Avoiding Home Buyer Mistakes
This Blog On Avoiding Home Buyer Mistakes Was Written By Gustan Cho NMLS 873293
A home purchase is a person’s single largest investment in their life. There are many tips and advice in avoiding home buyer mistakes for first time home buyers as well as seasoned home buyers. Most home buyers may purchase no more than three homes in their lifetime so every time they purchase a home is like going through a new experience all over again. Plus there are constantly changing mortgage lending guidelines . The whole mortgage industry went through a major overhaul after the Mortgage and Credit Meltdown of 2008 where entire mortgage sectors like the sub-prime mortgage market completely vanished overnight. Hundreds of thousands of mortgage professionals were left without employment where they either needed to find other jobs within the mortgage field or left the mortgage industry altogether. A large portion of loan officers were forced to leave their jobs and careers as loan officers. Several years later when they wanted to re-enter the mortgage profession as mortgage loan originators, they realized that they now had to take a 20 hour NMLS Approved mortgage pre-licensing course, get their backgrounds checks both criminal and credit checks, pass a rigorous 3 hour 125 question SAFE ACT NMLS federal examination, and needed to apply for each individual states and meet that particular state’s licensing requirements and get licensed in order to be able to originate loans. The mortgage loan application and approval can be extremely complex due to the major changes in mortgage regulations and the constantly addition of new mortgage guidelines.
Avoiding Home Buyer Mistakes By Not Researching The Types Of Mortgages Available
Home buyers can try avoiding home buyer mistakes by educating themselves on the various types of residential mortgages that are available in today’s market. There are two types of residential lending programs:
- Government Loans: Government Loans are the residential mortgage loans that is insured and guaranteed by a governmental entity against default. Government loans are only for owner occupant one to four unit residential properties and second homes and investment properties do not qualify for government loans.
- Conforming Loans: Conforming Loans are Conventional Loans and need to Conform to Fannie Mae and/or Freddie Mac mortgage lending guidelines.
Here are the types of government loan programs that home buyers should take time and research and not have any regrets and avoiding home buyer mistakes:
- FHA Loans: FHA Loans are the most popular mortgage loan programs available today where it requires on a 580 FICO credit score and a 3.5% down payment and is very lenient with collections, charge offs, late payments, judgments, tax liens, bankruptcies, short sales, deed in lieu of foreclosures, and foreclosures
- VA Loans: No down payment is required and no monthly private mortgage insurance required with VA Loans. Only available for Veterans of the United States Armed Forces
- USDA Loans: USDA Loans are government loans that are insured and guaranteed by the United States Department of Agriculture Rural Development. USDA Loans do not require any down payment by the home buyers. The property needs to be located in an area that is classified as rural by Rural Development and home buyers will have a maximum income cap in order to qualify for a USDA Loan.
Another factor in avoiding home buyer mistakes is that many home buyers do not explore the idea with going with a FHA Loan and do not even consider the idea with qualifying with a Conventional Loan. Home buyers should explore both FHA and Conventional Loan Programs and not just assume that FHA Loans is the only way to go.
What are Piggyback 80-10-10 or 80-15-5 Mortgages
Another key element in avoiding home buyer mistakes is by not exploring Piggyback Mortgages. Borrowers who are buying higher end homes and have lower credit scores often will get high rates on Jumbo Mortgages and often do not consider exploring Piggyback Mortgages during the pre-approval mortgage process. Piggyback 80-10-10 Mortgages and Piggyback 80-15-5 Mortgages are a combination of a first mortgage and second mortgage on a home purchase. Piggyback mortgages are a great strategy to use for home buyers who are purchasing a higher priced home and go over the loan limit on their first mortgage and needs to come up with the shortage with a second mortgage.
Here is how Piggyback Mortgages work:
- The first mortgage is issued by a bank or mortgage lender
- The second mortgage is issued by a bank or credit union
- The amount of equity with the first mortgage is called the loan to value. For example, on a $100,000 home value, if the homeowner had a $80,000 first mortgage, you take the first mortgage and divide it by the appraised value of the property and that value, on this case $80,000 divided by the appraised value of $100,000, the loan to value will yield 80% LTV
- The combination of the first mortgage and the second mortgage divided by the appraised value of the property will yield the Cumulative Loan To Value or CLTV. If the home owner had a first mortgage of 80,000 and second mortgage of $15,000 and you add both mortgages together and divide it by the appraised value of $100,000, the cumulative loan to value or CLTV will yield 95% CLTV
- Piggyback 80-15-5 Mortgages where home buyers who do not qualify for Jumbo Mortgages can utilize this power strategy in securing a home loan on a higher priced home
30 Year Fixed Rate Mortgage Versus Adjustable Fixed Rate Mortgages
Avoiding home buyer mistakes includes not shopping for the types of loan programs that is best suited for you especially for a first time home buyer. For example, if you are purchasing a small condominium as a starter home or a town home and are expecting not to live in that home purchase more than 7 years, you may want to explore adjustable rate mortgages than a 30 year fixed rate mortgage.
Here are the reasons why:
- Adjustable Rate Mortgages normally offer lower mortgage rates than fixed rate mortgages
- If you are applying for a mortgage now and have lower credit scores and plan on refinancing in the very near future, you should consider ARMs and compare and contrast the various loan programs your lender has available.
- Types of ARMS available are 3 year ARM, 5 year ARM, 7 year ARM. Fixed rate mortgages available are 15 and 30 year fixed rate mortgages
The Importance Of The Pre-Approval Stage Of The Mortgage Process
Avoiding home buyer mistakes can be minimized by consulting with a loan officer way ahead of your plans of shopping for a home. The most important stage of the mortgage process is the pre-approval step . Over 70% of my borrowers who call me and go through the mortgage process and close on their home loans are borrowers who went through major stress in the mortgage process or have gotten a last minute mortgage loan denial . The main reason and ONLY reason for this is because the loan officer did not properly qualify the borrower. If you want to try avoiding home buyer mistakes, consult with multiple lenders and ask as many questions as you can. It does not cost you a penny to consult with a loan officer. If you have any home buyer questions, feel free to contact me at 262-878-1965 or feel free to text me on my cell at 262-716-8151 for faster response or email me at firstname.lastname@example.org. I am available 7 days a week, evenings, weekends, and holidays.