When you are deciding to purchase a home there are many important things to consider. You will read and hear about the importance of your credit score (FICO), funds for down payment, rates, etc. All of those are important and all of these areas should be considered and evaluated before choosing to get pre-approved but what I want to discuss is the importance of money in the bank.
You may be asking “what does that mean, money in the bank?”. It means that even if you know you will be looking into down payment assistance or maybe you are fortunate enough to have a family member gifting you funds for your purchase, you will still need money in the bank to purchase a home. If you are asking yourself why would it be needed if you are getting assistance, let me explain.
When you purchase a home, you are required to be able to provide a deposit when your contract is accepted (earnest money). Earnest money are funds that you need to have readily available in your bank account. These funds can’t come from any down payment assistance grant program. You can however get them in the form of a gift from a family member BUT be sure to explain to your lender well ahead of time during your pre-approval where the funds will be coming from and what is expected from the gifter! Regardless if the earnest money was from a gift, you are still going to be needing money in the bank because even though your earnest money does go towards your closing costs, it may not cover all of the closing costs. How much is earnest money? In this market you should look to expect anywhere from $2,000-5,000 minimum.
These funds need to be in your bank account PRIOR to getting pre-approved. Technically you can’t be pre-approved to purchase without them showing in your assets. Now, in all technicality let’s say you do get pre-approved prior to you showing these funds because you explained to your lender that these funds are coming in the form of a gift but they have not yet been deposited,the gifter was waiting until you find a house, or maybe you are waiting on your tax return refund. This is understandable and not uncommon so a lender may say ok, everything else is in line and you are pre-approved to go look for a house. Here is where you could be putting yourself in danger... now you found a house you want to make an offer, you put in your contract, it gets accepted, now you have to put forth your earnest money and you don’t have the funds in your bank. What do you do now? Your money needs to be in place regardless of how you are obtaining. If you don’t have a gifter for the funds and you don’t have the money in your bank for earnest money, what do you do? You shouldn’t have been pre-approved in the first place. Your are now putting your loan approval in jeopardy. You need to protect yourself and be ready before you start looking at houses!
Bottom line, regardless of what you have heard or maybe even read, if you are looking to purchase a home you need to have money in the bank. There is really no such thing as purchasing a home with zero down. Prepare yourself with having a MINIMUM of $3000-5000 in the bank before filling out a loan application, before running your credit and before sending in your financials to a lender.
To learn more and/or if you have any further questions, please contact us.
FHA 203k-What is it and how do you get one? Being one of the few local lenders in the Denver area that can provide a FHA 203k loan we have received quite a few calls lately looking into this loan option, so what is it?
An FHA 203k loan is a renovation loan. It allows you to add in the costs of renovation into your mortgage. It is not a second or a home equity line of credit (HELOC), it is in your first mortgage. There are two options, one is the full (standard) or the limited (previously known as streamline). The key difference between the two is determined by the cost of the renovation work as well as if you are doing any structural renovation (addition of rooms, removing of walls, etc.). If you have any structural work being done it is automatically a full 203k.
When doing a full FHA 203k you are required to hire a general contractor as well as you are required to have a HUD consultant. They are there for your protection. We like to refer to them as the “big brother” on the project. They will be making sure all proper permits are being pulled, all required work is being completed in a timely manner as well as inspecting the quality of work.
In order to qualify for a FHA 203k you need to qualify for an FHA loan, you can add as much work into a 203k as long as you are within FHA loan limits AND you qualify for the total mortgage amount with the renovation costs. Of course it is hard to know what the costs of renovation may be on a home so this can become a little tricky. The key is to make sure to discuss with your lender and know what your max purchase limit is for you, discuss the costs involved and the requirements for not only you but also the general contractor and HUD consultant if required.
These are really great loan loan options, they have helped many of our clients. You can also do a FHA 203k for a refinance. This is a great option because it allows many of us to put work into our home that we may not otherwise be able to fund. Many times home equity lines of credit can have much higher interest rates and also have stricter lending guidelines (credit score, reserves, etc.).
If you are interested in a FHA 203k or have any questions please give us a call.
Credit is crucial when looking to purchase a home! No beating around the bush, if you have a FICO score below 600, regardless of the numerous advertisements you may be hearing, you have a big chance of not qualifying for a home mortgage, or being over promised and under delivered. This could cost you thousands of dollars and your place to live. FHA allows for a 580 credit score BUT what you don’t read is that even though FHA allows there are very few investors/banks that will lend to you if your score is below 600. Even then, score alone doesn’t mean your loan will be approved.
If you find a lender who claims they can provide a loan with a lower FICO score, my suggestion would be to make sure you know what costs are involved and find out as much as you can upfront. Do your research about that lender to make sure they can follow through. You don’t want to be under the impression you qualify, and once you are under contract for a home be told you don’t qualify and/or in order to qualify you need to put more money down/raise your score.
This has been a very common complaint that have been brought to our attention when clients call us after becoming frustrated at false promises. It is concerning, to us, how many times this happens with other lenders. My best advice is to be patient. When you look to get pre-approved and the lender advises that you work on your credit, then you should work on your credit. Not get discouraged and try to find another lender who you think can get the job done. Most of us work under the same guidelines and will have the same advice. If they don’t, you need to proceed with caution. Most of the time when it sounds too good to be true, it is!
The first step you should take when purchasing a home and you know your credit is low, is take the time to fix and/or establish your credit (pay collections, pay down and/or off debt, establish good credit lines such as a secured credit card). Look to get your credit score at a minimum of 640 middle FICO score (NOT Credit Karma score). There is a reason their scores are free folks! When your middle FICO score is 640 it opens up more opportunities and loan programs. The second step is to have some money saved! Even with down payment assistance programs, they require you to have a minimum of $1000 OR 1% of the purchase price into the transaction, whichever is greater. That being said you will also need to be prepared for earnest money,(Typically between $1000-$5000). No down payment assistance program can help with these funds, since you need these funds when you write a contract to buy. Your earnest money will go towards the closing costs and will also cover any required amounts for a down payment assistance grant/program. Bear in mind these programs may only cover your down payment, meaning who is paying your closing costs? Food for thought. Be prepared, and save money.
Last but not least, don’t be discouraged, if you are determined to purchase a home, you will. If there is a will there is a way. If you are unsure where to begin and you have further questions please feel free to contact us, we are always eager to help.
FHA Loan Limits for 2016 have increased again for Colorado which only confirms that Colorado’s Real Estate market is continuing to improve causing housing prices to still be on the rise.
Now, this is good news but also has its drawbacks. With the increased limits it means our economy is doing well but on the drawback it means housing costs are increasing, making it more difficult to find affordable housing.
This will help those of us, who can afford a little higher purchase price BUT don’t necessarily have the highest credit scores and/or may not have 5-20% to put down. This means that FHA is a great option helping to avoid a non-conforming (Jumbo) loan, which do have more stringent guideline requirements (i.e. assets, credit score, down payment).
Check out the new loan limits here.
For more info please contact us and if you would like to see if you can qualify please click here.
Right now there are a lot of advertisements about refinancing your home and most are for good reason and usually geared around the Holidays. Now is the time when most of us our looking to free up some funds so we can have a little extra in our pockets to have for the Holidays. This is why lenders will choose to advertise about refinancing and it will continue just after the holidays because even if we didn't free up funds, we may want to look into ways to help payoff our recent increase in debt from the Holidays.
The main thing to consider when refinancing is making sure it makes sense for you. Taking into consideration the goal and purpose of refinancing then looking into the benefit and making sure it outweighs the cost. Even with the ads stating a "no cost refi" there is still a cost, remember you can't get something for nothing. And if it sounds too good to be true, it usually is. You just want to make sure you are working with an experienced, qualified, trustworthy and knowledgeable lender who is looking out for you.
The fortunate part is that recently we all know the market has improved so for those of us who have purchased in the last 6 years will have seen an increased market value of our property, even those whom have purchased in the last 6 months! Rates are still low and with the increased values it equates to an opportunity in leveraging our equity and refinancing in order to save money.
One thing to consider before refinancing is making sure your credit is in a good position. Having a lower FICO score can limit your loan options and could also cost you more (higher rates). Sometimes this may be unavoidable and refinancing may be a more immediate necessity and you may be unable to improve your FICO prior to refinancing, which is ok, you will just need to keep in mind that there is still a minimum FICO score requirement to qualify.
Here are a few good reasons to consider a refinance;
Again, refinancing may not make sense for you right now and is different for each person so the best way to find out if you should refinance is to call your lender for a mortgage review/analysis.
If you have any questions or would like to discuss further please contact us.
Down payment assistance grants, what are they really? Let’s get this out on the table because there seems to be some confusion and many misleading advertisements. Let me start with the top 5 misconceptions of down payment assistance grants.
1. They are NOT funds from the government- The down payment assistance comes in the form of a grant, meaning when you go to sell your home or refinance you are not required to pay these funds back. BUT these funds are not from a magic bank account that the government provided for those who need assistance. This accompanies a loan program, and are made available to those who qualify (income, credit & purchase price requirements), in order to help make homeownership more attainable.
2. They are NOT separate funds from your loan- The down payment assistance grants are not a separate check you receive for your down payment. The down payment assistance grant IS part of the loan program. They are 30 yr fixed mortgages, with an FHA, VA & Conventional mortgage. When qualifying you need to work with a lender who is approved for these loan programs and can offer them.Meaning, your lender has to offer down payment assistance grants, or you can’t get one.
3. They are NOT only available to first time home buyers- These programs are available to all who can qualify. Restrictions apply.
4. Interest rates are the same as someone who makes their down payment- The mortgages do have a higher interest rate because these loans are perceived as riskier to the bank.The bank is put at increased risk with someone who is unable to put money down and would require a higher rate to cover any risk of default. You could say it is the cost of doing business with a specialty loan program.
5. That they allow you to purchase with no money down- These programs may assist with your down payment but they do require that you put a minimum of $1000 of your own funds or 1% of the purchase price, whichever is greater. There are also closing costs when purchasing a home, which the $1000 requirement will help meet. But you need to understand that there are closing costs and pre-paid items for insurance and escrow setup costs. These items can average around 2-3% of the purchase price, so you need to be prepared to have some money! Money to cover the closing costs, of your earnest money (which gets put towards your closing costs), your home inspection (not required but highly recommended) and your appraisal. If you are able to get seller paid concessions, this can allow for a lower amount needed at closing.But keep in mind the real estate market will drive a seller’s willingness to assist with your closing costs. You can also work with a down payment assistance program that allows the lender to help offset closing costs by adjusting the rate,
I’m hoping this gives a little more clarity about down payment assistance grants but if you still have questions and would like to discuss please give us a call. If you would like to see if you qualify please apply now.
When you are looking to get pre-approved for a home mortgage lenders will analyze your debt to income ratios. This is why it is extremely important that lenders review your pay stubs, W2’s and tax returns. We want to make sure that all your income is being calculated correctly and we are using the actual figures for your income analysis.
The qualifying ratios will vary depending on the loan program and sometimes this can be the deciding factor on which loan you will need to obtain. For many of you this part of qualifying for a loan gets overlooked. You may tend to focus solely on your credit score and how this affects your qualifications. Yes, credit score is important but is only one piece in the puzzle. If you have your credit score down and it is in good standing this is great but don’t forget to consider that although you may have been making your payments on time or maybe you have successfully rebuilt your credit. Did you consider what debt you may have could affect your qualifications for a purchase or refinance?
As a consumer you can review your debt to income and analyze your qualifications. The general rule to debt-to-income ratios is this:
1. Add up all your incurring debt (all debt reflected on your credit report, student loans, car payments, loans, credit cards, personal loans, etc.) NOT phone bills, cell phones, cable.
2. Then add your desired monthly mortgage payment
3. With the total you will now divide this by your GROSS (before taxes) monthly income.
Car payment $400
Student Loan $300
Credit Cards $300
$1000 total monthly debt
$1800 Desired monthly mortgage payment (including taxes & insurance)
$1000 + 1800 = 2800
Gross monthly income $3500
$2800/3500 = .80
With this example the ratio is 80% this is too high and this is only one income. If you are looking to qualify with someone else you will need to do this same process but add in their monthly liabilities and their gross monthly income.
So what would be your options if your ratios are too high? It doesn’t necessarily mean you can’t purchase and/or refinance. There are a few options you can take to help put you in a position to qualify for a home mortgage.
Option one: Lower your monthly debt. This may seem impossible but if there is a will there is a way. You can refinance your student loans for a lower monthly payment, same as your car. You could pay off or down any existing debt.
Option two: If you are unable to lower any of your existing debt then the next option is to lower your desired monthly mortgage payment.
As a general rule of thumb, keep this in mind: FHA your qualifying debt to income ration can’t be higher than 43%, for Conventional your debt to income ration can’t be higher than 36%. Now these numbers may possibly have some flexibility which would be discussed and reviewed by your lender. Please note ideally you do not want to be over these numbers.
Another helpful tool to have would be a mortgage calculator which we have on our website, we also have a mobile app! Check it out and download here!
If you have any questions please contact us and if you are ready to get pre-approved click here.
If you have a judgment on your credit unfortunately you will not be able to get pre-approved for a home mortgage. A judgement needs to be satisfied and released before you can apply for a mortgage. If you are being told that this can be approved with an FHA mortgage you may have received false or inaccurate information.
When you have a judgement on your credit report this is a stopping point for any lender no matter what loan program. A judgement needs to be satisfied, which means it needs to be paid. After being paid it also needs to be released and you will need to file the release and obtain the release of judgement from the county of which is was filed under.
This is extremely important if you are wanting to purchase or refinance. This is one you can’t keep calling different lenders to see if they can help you, this has to be addressed and taken care of. In the long run you will be thankful in getting this satisfied because your credit score will significantly increase.
Listed below are a couple articles with some helpful tips on how to remove judgments on credit.
How to remove a paid judgement
How to remove a judgement on your credit report
If you have any further questions please feel free to give us a call.
Gathering your financials and sending them to a lender is part of the pre-approval process. You’re lender needs to see two months most recent bank statements. This would be primarily your savings and checking accounts but may also include stocks, 401k, IRA’s or any other assets you may have and will be using and/or needing to show. Copies of these statements tend to be the most difficult part of the process.
As I’ve previously written, a lender is not looking to see how many times you go to Starbucks or if you spend money at the medical dispensaries, they are looking for large deposits, insufficient funds, regular payments that don’t seem to align with liabilities on credit report, any seemingly suspicious activities. This is all because of the Patriot Act and anti-money laundering laws.
The other reasons for reviewing bank statements (assets) is to show you have the funds for down payment and closing costs. This may be why more bank accounts may be required (IRA, 401k, Stocks, etc).
If you are like the majority of us, you may have a couple different accounts and transfer funds to and from each other. If this is the case then you will need to provide statements from all accounts in which funds are being transferred.
The last piece of the statements is that you will need to provide ALL pages. This means that the bank statement needs to be the actual statement which will reflect your full name, address and account number (NO transactions summaries) and each statement will reflect the number of pages it includes (ex. 1 of 4) which means you need to send ALL four pages, even the blank or seemingly unimportant pages. I know this can seem silly and doesn’t make sense but an underwriter will require to have ALL pages.
Remember no cash deposits are accepted!! If you had a cash sale for something on Craigslist or Ebay, you will need to provide a proof of sale receipt, transfer of title (if applicable), copy of the ad and then copy of deposit slip. And even with all these documents proving the cash transaction it is still up to the underwriters discretion if they will accept. This is just something to keep in mind if you are planning on selling items to help with down payment and/or closing costs. If possible the best way is to have the cash funds “seasoned” in your account for a couple of months prior to getting pre-approved.
Just remember your lender is on your side and they are not prying or trying to inconvenience you, they are on your team and only doing their job and what is required of them. In order to help you, you need to help them!
If you have any questions please give us a call. If you are looking to get pre-approved fill out our preliminary loan application!
What is Home Buyer Education (HBE)?
It is an educational course that covers the complete process of buying a home and becoming a homeowner. The curriculum includes financial management, credit management, selecting a home, building your buying team (Realtor & lender), mortgage products and disclosures, real estate contract review, inspections, appraisals, closing and post closing information. They also cover Colorado specific programs including down payment assistance (CHAC, HOEP, CHFA). They will also discuss and teach about the mortgage credit certificate (MCC), a tax credit available to first time home buyers and veterans.
As a previous participant of the course I can say from experience they cover items you would never would have thought of, such as, ways to save money on your mortgage over the life of the loan, what to pay attention to regarding a neighborhood of interest, for example they suggest going to the property of interest at different times of the day and just sit outside to listen to the neighborhood sounds, are there dogs that bark at night, do cars speed through the streets, etc. This is just one of the few tips they share.
Whether you are a first time home buyer or just re-entering the housing market I highly recommend attending this class. If you are uncertain on where to begin in the home buying process, this would be a great starting place. Home Buyer Education is not always required but is still highly recommended. There are few loan programs such as the down payment assistance programs, CHFA loans and the MCC that do require a home buyer education certificate and the certificate is good for one year. The class is offered online but again I can't stress enough that attending the class is more beneficial. The online course is $99 and if you attend the course it is free!
Click here to find out more info and to see the schedule. If you have any questions or should need any assistance please contact us.
Purchasing a home for the first time is an exciting yet confusing, overwhelming and can be an intensive process. So where do you start? Well, you can’t purchase without funds, correct? The first place to start is searching for a lender. There are so many outlets to look at online that at some point it becomes too much. As you start your research, gather all the information, start a list with questions you have. Then start searching for a lender.
Remember, you need to look beyond the interest rate. As a first time home buyer you need guidance, education and support throughout the process. You need to start with at least knowing your credit score (FICO) and having some money in the bank. You may find programs that will offer low credit scores and/or no money down. BEWARE! Please keep in mind that if it sounds too good to be true, then it probably is. Now, that being said yes there are programs available for lower credit scores and programs with down payment assistance; if those are items you need to search for then you need to look for lenders who can provide. Those should be the first questions you ask the lender prior to completing a loan application and running your credit.
You should also know the key differences between FHA & Conventional. Just because you don’t have 20% down doesn’t necessarily mean you can’t do a Conventional loan. You can put 3% down on a Conventional loan, it’s just knowing if that option is available to you BUT is it the best option for you. This is where an experienced lender can show you the difference in the two and how each affect the monthly mortgage payment and purchase price.
If you know you are wanting to look for a home in a more rural area then you need to find out information on a USDA loan. You will need to ask the lender if they are experienced and can offer USDA loans. Again, you will want to check with the lender prior to completing a loan application and running your credit.
Are you thinking about purchasing a home that might need a little TLC? Or maybe you’re thinking it might be a better option to find a bank owned home (foreclosure). If so then you should consider a rehab loan. There is an FHA 203k and Conventional rehab loan option. This is where you add the renovation costs into your mortgage. If this is even the slightest bit of interest to you then you need to make sure to ask your lender if they can provide these types of loans.
In conclusion, while you are doing your research make a list of what you are thinking you would be interested in, call lenders, ask questions and then when you feel comfortable make an appointment and meet them. The next step is getting pre-approved. Make sure you know the difference between pre-approved and pre-qualified. *Don’t make an offer on a home if a lender has not looked at your financials!
For more information and if you have any questions please contact us. If you would like to set up a consultation, give us a call.
I receive several calls daily inquiring about our services. Many are first-time home buyers and they always start off by asking if there are any first-time home buyer programs available. Then the next question is “what are your rates right now and what are your fees?”
This is such an ambiguous question. Seriously. A mortgage rate varies depending on loan program (FHA, VA, Conventional, USDA, Jumbo), terms (30 yr. fixed, 15 yr. fixed, ARM, etc.), FICO score, amount of down payment, etc. Do you even know if you should be looking for an FHA or Conventional loan? Do you know the difference between the two? Plus there are other factors, such as do you need down payment assistance (DPA) or are you purchasing in a rural area? These can greatly affect loan programs and ultimately are going to affect the rate and even fees. A better question for a lender is “do you offer multiple loan programs?” And “are you experienced with multiple loan programs?”
The main point I’m trying to get across is that don’t be so quick to be asking about rates and fees without knowing what you're really looking for in a lender. Rates and fees are going to be fairly competitive and should not vary significantly (plus or minus) and if they do that should be a red flag. You need to be aware that not necessarily the lowest rate and/or fees in a lender will equate to the best service or quality of service. My question to you would be “what are you looking for in a lender?”
The importance should be trying to find a lender you feel comfortable with, one that you can talk with and understand, someone who will help guide and educate you, especially if you're a first-time homebuyer. You will want someone who is versed and experienced in multiple loan programs. Don’t let a lender discourage you away from a specific loan program unless they have definitive reasons. You don’t want to be steered away from a specific loan program just because they can’t provide the loan program or because they are not familiar with or uncomfortable with the loan program. Inexperience or feeling a loan program it too complicated is no reason to not offer a program.
Do your research, make calls and ask questions. But be mindful when you ask what are your rates and fees. If you don’t provide needed information and many times financials, don’t expect the rate that is quoted over the phone to be the exact rate you will receive once you go through the pre-approval process. If you’re rate shopping you doesn’t do a service to yourself.
If you have any questions please give us a call.
As you may have already noticed, purchasing a home can be overwhelming, especially if you're a first-time home buyer. There is so much information to absorb and process along with the overwhelming cost and knowing exactly what is expected from you as a buyer. I have had many conversations with first-time home buyers whom have made the comment that they are not working with nor planning to work with a Real Estate agent. My response is always “may I ask why you are not wanting to hire a Real Estate agent to help you?” The answer is usually “because I don’t want to pay or I can’t afford to pay their commission”.
Buyers paying their agents commission seems to be a very common misconception among first-time home buyers. A buyer's Real Estate agents commission is not paid by the buyer, it is paid by the seller. All Real Estate commissions to both the listing agent and the seller's agent are paid by the Seller. Now technically the buyer is paying the commission because the commission agreement is in the sale of the property and the properties listing price includes the Real Estate Commission fees. I know that was a little confusing so stay with me. So, yes again, technicality you as the buyer are already paying for an agent. If you are already paying for a service wouldn’t you want to use the service?
A Real Estate Agent is for your protection, they are educated, trained and licensed to assist you with your purchase contract. They are there to help negotiate your purchase and are looking out for your better interest. There is no reason NOT to hire a Real Estate agent when purchasing a property. Again, you are not paying their commission directly out of your pocket at the time of service, the cost of the home and the closing of the properties proceeds is what pays for the RE agents commission. An no this is NOT part of your closing costs, remember this is priced in the sale of the property, the purchase price. A good source to read more about Realtors and their commissions is www.Realtors.com .
If you have any questions on what it looks like to purchase a home and to see if you would qualify, please give us a call.