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.