Avoiding Home Buyer Mistakes And Closing Mortgage On Time
This Article Is About Avoiding Home Buyer Mistakes And Closing Mortgage On Time
A home purchase is a person’s single largest investment in their life. There are many tips and advice in avoiding home buyer mistakes first-time home buyers as well as seasoned home buyers. Most homebuyers may purchase no more than three homes in their lifetime. 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.
Avoiding Home Buyer Mistakes Like The 2008 Real Estate Meltdown
Entire mortgage sectors like the sub-prime mortgage market completely vanished overnight. Hundreds of thousands of mortgage professionals were left without employment. They either needed to find other jobs within the mortgage field or left the mortgage industry altogether. A large portion of loan officers was 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 Also, get their background checks both criminal and credit checks. Pass a rigorous 3-hour 125 question SAFE ACT NMLS federal examination. They also needed to apply for each individual state 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. This is due to the major changes in mortgage regulations and the constant addition of new mortgage guidelines. In this article, we will discuss and cover how to avoid mistakes during the mortgage process to avoid closing delays and stress.
Avoiding Home Buyer Mistakes By Not Researching The Types Of Mortgages Available
Homebuyers 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 are the residential mortgage loans that are 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 are Conventional Loans
- Need to Conform to Fannie Mae and/or Freddie Mac mortgage lending guidelines
Government Loan Programs For Home Buyers
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 are the most popular mortgage loan programs available today. It requires a 580 credit score. Requires a 3.5% down payment for borrowers with at least a 580 and under 580 FICO requires a 10% down payment. FHA Loans is very lenient with collections, charge-offs, late payments, judgments, tax liens, bankruptcies, short sales, deeds in lieu of foreclosures, and foreclosures.
No down payment is required. No monthly private mortgage insurance required with VA Loans. No minimum credit scores. No maximum debt to income ratio requirements. Only available for Veterans of the United States Armed Forces.
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 homebuyers. Maximum income cap in order to qualify for a USDA Loan.
Another factor in avoiding home buyer mistakes is that many homebuyers do not explore the idea of going with an FHA Loan and do not even consider the idea of qualifying with a Conventional Loan. Homebuyers should explore both FHA and Conventional Loan Programs and not just assume that FHA Loans is the only way to go. Conventional Loans require 620 credit scores. Income-Based Repayment on student loans on conventional loans allowed as long as it reports on the credit report. This holds true on zero monthly IBR payments.
What are Piggyback 80-10-10 or 80-15-5 Mortgages?
Another key element in avoiding home buyer mistakes is not exploring Piggyback Mortgages. Borrowers who are buying higher-end homes and have lower credit scores often will get high rates on Jumbo Mortgages. Buyers can explore 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 homebuyers who are purchasing a higher-priced home.
How Piggyback Mortgages Work
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, here is a case scenario:
- on a $100,000 home value
- if the homeowner had an $80,000 first mortgage
- take the first mortgage and divide it by the appraised value of the property that value
- In 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 homeowner had a first mortgage of 80,000 and a second mortgage of $15,000, adding both mortgages together and dividing 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 homebuyers who do not qualify for Jumbo Mortgages can utilize this powerful 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 are best suited for you. Especially for a first-time homebuyer. For example, if you are purchasing a small condominium as a starter home and are expecting not to live in that home purchase for more than 7 years, buyers may want to explore adjustable-rate mortgages than a 30-year fixed-rate mortgage.
Benefits Of ARMs Versus Fixed-Rate Mortgages For First-Time Homebuyers
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, buyers should consider ARMs. Compare and contrast the various loan programs 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 In Avoiding Home Buyer Mistakes
Avoiding home buyer mistakes can be minimized by consulting with a loan officer way ahead of plans of shopping for a home. The most important stage of the mortgage process is the pre-approval step . Over 75% of our borrowers are folks that are currently going 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. 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 us at Gustan Cho Associates at 262-716-8151 or text for a faster response. Or email us at [email protected] We are available 7 days a week, evenings, weekends, and holidays.