Is buying a home in your near future? If so, you will probably be asking to borrow $200,000, $300,000 or even $500,000. That’s a lot of cash!
Certain requirements come along with lending large sums of money. Here’s what you can do now to improve your chances of getting approved.
Buying a House?
Here’s Your “Must Do” List
1. Save money like a squirrel saving nuts for the winter. Stop buying $5 coffee drinks, another pair of shoes (when you already have pairs with no holes in the soles), clothes on sale, restaurant meals, and all those other seemingly small — but honestly — unnecessary items. The underwriter wants to see your bank balance increasing every month to show that you will be able to afford a house payment that’s more than your rent.
2. Say no to offers to open new credit. Getting a new credit card to save 10 percent on your purchase today will lower your credit score. It is not worth the savings! You want top tier credit so that you qualify for the lowest interest rate on your mortgage. It makes no sense to save $20 today and pay $1,000s more in interest on your house payment.
3. Be happy driving your old car. One of the biggest mistakes people make is adding an auto loan to their debt ratio. The proper way to prioritize is house first. Everything else is secondary and must wait until after you are in your new home.
THE SACRIFICE YOU MAKE TODAY WILL BE WORTH IT WHEN YOUR REALTOR HANDS YOU THE KEYS.
Do your friends a favor and pass on this information to them. As always, thank you for reading my posts.
Here’s why I think you should contact your Realtor and make an offer on a house now rather than wait for fall.
1) The Federal Reserve Board is expected to raise interest rates in September. This will make your monthly payment go up.
2) The bidding wars have ended. For example, here in Seattle where bidding fights were the norm, houses are now selling with only one full price offer coming in, not multiple bids.
3) Fewer buyers are out making offers in August. People are on vacation or out camping, and thinking they’ll look in the fall. Less buyer competition is good for you.
Be encouraged! Get out there and get your own home now before rates go higher. Perfect credit not required!
If you are in California or Washington, I am licensed (NMLS 1284134) in those two states and happy to help you. I am getting good folks with credit challenges approved! You can apply online here.
Assume you rent an apartment and drive an old car, and you would like to upgrade your life style.
Question #1: If you have to choose between buying a house or a truck, which do you choose?
Question #2: Assuming you can afford to buy both a house and a truck, which one do you buy first?
Before we look at the answers…
A True Story: A young gentleman finished his credit repair work and raised his credit score to 640. This qualified him for the FHA Elite loan for home buyers.
He felt great! He was excited.
So he ran straight to the auto dealership and bought himself a brand new 2018 Chevy Tahoe. (MSRP $47,500)
Then he drove home and called his mortgage loan officer. “I’d like to get approved to buy my first home,” he announced.
So the loan officer took the application and ordered his credit report–and bam!–he got declined.
“Why?” he asked, totally stunned.
His new truck purchase dropped his score from 640 to 565. Too low for any of the first-time home buyer programs! Too low for the FHA 3.5% down payment program!
Not only that, but with a hefty new payment, he no longer qualified for the purchase price he needed anyway.
Maybe the Tahoe is so luxurious, he’ll be happy living in it. (Bad joke, sorry.)
Let’s See How You Did on the Quiz
Answer #1: Buy the house. Real estate is going up in value. You can increase your personal wealth by owning a home. A vehicle goes down in value the moment it become “used.”
Answer #2: Buy the house first, always, even if your credit score is 800. A higher score and a lower debt ratio will qualify you for better, cheaper financing.
The house is more important than the truck. Buy your most important item first (not the easiest to get).
I welcome your comments. Thank you for sharing this with others and on social media. Too many people are shooting themselves in the financial foot by purchasing a vehicle before the home.
“Buy low, sell high.” We’ve all heard that stock market advice. So how does it apply to buying a home?
During the holidays, fewer home buyers are out there looking. People set aside this time for shopping, parties, travel, and celebration with family. They postpone their dream of becoming a home owner until after the New Year. Thus, December is the perfect time for YOU to make an offer on a home.
With less competition, you have a better chance of getting a Purchase Agreement at the seller’s best price.
My advice is to go for the home purchase now. You can set your closing date after Christmas when it is a convenient time for you to move.
First step: Get pre-approved for financing and obtain your pre-approval letter.
Second step: Contact your local real estate agent for help in locating a home and presenting the offer.
Best wishes and Merry Christmas!
According to a new study, 1 in 4 U.S. adults would like to buy
a house this year. Perhaps you or someone you know is among them, but having sufficient income is a concern. Here are some facts and tips that I hope will help.
Little Known Facts About Income Qualification for a Home Loan
1) With compensating factors, you can be approved for a higher debt-to-income ratio than what is posted.
Don’t get me wrong: I am not suggesting that anyone take on a mortgage payment they cannot afford. Nor am I suggesting that you become a slave to a mortgage. But you should know that the strict 41% or 43% debt ratio requirement is broken every day. With compensating factors, borrowers are getting approved for up to 49.9%. (This makes sense if there is a non-borrowing spouse who contributes income or if there is a secondary income that cannot be counted, because in reality, the debt ratio is much more reasonable.)
2) If you recently got a pay raise, you will qualify based on your new higher income, not last year’s W2.
Similarly, if you are offered a promotion, even if it is with another company, you are always free to take that (and switch companies if required) and still get pre-approved. That said, do not switch jobs in the middle of your loan process without first speaking with your loan officer.
3) You can have a co-signer to help qualify; just be aware that the co-signer must have credit equal to or better than yours and the co-signer will be on title as a co-owner.
4) If your auto loan has less than 10 months remaining, that payment will not be included. (Remind your loan officer in case he or she doesn’t notice this.)
Some Things to Be Aware Of
5) If you take a second, part-time job, you will need to be working at that part-time job for two years in order to include that income on your loan application.
6) If you pay off your credit cards in full each month (as you should), then the minimum payment required will be used for calculating your debt ratio.
7) If you are self-employed, do not take so many deductions that your Adjusted Gross Income does not qualify for the home loan you want. You cannot tell the IRS you make $40,000 and tell your mortgage lender you make $90,000. That is not how it works! You can’t have it both ways.
8) If your income has declined, the lender uses your new lower income, not the average income.
9) You cannot count the following as income: inheritance, gifts, winnings, gambling income, IRS refunds, or any other one-time, non-recurring income. However, you can use that money toward a down payment.
Don’t Give Up Your Dream!
If you want to become a home owner, don’t be like one person who said to me, “If I don’t get approved now, I’m going to spend all my money on a vacation.”
Instead, be like the person who said, “If I don’t get approved now, I’m going to do what it takes in order to get approved next time. Let me know what I need to do.”
Tips For Approval
10) Pay down your credit cards and then going forward, keep those balances low.
11) Go on a spending diet! Sacrifice now for a home, and you will build wealth in the long run. A good way to control spending is to stay off the buying websites and out of the stores. In other words, remove the temptation.
12) Fix the old car, don’t take on a new auto payment. Many people have been sad to learn that their auto payment prevents them from home ownership. Listen friend: a vehicle goes down in value while real estate goes up in value. Be smart and save your money for your piece of The American Dream and then you will increase your wealth through home ownership.
Thank you for reading my blog. Please feel free to share it on social media for others who could benefit from this information.
The best time to get a map is before you walk into the forest. Likewise, the best time to get your mortgage map is before you go shopping for a house. If you work the system backwards, you are setting yourself up for possible disaster.
Here is a simple checklist for home buyers:
Notice that you take care of the financing first, then the house shopping second.
1. Choose a lender by asking for a cost estimate worksheet.
This is your very first step. Not, go house hunting. Not, get pre-approved. And certainly not, make an offer! Why? Because, you don’t want to shop for houses that you are not qualified to buy, so you take care of your financing first. And, you don’t want multiple lenders pulling your credit report, so you choose your lender first. The way to choose a lender is to review the estimate worksheet and speak with the loan officer to ascertain how they answer your questions. (What to ask a loan officer is a topic for my next blog post.)
2. Get pre-approved for financing.
Now that you have your trusted loan officer, you are ready to have your credit report checked, provide your financial documents, and receive your official pre-approval letter.
3. Choose a Realtor.
I recommend working with a certified Realtor rather than a real estate agent, because a certified Realtor has gone through extra training and is held to a higher standard of ethics and work practices.
4. Go house hunting and make your offer.
Your Realtor will guide you through the offer and negotiations. Your loan officer will guide you through the financing.
Thank you for stopping by my blog. Feel free to share this simple list via social media and with others who are thinking of buying a home. You would not believe the horror stories I’ve heard from people who have run headfirst into disaster by signing purchase contracts before they had their financing approved. I hope to save more people from that situation!
Do you know someone who would love to stop renting and buy their own home? A new study says 79% of Millenials want to buy a house. This study, by Bloomberg, goes on to tell them they can’t save fast enough for a down payment. I am here to tell you that I disagree! Why?
Bloomberg’s chart shows how many years it takes to save 20 percent down.
But who says you have to make a large down payment? It is not required.
Here are tips for buying a house when you can’t save fast enough for Bloomberg.
- If your credit score is 720+, take a 3% down conventional loan.
- If your credit score is 580 – 719, take a 3.5% down FHA loan.
- If your family is able to give you gift money for a down payment, you’re ready to go.
- If you are a U.S. Veteran, you may qualify for zero down.
- Use one of the many down payment assistant programs offered by your state. For example, I have a program in WA that will cover your down payment plus kick in a little for closing costs. You can earn up to $97,000/year to qualify. When you sell the house (or refinance), you pay back the down payment out of the proceeds. This is an interest-free loan to help more people enjoy home ownership.
If home values continue to increase next year as fast (or nearly as fast) as they did in 2015, you are better off buying now than waiting until you can save for a larger down payment.
Also consider that home owners receive the best and biggest tax deduction available. Typically, a home owner can deduct the interest portion of their payment plus property taxes. This lowers their tax bracket, potentially saving significant taxes. (Speak with your CPA for tax advice.)
If credit score is your barrier, then pick up a copy of Repair Your Credit Like the Pros here and get to work. Earlier today, I heard from a lovely young woman in Ohio who followed the book’s directions and is now applying for a home loan. Yes, credit repair works! But you must do it properly, like the credit attorneys and certified credit professionals.
What barrier is keeping you from the American Dream? Post a comment (see top of this article) or send me an email here. I promise to reply.
How much have home values increased in the past year? Has real estate been a good investment?
If you are in Colorado, your home value has increased by 12.28% (on average).
If you purchased a $400,000 home with 5 percent down, your $20,000 investment has grown to an equity of $49,120. You have more than doubled your money in only one year! (Not cash in hand, but by wealth in real estate.)
$400,000 x 12.28% = $449,120 value
The Federal Housing Finance Agency has released this annual appreciate by state for 2015:
No one can predict what 2016 will bring. The best reason to buy a home is simply because you want to own the space where you live and sleep. You want to stop paying your landlord’s mortgage and pay your own. You want the joy of home ownership! In the meantime, if owning real estate also increases your personal wealth, then that is great, too.
If you are a real estate agent who would like to be on my Recommended list, send me an email here.
If you’re buying a home in California or Washington state, I would love to provide you with excellent pricing, no junk fees, and stellar service.
If you plan to buy a house or refinance in the foreseeable future, this is important information. To avoid stress, grief, more paperwork, and a possible loan delay — or even a denial — don’t make these common mistakes.
Three Mistakes Home Buyers Make (Also applies to people refinancing)
- Don’t move money around!
This is not the time to transfer funds from one account to another. Keep your money where it is until after your loan closes. If you get angry at your bank and want nothing more than to say, “I’m outta here!” I don’t blame you a bit for feeling that way. But please, keep your patience and save that action for later. If you close one account and open another, you are in for a hassle in the underwriting department. Yes, you can still get your loan, but why set yourself up for more paperwork and letters of explanation? If a family member is giving you a gift toward the down payment, the same advice applies. Have them keep the funds in their own account until you receive instructions from your loan officer. Most lenders will ask the family member to wire funds directly to the closing agent at the time of signing.
- Don’t open new credit! Don’t buy a car!
No exceptions. Do not purchase new appliances or new furniture until after closing. Do not open a new credit card to get the instant discount. And whatever you do, don’t you dare buy a new automobile, truck, or SUV. Taking on any new debt could cause your loan approval to turn into a denial — even if you have signed the loan note and closing disclosures. Until your loan is officially funded and closed, the lender can still deny your loan.
- Don’t close out your good credit!
This is not the time to decide you have too much open credit and start shutting down your credit cards. Doing so could lower your credit score for two reasons. First, you can lose the positive points that the on-time credit card was awarding you. Second, you will be changing your percentage of total credit usage-to-available credit, and this has the potential of lowering your score. Even though the lender has already pulled your credit report and approved it, most lenders will do another soft pull right before closing. You don’t need to risk lowering your score and therefore risk your interest rate or approval.
Thank you for stopping by my blog. Feel free to subscribe. I post tips on mortgage and credit about once a week. If you have a topic you’d like to see, please email me here.
Three Advantages of Buying a Home in December
- Less competition means you are more likely to get a better price and less likely to lose out in a bidding war.
- Seller knows you are serious, because the looky-loos stay away when they’re otherwise occupied with shopping, decorating, and baking.
- Interest rates usually remain flat. As of today, the Feds have not issued the rate increase they have been speaking of.
You Don’t Have to Move During the Holidays
Just because you execute a Purchase & Sale Agreement now, it doesn’t mean you have to move during Christmas week. You can set your closing for January after your busy schedule has calmed down.
How Long Does It Take to Close a Loan Now?
As a Senior Loan Officer, I am closing loans in 30 days; but not all lenders are as fast. Many are asking for 45 days with the new TRID laws that require an extra three-day waiting period between providing the Closing Document for your review and your actual loan signing. Speak with your loan officer about how fast they are closing loans nowadays. If his or her answer sounds shaky or if they want longer than 45 days, it likely means they are having issues processing and I would seek another lender. If you want my recommendation for a loan officer who can close in 30 to 45 days, please see the state list below and then send me an email with the details via my Ask Carolyn Warren page.
States for which I can recommend a loan officer:
AL, AR, AZ, CA, CO, CT, DC, DE, FL, GA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MN, MO, MS, MT, NC, NS, NH, NJ, NM, NY, OH, OK, OR, PA, RI, SC, TN, TX, VA, WA, WI, WY.
Required Legal Disclosure:
I work for Envoy Mortgage, a full service mortgage company. NMLS # 1284134
State licensed in CA and WA