and closing dates, inclusions/exclusions, special terms, deposits, requested repairs, and financing terms. These all play a role in a successful negotiation. Your real estate agent will advise you whether your terms are reasonable, or if may be off-putting to the other party. Digging in your heels on certain terms may hurt your ability to successfully compromise.
Your Agent’s Role in Negotiations
Your agent can ensure successful negotiations by leveraging their knowledge of the real estate market. The outcome of selling or buying a home directly correlates to the contract terms and the feelings of the buyers and sellers. Agents will act as the buffer among parties and maintain a civil negotiation process.
An Overview Of Negotiating Agreements For Homes
Successful negotiations rely on a realistic analysis of the real estate market, recognizing your bargaining position, considering contract terms, and employing help from an experienced real estate professional. It may be impossible to get everything you want, however, the objective is to arrive at a fair compromise.
You should consult with your loan officer to determine which documents you will need to bring to your application meeting. However, the following list of documents is usually sufficient:
- Most recent paystubs covering the last 30 days for all borrowers.
- Last 2 years W-2 income statements for all borrowers.
- Last 2 years signed tax returns for all borrowers.
- If you receive Social Security, Disability, Pension, or any other form of fixed income, please provide a copy of the award letter(s).
- If self-employed or part owner in your company, please provide last two years business tax returns as well.
- Proof of alimony or child support income if it is needed for income qualification (Divorce Decree or Court Orders are considered proof).
- 2 months of the most recent checking and savings bank statements (all pages).
- Most recent asset statements for 401k, IRA, stocks, and any other liquid assets.
- Copy of any good faith deposit checks made to the seller.
If you have already found a home you are interested in buying, please bring in:
- Fully executed purchase and sales agreement (if you have one).
- Your Real Estate Agent’s contact information.
- Annual property tax figure.
Why You Should Get An Inspection
Home purchases are a big investment that you should not enter into without due diligence. An inspection reveals the condition of a piece of real estate and potential repairs. You may find that most issues are acceptable and can be quickly repaired, while others might tell you not to purchase a specific property. Alternatively, an inspection may also confirm that a home is in great condition. Good or bad, having this valuable information will help you with making better investment decisions. A real estate broker will help you analyze and negotiate inspection results in a manner that is reasonable yet simultaneously protects your best interests.
Expenses and Inspector Experience
The cost of an inspection usually depends on the square footage of a home. (Water quality and well tests may be additional charges). Charges may also be different depending on the inspector’s expertise and years of experience. Reviewing the inspector’s background, affiliations, and references are indicators whether the inspector is charging a fair price. Since it’s only a couple hundred dollars, a home inspection is worth the investment to identify costly deficiencies.
How to Order a Home Inspection
The internet has made it extremely easy to find home inspectors. A simple online search can reveal many viable options. You can also ask your real estate agent to refer you to a trusted home inspector that does business in your area.
Occasionally, the purchase price the home buyer and home seller agree upon ends up being higher than what the home is actually worth. This is discovered when the completed appraisal report indicates a lower value than anticipated. This is called an “under-appraisal”. Lenders will not approve home financing for a purchase price higher that the home’s market value indicated in the appraisal report. Therefore, you will have to take action if an under-appraisal occurs.
Under-appraisals are often easy to resolve because the market value isn’t too far off from the contract purchase price. Renegotiate the contract’s purchase price for the appraised value. Your real estate agent will help you with this.
Most home buyers get up to three quotes for home owner’s insurance before purchasing a policy. Annual premiums can range from a few hundred dollars, to over one thousand dollars for larger homes. Many factors influence your annual premium to include:
- Type of home
- Size of home
- Rebuild cost
- Claims you filed on other home owner’s insurance policies you’ve held
- Discounts for security systems
- and more…
How to Get A Policy
Getting a policy is very easy, and the common methods of obtaining one are:
- Your loan officer can usually refer you to a few good insurance companies.
- You can ask a friend or family member for their agent’s phone number.
- Contact the company that currently insures your automobile. They might offer home owner’s insurance and give you a discount for having multiple policies with them.
After all remaining conditions are completed and reviewed, a “clear to close” is issued. Essentially, this is your final approval for home financing. It affirms that all criteria have been completed and the lender can release the file to the closing department.
The closing usually occurs at the attorney’s office within a couple days of receiving the “clear to close”, and entails signing of documentation and filing of information into public record. Always bring official identification and a money order or certified check for any down payment or escrow items required. Personal checks or cash are normally not acceptable. The transfer of money occurs at or shortly after and the property becomes officially yours.
The attorney/closing agent will hand you the keys to your new home!
Preparing For Your Move
The moving process can be stressful, and it is a lot of work. Even if you hire a professional moving company, you will have your hands full planning, preparing, and making sure all of the appropriate changes happen prior to your move.
To help make things easier and low stress, we have developed checklists for you. Please download the Home Buyer’s Guide to review these helpful tools.
CLICK HERE TO DOWNLOAD
COURSE 2: Things Every Home Buyer Should Know
This next course covers the top subjects, core principles, terms, and tips every home buyer should know. Not every nuance of the industry will be covered here. However, the following course will provide you with essential content so you can make informed decisions, and so your the home buying experience is a pleasant one.
Financial Information Considered
Lenders will review your income, assets, and liabilities to calculate your ability to pay loan payments. These calculations and tolerances different from one loan program to the next. For instance, FHA loans allow for a higher debt to income ratio as compared to a conventional loan. Positive savings and a regular employment history demonstrate sound financial behavior.
Likelihood of Repaying the Mortgage
CT mortgage lenders examine how likely you are to continue paying your mortgage over the whole term. Your credit profile has a crucial role here, because your prior history is the number one indicator of future habits. Having a poor credit history can jeopardize your chances of acquiring a mortgage, or result in paying higher interest rates in order to obtain a CT home loan. Mortgage lenders must evaluate your present situation and long-term potential to pay your bills based on loan program guidelines.
Real Estate Factors
Appraisers report critical information to mortgage lenders. The most important aspect of an appraisal is the price, which is provided in a precise dollar amount. Mortgage lenders approve loans up to a certain percentage of the appraised value. The appraisal is the official document outlining the property’s value, and the evidence to back it up.
Home Loan Approval Criteria For Connecticut Mortgage Lenders
Most mortgage lenders can take a few weeks to review a loan application before issuing a commitment letter, a denial, or requesting more information. Criteria to approve a loan varies based on the loan type, property details, and the home buyer’s financial situation. These home loan approval criteria for CT mortgage lenders only include a few common things to be mindful of. You should contact a licensed loan officer for advice, further facts, and guidance on home loan qualifications. For more information, contact First World Mortgage by calling 860-236-LOAN.
Details Of Recurring Home Loan Payments
Paying Down Principal
Principal represents the balance of the mortgage. For a typical loan, part of the monthly payment is put towards lowering the balance, although there are exceptions to this such as interest only loans. In the first few years of paying a loan, a smaller portion of the payment will go towards principal, but this increases over time.
Interest is the amount billed by mortgage lenders for use of their money. The interest rate is generally a yearly rate but assessed in monthly increments according to the balance of the loan. Depending on your type of loan, the interest rate can remain the same for the entire life of the mortgage or it may change at certain intervals.
Taxes are levied based on the assessed value of a property. The amounts are quoted annually but typically due quarterly or twice a year. Overdue taxes can become a lien and take priority over mortgage liens. Many lenders will, therefore, have the home buyer set aside money into an escrow account to ensure that the bills are paid. Those funds are collected monthly by the lender as part of the regular mortgage payment. The lender then pays the taxes directly rather than waiting for the homeowner to do so. It is a method of protecting their investment.
There are two types of insurance for a property. Hazard insurance is required while mortgage insurance depends on the specific loan. Both may be part of recurring mortgage payments.
Hazard insurance protects against damages. Lender require this insurance since the home is collateral on the mortgage, and it also protects you against financial loss. Policy premiums are payable yearly and many will want monthly contributions into escrow (similar to tax escrow). They will then submit payments to the insurance company directly to make sure the policy remains active.
Private Mortgage insurance (PMI) is common on mortgages with low down payments (less than 20% down). Otherwise, you would probably not qualify for financing. PMI protects the lender should a homeowner fail to make payments. Lenders estimate that they will not recover the full balance owed to them if the property forecloses, so the mortgage insurance covers some of their loss.
Recurring Home Loan Payments
Not all financing is structured the same and therefore not all home loan payments will include all of the items above. There can also be other monthly charges such as condo fees, which are not collected by mortgage lenders but are an important consideration in calculating total monthly housing expenses. Remember that exact figures are determined by a specific property and interest rate, so any preliminary figures will likely fluctuate.To receive an estimate on what may be part of your loan payments, contact First World Mortgage by calling 860-236-LOAN.
Several things should be taken into consideration when deciding between buying a home or renting something. Although most considerations remain the same across the country, some could differ based your financial situation and the current real estate market. The following information may help you decide which option best meets your needs.
Some potential reasons to rent:
- You do not intend to live in the area for more than a year or two.
- You are uncertain about job security.
- You do not want to manage the upkeep of a single family residence.
- Renting also allows you to adjust to loss of employment by transitioning to a lower payment, thereby minimizing monthly costs.
Some potential reasons to purchase a home:
- Real estate typically builds equity for a good return on investment.
- You can usually own a home for a similar monthly payment vs. renting something.
- You intend to live in the region for more than a couple of years.
- Potential tax deductions for loan interest and property taxes.
- Purchasing a property usually affords you more living space.
- You can customize and upgrade your property as you need and want to.
However, before you do anything:
- Contact a real estate agent for current real estate market details, and…
- Consult with a CT mortgage lender to help you calculate potential mortgage payments.
Only with current information, can you make an educated decision.
Are you thinking about refinancing or buying a home within the next several months? If so, you must avoid mistakes that will impact your ability to qualify for a home loan. Below are the common mistakes you need to avoid.
Mortgage lenders review your debt to income ratio. Making major credit card purchases, or obtaining new loans, may drastically change that ratio. Increasing your monthly debts/liabilities can lower the amount you can finance. This is especially critical once you have found a property, and you have started the official application process. Since mortgage lenders may request an updated credit report prior to final loan approval, changes in your credit score or the new debts you’ve acquired can lead to a denial of home financing.
The approval process includes a review of your present and past income to determine your ability to make payments. It also includes a review of your last two years employment history to determine your job stability. Changing employment during the approval process can lead to problems – particularly if the change results in lower pay or the new job is in a different field. A change of employment during the mortgage approval process can also create delays while your new income and employment can be verified.
Cash Transactions in Bank Accounts
Mortgage underwriters generally analyze your bank account statements over the last two months to verify assets – assuming you need to put money down or show reserve assets to qualify. Depositing cash or transferring money into an account will require you to prove those funds are yours or was a gift from an allowable source. Not being able to source those deposits, means you can not use those funds as down payment money or reserves. Relying on funds which cannot be sourced, but you need to use for qualification, may result in a denial for mortgage financing.
Shutting Down Accounts
You may think about paying down debts to help you qualify for a home loan. In some cases it can improve your chances, while other scenarios it will not make a difference at all. Prior to doing this, consult with a mortgage professional to determine if paying down debts will help your situation. Whether you pay off debts or not, keep your accounts open! Closing accounts are a sure way to lower your credit score.
Home inspections will identify issues discovered in a home, with additional suggestions from the inspector. It’s important to understand that sellers are not mandated to fix those issues. It’s up to the buyer and seller to negotiate what will and will not be addressed. To promote successful negotiations, it’s important for you to focus on the repairs that are needed, rather than the could sell the home for more than the current price listed.
Identifying Defects to Discuss
With a negotiating strategy in mind, buyers should identify a list of what they want to negotiate. Although you may have want everything on your list, be careful not to alienate the seller. Buyers who ask for every single repair often reduce their chances of coming to a compromise. For instance, if there are a few minor repairs and one lard one, you might be better off asking the seller to only address the large repair. If there is a major item and several minor ones, it may be better to ask that only the major one be completed. Regardless of what your list may look like, your real estate agent will guide you in preparing a written request to submit to the seller.
Possible Negotiation Outcomes
Once you submit your list to the seller, the seller can:
- Agree to address your entire list prior to closing on the home.
- Agree to address a few of the defects prior to closing on the home.
- Give a seller’s credit to the buyer (this can be a reduction in purchase price or a credit toward the closing costs). In this case, the buyer will fix items themselves after the loan is closed.
- Be unwilling to negotiate at all.
Negotiations may continue several times until the buyer and seller come to a compromise. However, there are times both parties can not come to an agreement at all. It’s important that all parties remain on respectful terms, because both may be more giving during negotiation discussions. On the other hand, if one side feels taken advantage of or disrespected, compromise can be difficult to say the least.
While discussing negotiating strategies with your real estate agent, you should keep in mind the many aspects of the transaction. Keep in mind that inspection reports include both repairs needed and recommendations, and that most sellers will not do upgrades to the home. If the buyer and seller treat each other with courtesy and respect – the chances of acceptable outcomes will greatly increase.
Private Mortgage Insurance (PMI) is an insurance policy mortgage lenders require to cover its losses when a property owner fails to pay their home loan. Since a mortgage lender is likely to take a substantial loss if they foreclose on a property, PMI offsets that loss and risk. PMI applies to a first mortgage where a borrower is obtaining financing for over 80% of the property’s value.
PMI rates vary based on loan type and how much you borrower compared to the home’s market value. Borrowers should speak with a loan officer to get precise figures and see how the PMI will impact the mortgage payment. PMI factors may also change. For this reason, it is important to get current PMI rates. Upon the closing of your new home, the PMI factor will not change.
Advice on Getting Rid Of PMI
Recurring monthly PMI payments will automatically end when the mortgage balance is paid to below 80% of the original purchase price. PMI may end a little earlier if an appraisal demonstrates the home’s current value has increased, making the remaining loan amount 80% or less than the current value. (This must be initiated by the homeowner).
PMI enables you to purchase a home without having a down payment of 20%. By understanding how PMI works and how to end it, you can avoid paying more PMI than needed. For information or questions regarding PMI, call First World Mortgage at 860-236-LOAN.
Estimating the cost of home ownership is a vital starting point for all home buyers and should be done prior to the home search. This preserves energy and prevents heartbreak. There are many financial figures to consider including loan payments, taxes, association dues, insurance, and ongoing maintenance.
Mortgage payments can be fixed for the duration of the loan, or may adjust. This depends the loan type you choose. Mortgage payments usually include amounts towards the principal balance of the loan, plus interest charges. Therefore, your interest rate and loan amount dictate what your mortgage payment will be. Your mortgage professional can prepare an estimate using the current rate and the purchase price, but know that these figures are not set in stone since each property will be different.
Your Property Taxes
Many loan programs require that you make monthly contributions into a third party account for the purpose of paying property taxes. This is called an escrow account. The company servicing your loan then makes payments from that third party account directly to the tax collector. This method ensures that you maintain sufficient funds to pay taxes due and that the town is paid property taxes on time. The amount for property taxes differs based on the amount of the tax assessment, and location of the property. Larger properties or those with more acreage usually have more taxes. Property taxes can also adjust annually.
Hazard insurance is also usually mandated to be escrowed. Premiums are due yearly and may be re-assessed by your insurance company. Policy premiums can vary greatly, with premiums at only a few hundred dollars annually to thousands each year.
Property maintenance is an expense often overlooked. Regardless of purchasing single family property, condo or town house, you will have known and unknown maintenance expenses. Expenses may differ from one property to the next, but may include lawn care, replacing water heaters, new windows and countless other items. Including an estimate in your monthly budget can help you effectively plan for inevitable property maintenance expenses.
Estimating the affordability of home ownership is a crucial starting point in the home buying process. Buyers must stay informed on current interest rates and how the rate can affect monthly mortgage payments. Home buyers should also know what the fixed costs will be versus the expenses that may change during home ownership. Some items, such as repairs, should be added to your calculations even though they are mostly unpredictable. By developing a detailed calculation of all figures involved in purchasing a home and home ownership, you can figure out what mortgage payment you are comfortable with.
Financial information plays a large role in loan pre-approvals. All lenders evaluate your assets, earnings, credit and debts. These affect whether you can obtain a loan and the amount you qualify for. The following is introduction to debt to income ratios (DTI).
Mortgage lenders will calculate your gross monthly income. This includes only items that can be documented. Wages are the most common source of income. You will be required to present paperwork (such as W-2 forms) for the last 2 years, giving them a sense of consistency. They may request explanations for any unusual items, such as fluctuations in wages or inconsistent amounts. Other types of income can include alimony, investment properties, and stocks. Any items that you attempt to report as income must be verifiable. A history of earnings and likelihood of future earnings is very helpful. The documentation standard can vary among lenders and some exceptions may also apply. It is important to tell your loan officer about all possible income sources to find out what can or cannot be used.
Debt describes all monthly obligations such as credit cards and installment loans. The exact monthly payments on loans and other structured debt are used. For revolving debt like credit cards, minimum monthly payments are applied. These figures are normally noted in your credit report. Some companies may agree to ignore loans with under one year left or that you can prove someone else is responsible for. The figures are combined to calculate total monthly obligations.
Lenders compare the calculated income compared to the monthly debt to determine the debt to income ratio. Unless you have compensating factors, these ratios must remain within set limits that are dictated by the loan program guidelines. Additionally, mortgage payments combined with your monthly debt must also stay under a specific percentage for loan approval. The particular percentage varies from program to program.
For instance, a lender may allow a DTI of 28% for mortgage payments and a 40% DTI for total debt. Based on this example, a borrower making $60,000 annually ($5,000 monthly) would be allowed up to a $1,400 per month mortgage payment and $2,000 per month in total debt. Keep in mind that this is strictly an example and includes only the income versus debt part of the financial analysis that will be performed. There are many other factors, such as credit rating and program specific requirements. It is essential to speak with a local loan officer for more information on your DTI and loan qualification.
COURSE 3: Loan Type Overview
This course outlines the most popular loans programs in the United States. The following overview is intended to provide you with a general knowledge of your potential options. Your licensed loan officer will provide guidance and advice as to which programs you may qualify for and will best meet your overall needs.
There is a misconception that you may not get a conventional loan unless you have significant funds for a down payment. Although FHA loans are popular for home buyers with low down payments, there are certain conventional loan options with down payments as little as 5%.
Conventional Loan Advantages
- Conventional loans have low interest rates.
- Closing costs are typically lower than other loan programs.
- Private Mortgage Insurance (if required) is usually lower than other loan options.
- Overall monthly payments are a little lower than other loan options.
Conventional Loan Disadvantages
You just read in Course 2 how important your DTI is. It is an analysis of recurring debt (existing loans, credit cards, etc.) to monthly gross income, and is used to determine your ability to pay your mortgage. For conventional loans, DTI requirements are less flexible than FHA loans. This can either make it more difficult to qualify for a Conventional mortgage, or you may qualify for a lower loan amount to meet Conventional loan DTI requirements.
All loan programs provide different advantages and disadvantages and differences in closing costs and monthly installments. It is important to consult with your loan officer, compare your options, and pick one that best meets your needs and finances. Speak with your loan officer for detailed and up-to-date information as it can frequently change. For more information on 95% conventional mortgages in CT, contact First World Mortgage Corp. by calling 860-236-LOAN.
The Federal Housing Administration (FHA) mortgage loan is a government-backed program where the private mortgage insurance (PMI) is subsidized by the Federal government. All types of borrowers looking to obtain home financing use this incredible loan program, including first-time home buyers. This lesson provides a general overview to help you determine if an FHA Loan CT is right for you.
Advantages Of FHA Financing
There are several significant advantages of FHA financing. The lowest down payment for FHA loans is 3.5%, which aids home buyers who do not have a larger down payment. An FHA loan also allows borrowers to use gift money for the down payment and closing costs. These mortgages may also be assumed, meaning that it may be transferred to a borrower (if they qualify). This can help if interest rates rise dramatically. Finally, FHA does not penalize buyers for credit rankings. Although home buyers must still maintain a minimum score, higher interest rates usually do not result from lower scores.
Downsides Of FHA Financing
There are downsides of FHA financing to keep in mind. FHA mortgage insurance (MI) is normally more than a conventional loan. There is an up-front premium to be added to the total closing costs. For condominium units, the complex must satisfy particular guidelines such as;
- minimum reserve funds.
- certain owner occupancy levels.
- be an approved FHA association
FHA Mortgage Overview
FHA makes home ownership a reality for many who would otherwise not qualify. Consult with an FHA loan professional to better assess this option by calling (860) 236-LOAN.
FHA 203k is a home financing alternative for properties requiring repairs or improvements. The program is a critical tool for expanding home ownership, revitalizing neighborhoods, and for making homes healthier for those who reside in them.
Benefits to You
The FHA 203k program enables people to purchase a home and finance the cost of repairs and upgrades they choose to do (new kitchen, bathroom upgrades, and hardwood flooring for example).
Scenario: Let’s say you find an amazing home in your price range, however you do not like the kitchen. It needs new appliances and the cabinets are dated. The FHA 203k allows you to finance these things into the loan so you do not pay for it out of pocket, and so this otherwise amazing home will meet every need and desire of yours.
In addition to this, short sale or foreclosed residences are usually listed for sale for a fraction of the market value but are often in need of repair. Since traditional home loans require that properties be in livable condition and no need of repair, a 203k loan enables you to qualify for these aggressively priced homes. This can be a tremendous investment opportunity for you.
How the FHA 203(k) Works
The cost of eligible upgrades and repairs is limited by the version of 203(k) loan program, and the FHA loan limits for the county the property is located. Any figures for the upgrades and repairs must be substantiated by estimates from licensed contractors. The property is also required to appraise for the purchase price outlined in the purchase and sales agreement, plus the amount of the repairs. This is called the “after improved” value. After the loan closes, the money for repairs and upgrades will be placed into a third party account called an escrow account. These funds will be released as the contractor completes the work. Renovations should be performed by professional contractors and with needed permits. Inspections may be performed by HUD to verify compliance.
FHA 203k Eligible Upgrades & Repairs
Understanding eligible repairs is important. FHA 203k mortgages can be used for a wide range of work. Eligible work includes:
- kitchen renovations & upgrades
- Bathroom renovations & upgrades
- heating units & cooling units
- roofs, windows, and doors
- and much more
The full list may be obtained from HUD or from an local FHA 203k approved mortgage expert by calling (860) 236-LOAN.
Buying a Home With FHA 203k
Consult with a licensed loan officer to fully understand which FHA 203k Loan is right for your situation, the “streamline” or “full” version. Make sure you get a pre-approval prior to making an offer on a home requiring this type of financing. Lenders offering standard FHA mortgages do not necessarily provide 203k loans. Refer to the HUD Website for additional facts or contact First World Mortgage by calling 860-236-LOAN.
The US Department of Agriculture (USDA) offers financing for buying a home. The home loans can be used for properties in USDA eligible towns, enabling more people to benefit from home ownership.
Benefits of USDA Mortgages
- 100% financing.
- You do not have to be a first-time home buyer to qualify.
- Single family and multi-family homes can qualify.
- You can receive a credit from the seller to help pay closing costs.
- Flexible income requirements.
- Flexible credit requirements.
- No asset requirements.
- Low monthly mortgage insurance.
USDA provides a list of counties and zip codes in which USDA financing can be used. Buyers are typically surprised to see specific neighborhoods on the list as many are not as rural as assumed. To look up eligibility for CT and nearby areas, visit our USDA loan page.
Qualifying for USDA mortgages
USDA criteria is similar to FHA loan criteria. Buyers should have stable income, sufficient credit, and the ability to repay the home loan CT. There are income restrictions which vary by state, county, and the total number of people in the household. Speak with a USDA loan expert about processing time frames to ensure that you allow adequate time before closing.
Find an experienced local mortgage company that not only provides USDA loans, but also closes many of them. Not all mortgage lenders who do these types of loans are experts at doing them. Get a pre-approval first and know your options and loan requirements prior to making an offer on a home. Not getting pre-approved first can lead to complications and even a denial of financing. Contact First World Mortgage, a CT Mortgage Lender, by calling 860-236-LOAN.
Veterans have the option of obtaining VA home loans granted by individual lenders but guaranteed by the federal government. The guarantee protects lenders against loss up to a certain amount should a homeowner go into foreclosure. Because of this guarantee, mortgage companies can give veterans features not readily found in other programs. The following is an introduction to the benefits of VA home loans.
Benefits Of VA Home Loans In Connecticut
The best features of VA home loans are the options for no money down and no mortgage insurance. Buyers can finance the full price of a home being purchased, if the appraisal supports the price. VA financing also enables veterans to buy a home by eliminating the added cost of mortgage insurance, which is normally included in mortgages with less than twenty percent down. Other important benefits are:
- 100% financing.
- No monthly mortgage insurance.
- Similar closing costs to other types of loans.
- VA loans are assumable.
- No penalty for paying the mortgage off early.
- Ability to finance or lower the VA funding fee for the mortgage.
Obtaining VA Home Loans
To qualify for a VA mortgage, buyers must first get their certificate of eligibility from the VA. To obtain the certificate, veterans must meet some requirements. The first set pertains to their actual service – when time was served, nature of service, and length of time served. The second set involves the normal credit score and financial analysis by lenders. Veterans can contact their regional office to obtain their certification of eligibility, which can take weeks. Or, First World Mortgage can obtain it in as little as 48 hours with the veteran’s DD Form 214.
With a pre-approval completed, buyers may then start viewing homes within their price range. Once a home is found, an offer can be made subject to approval for VA financing. With an accepted offer, veterans can then submit an actual application and lock in a rate. Once the loan is approved, a closing can take place. After closing, information is sent to the VA. Veterans are only allowed one active VA loan at a time.
This article is merely a brief overview of the benefits of VA home loans in Connecticut. For more details on this type of loan, contact First World Mortgage Corp. via phone at 860-236-LOAN.