If you haven’t purchased a house before, you may feel overwhelmed with the process.  Below I attempt to answer some of the questions I hear most.  My friend Brian who is a lender has answered some of the questions according to his expertise.  These answers are based upon our knowledge and opinions.  Please contact me if you have any questions about Real Estate and Brian if you have questions about obtaining financing.  We would both love to speak with you. 

 

Faith Field- O. 818.928.2699  C.619-733-1620 E. faith.field@podley.com

Brian Farwell- O .805.229.6809 C. 818-448-3842 E. brian@capstonedirect.com

 

Questions about Real Estate:  

Question: How do I find out how much money I can spend on a home?

Answer: If you don’t have cash and need to obtain financing for a home, you will need to get “Pre qualified”.  This is where you talk with a lender and they let you know how much money you qualify for. In other words, after you talk with a lender you will know how much money you have to spend on a house.

 Question: What do I need to do to get started with purchasing a home?

Answer: Once you have your pre-qualification letter, you may be tempted to show up to an open house and use the listing agent. You can do that, however it is in your best interest to find someone to represent you specifically. The listing agent has a fiduciary responsibility to their clients first and foremost.  In my opinion, it is difficult to have that fiduciary responsibility to both the buyer and the seller at the same time.  However, there are exceptions and many opinions on the matter.

 Question: If I meet with a lender, does that mean I have to buy a house?

Answer: No. If you don’t find a house, you don’t use the money. If time goes by and something changes in your finances, your lender can let you know what that means for financing moving forward. 

 Question: What if I call a realtor and don’t end up buying a house?

Answer:  That is ok.  Agents know that you may not find a house that suits you.  Their hope is to work hard for you regardless of the outcome so that when you do find a house, you will call them. 

 

Question: Why do cash offers seem to take priority over other offers? 

Answer:  Most sellers feel more comfortable with a cash offer because the financing is more secure.  Many things can happen during escrow that can impact a loan.  For example, the house has to appraise for the amount of the loan.  If it doesn’t, then you many not qualify for that loan anymore and then the escrow gets canceled. Sellers want the smoothest escrow possible and cash is a pretty safe bet. 

Question: How many offers do people make before purchasing a home?

Answer: It all depends on the market. In a “High Inventory Market” there are enough houses for all buyers and when you go to make an offer you most likely will not be competing with several other offers.  In a “Low Inventory Market” there are too many buyers and not enough houses and so there are usually multiple offers on each house, making your offer less likely to be chosen.   I would be prepared to make several offers. 

Question: How does a realtor get paid? 

Answer:  Realtors get paid by the Seller and only through the sale of a house.  So, when a house is sold the sellers take%5 or %6 of the sold price and it is split between the Listing Agent and the Buyers Agent.  So, when a realtor spends hours running around for you, don’t feel guilty. They are getting paid when the house sells. 

Questions about Loans:

 Q) What documents do I need to collect before calling my lender to get pre-approved?

A) Depending on your lender, you can get an initial pre-approval over the phone with submitting very little documentation.  But as we say, the pre-approval is only as good as the info we have been given.  So if we haven’t been told about declining income, or a brand new job, or outstanding debt, or child support payments, then the pre-approval could be affected by those new pieces of information.  The best recommendation would be to get pre-qualified which would mean a lender takes a look at actual documentation and is able to give a firmer commitment/ approval because they have actually seen your income and asset documentation.  The basic documentation you should be prepared to submit would be:

-              Last 2 years Federal Tax Returns

-              Last 2 years W-2’s

-              Last 30 days paystubs

-              Most recent 2 month’s of bank statements

-              Copy of a driver’s license or passport

 

These items will allow a lender to get the full picture of your income, employment history and assets to determine the loan that you will qualify for.

Q) If I want to buy a house in 4 years, what should I start doing now?

A) Start considering credit and assets.  Income can often be something that is out of our control, but you can begin thinking through your credit and FICO scores.  Make sure you don’t have late payments, pay down outstanding balances so that they are less than 50% of the credit limit allowed, look at paying off low balances for credit cards or student loans so the payments will fall off your credit report altogether.  All of these items will show up on your credit and also factor into your Debt to Income ratios which is a big factor in you qualifying for a loan.  In terms of assets, start planning out how you can be saving a little extra each month to build up a bucket of funds that you can use towards a down payment and closing costs.  Buying a home is a large expense, so planning ahead will make the moment less daunting.

Q) Can my parents lend me money for a home?

A) Yes and now.  Your parents cannot lend you money for a loan.  But they can gift money for a loan (with no obligation for payback).  Parents are often a source of helping with a down payment.  This can most easily be done in the form of a gift.  There will be a required gift letter and also documentation of the source of funds and showing the accounts they came from and the accounts they were deposited into.

Q) My parents can’t give me money, but can they do anything else to help me with a loan?

A) If your parents can’t help financially with gift funds, they could help you qualify for a loan.  Parents can co-sign on a loan with a child and use their income to help the kids qualify.  But remember, if they are on the loan, you not only take their income, but you also take their credit and their debt, so sometimes that can actually hurt more than it can help.  You also should know that if parents go on the loan they are obligated just as much as the kids are to pay the loan.  So if the loan has a default payment, all parties’ credit will be hit and the parents are held just as responsible as the kids for the loan payment.

Q) Why does an appraisal matter on my home?

A) Appraisal’s are vital because they show from a 3rd party perspective the approximate market value of the property.  This is important for lenders to see as we want to know we aren’t lending on a property whose value is significantly less than what we think it is.  It also is a great tool for a buyer to make sure they are purchasing a house at the value they see fit.  Usually an appraisal comes back fine, but there are times it can highlight issues with the subject property that a buyer may have not considered or been aware of.

Q) What should I expect in the loan process?

A) The loan process has changed a lot in the past several years.  Some people say it has become more painful, but really it is just a response to make sure the loans being given are to borrowers who won’t default on payments or get into trouble with the changing circumstances of life.  Getting a loan will require a fair amount of documentation and explanations and small things can delay or even derail the process.  So finding a trusted and honest loan officer is key because they can walk you through the process and help you each step along the way.  They have experience and can let you know that a large bank withdrawal during a loan approval could be problematic or a sudden new debt from a credit card or car loan could bring up new issues for qualifying.  During the loan process, the recommendation is to be very upfront and direct in communicating with your loan officer and letting them help advise you on possible obstacles that could arise before they actually do arise.

 

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