Friday, 3 June 2016
When you decide to buy a home, your mind fills with the endless possibilities.
You might picture airy, gracious rooms filled with your favorite pieces, the fragrant garden you'll grow in the backyard, and the designer colors you'll paint your walls with—without any buzzkill landlord around to say no.
But soon enough, reality kicks in and you realize you'll have to work hard to prove yourself worthy to a lending institution before you can even think about decorating your new place. Applying for a home loan is not for the faint-of-heart. It requires discipline, organization, patience, and fortitude.
Your best course is to enlist the help of a professional, either a loan officer at a bank, who can offer multiple products from one institution, or a mortgage broker, who has access to multiple lenders. One of the advantages to using a broker is that they can shop rates to get you the best deal, but a disadvantage is that once the loan is secured, it's typically sold to another lender and the original broker doesn't service it.
But when you apply through a bank, that loan often stays with the bank and you can communicate with the same institution throughout the life of the loan. You may also get a slightly different loan product from the bank directly than you would if you'd gone through a broker.
Most banks have the technology that will allow you to start an application online that can be sent to a loan officer who will contact you—typically within minutes, says Jens Lovell, BBVA Compass Executive Vice President and National Mortgage Sales Manager, Mortgage Lending.
There are different loan products available, sometimes used in tandem. What you'll need and qualify for depends on many factors, including the cost of the home and its location, as well as your assets, income, credit score, and down payment.
"For a first-time homebuyer, we do have mortgage products that will actually go down to a 580 credit score. It has to do with their paycheck," Lovell says. "And obviously, the higher your credit score, the better your interest rate will be."
Federal Housing Administration (FHA) loans for the first-time homebuyer typically require a smaller down payment, which can be only 3.5 percent of the cost of the house and maxes out at a certain level, depending on the county where the property is located.
Loans with less than 20 percent down require government mortgage insurance, which helps the lending institution recover their loss if the customer defaults.
Jumbo loans are for amounts larger than what can be purchased, guaranteed, or securitized by Fannie Mae or Freddie Mac, which are shareholder-owned entities that operate under congressional charters. These loans are backed by other institutions and often have higher interest rates because they carry greater risk to the lender.
The most important thing for a customer looking for a home is to get connected with a mortgage expert and be walked through the process. "It can be pretty complicated," Lovell says. "As we go through the application process, that's when we'll do kind of a fact-finding mission, and we'll determine what's the best product for that customer and their situation."
Lovell says there are two things to do first. First, get pre-qualified to fully understand how much is available to you, and how much the mortgage will cost you. Then, get connected with a good real estate agent. This agent will be the person that will help negotiate the contract.
It helps tremendously to have a steady paycheck for at least two years, good credit, a favorable debt-to-income ratio, and at least two years of residency. Most lenders will provide a checklist of everything you need for your application, which includes paycheck stubs or proof of other income, W-2 forms, tax returns, legal agreements (such as a divorce decree or child support document), and other information that help paint your complete financial picture.
Bonus: If you have most of these items digitized, in PDF format, and accessible from all your devices, that will make your process even more streamlined.
It's helpful to have an understanding of the elements that can help and hurt your application. For example, don't apply for new credit cards or make a major purchase (like a new car), that can negatively affect your credit score. If you've recently moved or left your job, that can also hurt your chances for qualifying.
If any or all of your down payment is coming as a gift from a family member or friend, be sure to have a letter from the source explaining this. You'll also need to document any major deposits to your account that haven't come from a regular income source.
Finally, understand that all this takes time—sometimes more than a month, says Lovell. "Once they actually found the home and they provide that purchase contract to us, that's when that 30-to-45-day clock starts."
The content provided is for informational purposes only. Neither BBVA Compass, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial advisor about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA Compass or any of its affiliates.
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