The Critical First Step in Buying a House

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You may be shopping for a house but did you remember to shop for a mortgage? According to the Consumer Financial Protection Bureau, “nearly half of borrowers do not shop for a mortgage…”¹ As a result, these borrowers got either a higher rate or paid more in closing costs. This is why we recommend shopping for a mortgage before you start looking for a house. Finding the right mortgage can be complicated. As with any other major purchase, you’ll want to shop around before making a decision. Choosing the right mortgage begins with choosing the right lending company and asking the right questions. However, what do you need to know to start shopping for a bank, mortgage broker or lender?

Here at Candor Mortgage, we’re here to help you discover what loan is best for you by asking the right kinds of questions, listening to your needs, understanding your goals and giving you the best advice. While other companies practice pushy sales, we practice candor. It probably helps that we designed our mortgages with competitive pricing, costing less and requiring less paperwork. We are confident Candor Mortgage is the best home loan broker, we’re telling you not only how to shop but how to get the best mortgage anywhere.

What Are Your Needs?

The first step is to sit down, assess your spending and make a budget for the new house payment. Then ask these questions: What are my needs? How much do I want to spend on a new home? How much do I have saved for a down payment and closing costs? Is this the right time to buy? Am I looking to buy a home for long-term investment purposes, or will this become my primary residence? If you are buying with someone else, talk it over. These and similar questions will help you develop a better understanding of what direction you want to go in. With these questions in mind, you’ll be better prepared to purchase a mortgage that’s right for you.

When you work with Candor Mortgage, you won’t be forced to answer these questions alone. Through our unique approval process, we’ll help you step-by-step in explaining these and other vital matters.

Do you know your credit score?

After you assess your needs, it’s time to check your credit. There are three major credit reporting companies: Equifax, Experian, and TransUnion. You may get a free credit report from all three companies at www.annualcreditreport.com. It’s an excellent place to start if you haven’t looked at your credit in awhile. You may use these reports to check for errors carefully. If you want to know your actual credit scores or FICO scores, you will have to pay. If you do check your scores, you will want to check all three scores. Your scores will likely differ between the three credit bureaus. For lending purposes, most lenders will use the middle score.

Instead of going at it alone, we can help you obtain your credit report with all three credit scores. Then we will review it with you checking for any errors or misreporting. We can even help you make corrections which will often improve your FICO scores. Credit scores range from 300 to 850. It’s important to know your credit score because the interest rates you will be offered will depend on your credit score. Borrowers with a credit score above 740, typically get the best interest rate options. Want to know your credit score?

How much money do I need for a down payment?

One of the most significant costs to weigh when shopping for a mortgage is the down payment. This principal payment is typically referred to as having to be 20%, but this is not true. A down payment can range from 3% to 20% or more. While a lower down payment may come with higher interest rates, this is not always the case. Loan options like those offered by the FHA or VA provide home buyers with a flexible way of buying a home. There are also affordable home financing programs like Fannie Mae’s HomeReady, which we feel is a better option than FHA loans for creditworthy borrowers. Here at Candor Mortgage, we are constantly on the lookout for the best ways to save you money.

If you are able, it is also important to note that it can pay off to put more than 20% down, not only to lower your interest rate as previously mentioned but also to signal to lenders that you’re more than capable of paying back the mortgage loan. Further, most sellers prefer a higher down payment. Don’t forget to budget for closing costs as well when figuring out your down payment amount. Our verified pre-approval will help determine what amount your down payment should be and where in your finances it should come from.

How can I get the best or lowest interest rate?

Another and significant factor when shopping for a mortgage will be interest rates. You’ll have to think about interest rates not only when deciding what loan schedule is best for you, but also when it comes time to consider other aspects of your mortgage, such as how much to pay as a down payment. While the market dictates the overall trend for interest rates (go up and down), this is what you can do to get the best rate options.

The first factor needed is for your credit score to be above 740. Having your credit checked early in the buying process is our top recommendation. At Candor Mortgage, we often help buyers improve their credit scores by reaching out to the three bureaus to correct any false information. The second factor that will enhance your mortgage pricing is putting more money down or qualifying for an affordable mortgage product. Putting more money down makes your mortgage less risky, and lenders often reward you by giving you a better rate. An affordable mortgage like Fannie Mae’s HomeReady usually has a better interest rate and lower private mortgage insurance, both of which will give you a lower mortgage payment. The third factor is choosing the right mortgage lending company.

There are three types of mortgage companies: 1) banks or credit unions, 2) lender or direct lender, 3) mortgage brokers. As we discussed in a previous article, traditional banks and credit unions tend to be much slower and have higher rates and costs. The person you talk to at the bank often is not the one working on your mortgage. Banks make money by charging fees and higher interest rates. Lenders and direct lenders, the second type, have one or multiple lines of credit they use to fund loans. The additional overhead and cost to operate as a direct lender are usually passed on to you. Just like banks, the person who enrolls you is often not the same person who is working on your loan. Direct lenders make money by charging higher rates, origination and lender fees. This type of company does not need to disclose certain fees and can make a big profit on the interest rate they give you. Therefore, it’s safe to say, most direct lenders will have higher rate pricing and costs. The third option is independent mortgage brokers. A mortgage broker like Candor Mortgage has access to multiple wholesale lenders without any of the overhead. Uniquely to us, we use web software to compare multiple wholesale lenders’ pricing. We use cost-saving technology to run efficiently, and this allows us to pass along any savings to you. The person with whom you speak is the same person working directly on your mortgage.

One more thing, if you are working with a real estate professional like a Realtor, there is a good chance they’ll recommend that you use their in-house or preferred lender. An in-house lender may or may not have an ownership affiliation. In the end, you may choose to work with the company who is not only giving the best mortgage but more importantly who you feel has your back. At Candor Mortgage, we’re committed to providing accurate and transparent rate quotes that are helpful for you. Our rate quotes include all associated fees and costs. You’ll never run into any ‘bait-and-switch’ tactics with us.

How much will I pay in closing costs? What fees will I pay? 

Finding a way to lower your interest rates can certainly be beneficial, but it’s not the only way of saving money. Closing costs refer to the various fees that come with your mortgage, on top of its selling price. In California, the seller chooses the title and escrow company which will determine the majority of the loan fees. Some of these fees may include lender fees, appraisal fees, title insurance fees, owner’s title insurance fee, escrow settlement fees, and homeowner’s association fees, among others. These costs can quickly add up. Choosing the right mortgage company that will not only close your loan fast but also gives you the most value is crucial. Our pre-qualification and verified pre-approval processes will be upfront with you about what closing costs to expect so that you can adequately prepare.

Loan Term and Mortgage Programs

The schedule by which you pay back your mortgage loan will vary depending on whether you opt for a fixed-rate mortgage or an adjustable rate mortgage, or ARM. Fixed-rate mortgages are typically offered in either 15-year or 30-year arrangements. These options will provide some stability and consistency to your debt payments, and may be best for you if you plan on staying in this home for the long-term. The more consistent, fixed-rate mortgage options do tend to come with higher interest rates than do ARMs. An ARM will start at a fixed rate (usually for a period of 5 or 10 years) and then transition to an adjustable rate, based on market fluctuations. A unique type of ARM is a 5/5 ARM. It has a 30-year term with a fixed interest rate for the first 60 months. It adjusts in year six and every five years after that. Therefore, you can expect adjustments in years 6, 11, 16, 21 and 26. Therefore, this may be a more stable adjustable mortgage option. If you know you will be moving in 5 years; an adjustable rate mortgage may be a good fit. Candor Mortgage’s knowledge-based approach to helping you shop for a mortgage can help separate fact from fiction about different loan options and determine what’s best for you. For more clarification, check out our guide to navigating common myths about buying a home.

Overall, when shopping for a mortgage, it’s of the utmost importance you choose the mortgage company that not only will give you the best mortgage but deliver on your loan closing. By choosing the right company, you will be able to move forward to buying a house with confidence. At Candor Mortgage, we’re committed to helping you find a mortgage and a home that’s best for you. Our expert team will work with you every step of the way.

Sources:

  1. http://files.consumerfinance.gov/f/201501_cfpb_consumers-mortgage-shopping-experience.pdf

Buying a Home: A Step-by-Step Guide

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October 15, 2018 by Matthew Anticoli

Buying the perfect home for you can be daunting, with many steps requiring a lot of time and effort. These 10 steps can help make the home buying process more manageable, allowing you to move forward with confidence.

Step 1: What Can You Afford?

Before deciding to buy a home, it is essential to get a sense of how much you can afford. Look at your current debts, income, and expenses. How much money do you have coming in vs. going out? Additionally, what kind of money do you have saved already? Don’t try to figure this out on your own. Talk to an independent mortgage advisor who can help you figure out exactly how much you can afford. Once you have a strong understanding of your personal financial situation, you have taken the first step to buy your next home.

Step 2: What is Your Credit Score?

Next, it’s time to check your credit score. Knowing your credit score will help you narrow down how much you will be able to borrow, and thus how much you can afford. If your score is above 680, you’re likely to receive financing pretty easily. If you find that your score is 580 and above, you can still qualify, primarily through special loan options such as FHA loans. With a score lower than 579, you’ll have more difficulty receiving financing, and at best will receive a loan with less favourable loan terms. This is why it is crucial to have an independent mortgage advisor check your credit score before moving forward with buying a home. Checking your credit score early in the home-buying process also gives you a chance to fix any errors that may be present on your credit report, which typically has the effect of boosting your score.

Step 3: Getting the Right Pre-Approval

As you move forward with your decision to buy a home, you’ll need to begin planning how to afford this purchase. Here’s where your lender comes into play. During pre-approval, your lender will take a comprehensive look at your financial and credit documents to assess your eligibility for a mortgage loan. At the end of pre-approval, you’ll receive a pre-approval letter or PAL. You may use your PAL to start making offers. Having a PAL signals to sellers and listing agents that you are a buyer that means business!

A pre-approval is crucial and the quality of your PAL can vary depending on who you go to, whether it be a lender, a bank, or a broker. Some lending institutions will take your word for your income and assets without verifying your capacity to buy. Here at Candor Mortgage, our pre-approval is much more robust. One of our experienced mortgage advisors will verify your capacity to buy a house by reviewing your income, credit, and financials. 

Step 4: Building a Team

Now that you’ve prepared yourself to buy a home, it’s time to take the next step and bring in some help from the outside. To make your home buying experience as simple as possible, we recommend seeking the help of both a real estate agent and a lending institution.

For financing, you may choose from a bank or credit union, lender or direct lender, or an independent mortgage broker. Interest rates, closing costs, and service fees will vary from institution to institution. Your realtor may recommend their preferred lender, but you have a right to choose the lending company that is right for you.

If you need help finding a real estate agent, we’re here for you!  At Candor Mortgage we work with a well-vetted team of high-quality real estate professionals. We can help match you with a real estate agent that is right for you and your needs. You are never under any obligation to use our recommendation.

A real estate agent is not only a great source of information but also a useful strategic tool. A good real estate agent can help you save money negotiating a home’s price down. Your agent will help you make firm offers and ultimately help you get into your ideal home. The best part is, you do not pay for your agent’s help, the seller does.

Step 5: What Do You Want in a Home?

A fundamental question to ask yourself is “What kind of home am I looking for?” Do you want to live in a large home or would you prefer something smaller? Would you like your home to be close to schools, libraries, hospitals, and other essential services? Do you want someplace in or close to a major city? Questions such as these are hugely important and should be something you think about throughout the home purchase process. Your real estate agent and broker should be able to help you figure out what it is you truly want out of buying a home.

Step 6: Finding a Home

After your mortgage application has been processed and approved, you should have a better idea of what you can and cannot afford. With this knowledge, you’ll be better equipped to start looking for specific homes. If you haven’t already, check out online listings for homes in a few desired areas of yours. When house hunting, it’s best to have a few options in mind already. It’s recommended that you make a shortlist of about 5 homes; this way you’ll have a few backup options if your first choice of a house doesn’t work out. Your real estate agent should be able to help you navigate the housing market and find a home that’s right for you.

Step 7: Making Your Offer

Once you’ve decided on your number 1 choice of home, it’s time to make an offer to the seller. Your real estate agent will help you during this stage. With your real estate agent, draft an offer letter including your offer price and a deadline for the seller to respond by. Your real estate agent will determine a fair offer price based on the values of other homes in the area and on the condition of the house itself. After your initial offer, the seller will likely want to negotiate the terms of the proposal. Your real estate agent will be especially useful during this time in negotiating terms that are favorable to you.

After negotiating and settling on the terms of your offer, you and the seller will sign a purchase agreement. This will finalize the terms of your home purchase and enter you into a binding contract with the homeowner. Afterward, you will send the purchase agreement to your lender for their final approval.

Step 8: Applying for a Mortgage

Once your offer is accepted, and your agent has negotiated terms, it’s time to seek financing. You may use the services of the same company who procured your pre-approval or you may apply for a mortgage with a new lender. Applying for a mortgage, like seeking pre-approval, requires you to disclose a large amount of information. A lender will want to learn about your employment history, asset portfolio, source(s) of income, and current debts. Different lenders will ask for different information, but luckily at this stage, you should already have much of your financial information on hand and ready to send over. Once you apply, your application will progress through a series of steps, known as processing, underwriting, and closing. As your request is passed along, you may be asked to send along other documents that may have been missing. It’s crucial to send items in quickly to not slow down your home buying process overall.

Most buyers do not shop for a mortgage when buying a house. This is your last chance to shop rates and costs.

Step 9: Inspection and Appraisal

Once you’ve selected a home and entered into an agreement with the seller, you will need to order two appointments: a home inspection and a home appraisal.

A home inspection will help you determine if there are any aspects of the home in need or great repairs or otherwise deserving of your concern. It’s probably a good idea to hire a home inspector, rather than just inspecting the home for yourself. The home inspection may be one of the last times you walk through the house until after the home is yours. Take this time to begin pre-planning for how you’d like to organize your new home.

The appraisal is equally as critical as the inspection, if not more so. Your mortgage company will order a home appraiser and schedule a time for them to come and appraise the home. This will help determine a more accurate value for the home.

Step 10: Closing, Welcome Home

After inspection and appraisal, you’ll be mostly waiting for the final approval from the lender. Once this comes, your lender will specify a day for closing. At closing, all parties – you, the seller, your real estate agent, and any attorneys involved – sign final documents and make arrangements to cover down payment costs. This step also consists of the official, legal transfer of keys (and property) from the seller to the buyer.

Congratulations! You’ve completed the home buying process. Here at Candor Mortgage, we’re committed to making the home purchase process as simple as possible. With this 10-step guide, you’ll be in a new home in no time!

8 Home Buyer Myths About Buying a House

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Buying a home can be incredibly stressful. A little anxiety is normal; buying a house is one of your most significant investments. Fortunately, much of the worrying around buying a home is based on myth and misconception. With this helpful guide we’ve prepared for you, you’ll learn how to separate fact from fiction.

Myth 1: I Need to Save 20% for the Down-Payment to Buy a Home!

When people talk about making their down payment, they often mention something known as “the 20% rule.” The 20% rule refers to the belief that a 20% down payment is ideal or even necessary when closing on a home. If you, like many others, think this is the case, you may be worried about how to afford a 20% down payment. Fortunately for you, the 20% rule is a myth!  For conventional loans, down payments can range from 3% to 20% or more. So if 20% is too high, you can choose to pay any amount between 3% and 19%.

There are benefits to putting more money down. Most lenders will give you a lower interest rate because the more you put down, the lower the risk to the lender. There are some loan options with down payments less than 3%, and some even with 0%. You may be better off with a lower down payment versus paying rent. Talk to a mortgage adviser today to learn more.

Myth 2: I Can’t Buy a House With Student Loan and Other Debt!

If you’re looking for a mortgage or wanting to buy a home, and you have a fair amount of debt, you may be worried about whether or not you’ll qualify for financing. Don’t fret! There’s no need to worry about not getting financing simply because you currently have debt or are paying off student loans. Although there is such a thing as ‘too much’ debt, what matters when applying for a mortgage is your ability to pay your new home loan and other debts. A lender’s underwriter will look at your debt-to-income ratio (DTI), or how punctual and consistent you are with paying off your debts. Your DTI is calculated by dividing your monthly amount due by your monthly income. If this ratio is above 45%, you may run into some difficulty getting a loan with favorable terms, but improving your DTI can be fairly simple. If you do find yourself with a DTI above 45%, try to pay any outstanding payments, cut costs where you can, or search for additional sources of temporary income.

Myth 3: My Credit Score is Way Too Low! I’ll Never Qualify.

Your credit score matters, especially when looking to get a mortgage. While it is essential for some programs, it does not mean it is the defining factor of your mortgage application.  If you are concerned that your credit score is too low, you should start by checking it and checking it early.  It’s especially important to know your credit score before making an offer.  By checking it soon, it will give you and your mortgage adviser time to fix any defects.

A low score does not automatically disqualify you from receiving financing. There are many loan programs through government agencies, such as the FHA or VA, that have lower credit score requirements than conventional loans. These programs are designed with the needs of first-time or low-income homebuyers in mind, and as such have more lax requirements.

Some easy ways to optimize your score include correcting any errors on your credit report, paying your bills on time, and avoiding any new lines of credit (car loans, new credit cards, etc.)  It is highly recommended you work with an experienced mortgage adviser to avoid any potential issues.

Myth 4: If I Need a Realtor, My Best Bet is To Ask Friends and Family For a Referral

As with most things, it feels natural to ask our friends and family for their input on important decisions. When looking for a realtor, however, this is not necessarily the best choice. While recommendations from friends and family may be a starting point, you’ll want to base your selection of a realtor on more than someone’s opinion. When looking for a realtor, it’s important to consider a potential realtor both as a person and as a professional. As a person, your realtor should be someone you trust, with a personality that makes you feel comfortable. As a professional, they should not only be well-organized and practice professionalism but also provide insight to help you buy the home you want. You’ll need someone who has an understanding of the local housing market and knowledge about the kind(s) of homes you are considering.

We recommend reading online reviews as part of your realtor selection process.  Another option may be to speak to some past clients.  Most realtors will be happy to oblige if you ask, it shows you are a serious buyer.  Take a look at past closings, do any match the type of home you are looking for?  

If you need some recommendations, we would be happy to help. There is never any obligation to work with a realtor that we or anyone may recommend.  Pick the person who earns your confidence.  Save some time and energy by considering a realtor vetted by us.

Myth 5: If I Don’t Use a Realtor, I Will Save Money!

Many people shy away from getting a realtor for fear that having one is too expensive, thinking that they’re better off not getting one and should save their money. What most borrowers or buyers don’t realize, however, is that they typically don’t even need to pay for a realtor’s services – the seller does. The seller usually pays a realtor’s commission.  So as the buyer, you spend the same amount for the house regardless of whether or not the realtor is there. Additionally, having a realtor could even save you money if they help you negotiate a lower price with the seller. Furthermore, a good realtor will help you with making offers that benefit you.  

Myth 6: An ARM Sounds Too Risky. 30-Year Fixed is the Best Option For Me!

If you’re looking to buy a home, you’ve likely heard of two common mortgage options: 15-year and 30-year fixed-rate mortgages. While these are the most popular and typical choice, fixed-rate loans aren’t the only or even the best option. The best choice is choosing the mortgage that will fit your needs.

Whereas a 30-year mortgage loan has one fixed interest rate throughout its lifetime, an ARM starts at a fixed rate, switching to an adjustable rate after a specified amount of time. Fixed-rate mortgages can offer some sense of stability to your debt-paying life, but they also tend to come with higher interest rates. With an ARM, you could have a standard rate for 5 or 10 years and then switch to an even lower rate, if market conditions permit. Most ARMs are 5 or 10 years fixed; once your rate becomes adjustable, it will adjust itself a certain number of times annually (usually just once) within a set range. While an ARM comes with drawbacks of its own, in many cases it’s the better choice than a 30-year fixed-rate mortgage.  An ARM is usually a good choice if you plan on moving in the next 5 years.  

Myth 7: Buying a Home Is Too Expensive. I Should Rent Instead!

When considering whether to rent or buy a home, renting may seem like the cheaper option. Although rental payments may feel more manageable than monthly mortgage payments, this is not always the case; it also doesn’t mean renting a home is cheaper overall. It’s helpful to think of renting as a short-term option, and buying a home as more of a longer-term investment. Renting isn’t always cheaper, and over time it can become more expensive than buying a home, especially if one considers the opportunities for a return on one’s investment. As always, renting and buying each have their own pros and cons, and one option will not be the best for everyone.

Myth 8: I’ve Saved Up Enough Money to Cover My Down-Payment and That’s All I Need To Do!

There are a variety of costs that come with purchasing a home, and a down payment is one of them. If you’ve saved money to cover this important cost, that’s great! You should be aware of the other costs of buying a home, some of which may vary depending on the lender you select. In addition to your down payment, you should be prepared to pay for lender’s fees, title and escrow fees, and pre-paid fees.  Most lenders have an underwriting fee which can vary from lender to broker to bank.

these hard costs: appraisal, escrow settlement fees, lender title fees, and lender’s underwriting fee.  homeowner’s insurance.  Depending on the type of loan you choose or qualify for, you may also pay HOA. You will also pay homeowner’s insurance fees, HOA fees if applicable, as well as any utility fees (also known as utility adjustments) that the seller may ask of you. This is not intended to scare you! Although there are many different fees that can crop up throughout the course of purchasing a home, they can often be negotiated down and need not be a surprise if you manage your finances effectively. Continue saving as you have been. With money already set aside for your down payment, you’re off to a great start!

We’ve just run through some of the more common myths and misconceptions about buying a home. Although there are certainly more out there, the above guide should help to ease any unwarranted fears you may be having about purchasing a home. Here at Candor Mortgage, we’re committed to providing you with as stress-free a home-buying process as is possible.  Ready to get started?  Connect with us today! 

First-Time Homebuyers’ Faq

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If it’s your first time, buying a home can be a stressful experience; luckily, it doesn’t have to be.  At Candor Mortgage, our goal is to give you the information and support you need. Below are a few common questions and useful tips about being a first-time homebuyer in California.

1. Rent or Buy?

Many are hesitant to purchase a home, especially if it’s for the first time.  Millennials are especially unsure if buying a home is the right financial decision for them.  At the end of the day, it comes down to your financial situation and your particular needs. Owning a home can be a significant (and safe) long-term investment, but it’s not the kind of investment that will produce excellent returns in the short-term. Likewise, renting can be a great way to find someplace to live without the full commitment of buying a home, but may also end up being more expensive in the long-run. This is especially true if the cost of renting keeps increasing throughout California, specifically in higher-cost areas like Orange County.  Think about your own financial needs and goals to determine which option might be best for you. Want to weigh the pros and cons? Talk to an independent mortgage expert today.

2. Is My Credit Score too Low?

It’s fairly common to be worried about one’s credit score when looking to buy a home, as it does have an impact on how lenders determine your eligibility for a mortgage. As a general rule, a higher score (generally 725 and above) will yield more favorable loan terms, usually in the form of a better interest rate. If your score is in the ‘fair’ range (679-580), you are still likely to receive financing and may qualify for various federal programs, like FHA loans. If your score falls below 580 and sits closer to 300, you may be required to pay additional fees to receive financing or not be eligible for financing at all.  If you are worried about your score, try examining your financial situation for areas of improvement, such as paying off any outstanding debts. Get more credit tips. Talk to a credit expert today.

3. Will I Need a Real Estate Agent?

Working with a real estate agent can help take a heavy burden off the shoulders of any homebuyer, especially first-time homebuyers. A real estate agent can answer any questions, give recommendations on things like offer prices, and provide you with a better understanding of the local housing market. Typically the seller of the home is responsible for paying the real estate agent, so you won’t even have to pay for their helpful insight and expertise. Most real estate agents are found through referrals, but that’s not always the best method.  It’s essential to pick the right agent for you, someone who meets your needs. Is their personality a good fit? Do they specialize in the houses in your price range? Are they local? If you are buying in the city of Orange, for examaple, you will want an agent that is an expert on the local market.

Need to find the right real estate agent in your area?  We can help. There is no obligation to use our recommendation, but every agent we work with has been vetted by our team.  We work with agents that have a strong track record. Need help finding the right agent? We can help! Let’s talk.

4. What is Mortgage Pre-Approval?

Pre-approval is a great way to signal to both lenders and sellers that you’re a serious homebuyer. Pre-approval is a thorough process completed before even finding a home, and is a way for a potential lender to screen someone looking to take out a mortgage loan. At the end of the pre-approval process, you’ll receive a pre-approval letter, or PAL. This way, a lender will have a better sense of your ability to pay back any loans you may take out, and you’ll be able to easily show sellers and other lenders that you’re prepared for this financial decision. Pre-approval typically takes anywhere from 2 to 4 weeks with most banks, credit unions or lenders; during this time a lender will look at information such as your credit score, monthly expenses, employment history, and income history, among other things.

At Candor, we take our pre-approvals to the next level by verifying your income, assets, and credit.  Within 24 hours of providing your financials and mortgage application, we will complete your pre-approval.  With a Verified Pre-Approval, you are showing sellers and listing agents that you mean business. Get verified today to see how much home you can buy. 

5. What is a Down Payment?

A down payment is the sum of money you pay upfront to get a mortgage loan. This payment is a percentage of your new home’s full purchase price. Most lenders prefer a down payment of 20%, but a down payment can be either higher or lower than that. A down payment anywhere from 3 to 10% is usually ok.  A gift from a relative, fiancé or domestic partner is a valid down payment source for most mortgages today.

Additionally, loans that are backed by federal agencies, such as the FHA, VA, and USDA, tend to both be tailored to the needs of first-time homebuyers and come with low/no down payments. The lower your down payment is, however, the higher your interest rate will likely be.  Some buyers may also have to pay mortgage insurance with a down payment less than 20%.

6. How Can I Make this Process More Affordable?

As you’ve probably learned at this point, buying a home comes with a lot of different costs. Fortunately, there are a few ways in which one can purchase a home at an affordable price. One example is down payment assistance.  In addition to any local down payment assistance programs, there are some statewide programs in California like California Housing Finance Agency (CalHFA) and Golden State Finance Authority (GSFA). Grants for down payment assistance are offered to help homebuyers pay for all or part of a down payment.

In many cases, the homebuyer is not required to pay back the grant. There are specific eligibility requirements for such grants based on income and asset information, and one can learn more about them from federal agencies. Additionally, Fannie Mae and Freddie Mac offer a variety of programs to help mid-to-low income earners purchase a home, such as the HomePath Ready Buyer Program from Fannie Mae or Home Possible Mortgages from Freddie Mac.  The good news is there are many different programs available. See what you qualify for today.

7. Can I Still Purchase a Home With Student Loans?

The short answer is yes; it is possible to both qualify for a mortgage and buy a home if you also have student loan debt. It may be more challenging to do so, but it is possible. One thing to consider is the role that your debt-to-income ratio (DTI) plays in your eligibility for a mortgage.  Your DTI is the monthly income you earn divided by any debts, calculated as (monthly income)/(monthly debts). If your DTI is higher than, say, 45%, most lenders will be hesitant to offer you financing given the amount of debt you are currently managing. As a type of debt, student loans will factor into your DTI calculation, and so if you are shouldering a particularly heavy burden of debt, it may prove difficult for you to receive financing on a home. There are a variety of ways you can lower your DTI, from paying off what debts you can to cutting your expenses. Some lenders may also be willing to work with you in drafting a loan package that makes the most sense for you.

Purchasing a home for the first time is a daunting yet ultimately rewarding experience.  Choosing the right mortgage company and real estate agent is crucial to your success. This article merely scratches the surface of the possible concerns and questions that come up about this important financial decision, but it should provide you with an overview to get started on this exciting journey.

Talk to a mortgage expert today to get the information you need to confidently take the first step towards buying a home.