Common First Time Home Buyer Questions

If you are a first time home buyer, chances are you will have many first time home buyer questions and may not know where to start or who to ask. You have come to the right place. As a residential mortgage lender, a large percentage of my business is representing first time home buyers and there are many common first time home buyer questions which we will cover on this blog article. For most of us, a home purchase is or will be the biggest investment they will make in their lifetime so a sound financial decision needs to be thoroughly made. Below are common first time home buyer questions and if you have any further questions, please do not to write us a note at gcho@gustancho.com.

Buying Versus Renting

One of the most common first time home buyer questions is whether it is better to buy a home or rent a home. Most folks feel that buying a home versus renting a home is a no brainer and do not weigh the options and pros and cons of buying versus renting a home. Advantages of buying a home versus renting a home really depends on each individual and what their financial and personal needs are. Buying a home versus renting a home can be a great investment for one individual, however, it may not be suited for another.  Some factors that need to be considered when deciding in buying versus renting a home is how stable is your job, is there a possibility of getting transferred involuntarily, how much are you currently paying for rent, have you determined whether you will stay in the area you will be buying your home for at least five or more years, do you have the minimum down payment and closing costs required to purchase a home, is your credit and financials ready for you to get a loan pre-approval from a mortgage lender. There are other considerations depending on each individual.

How Much Home Can I Afford?

Part of the home buying process should include on how much home can you afford and not what you qualify for. A mortgage lender may qualify you for a $350,000 home loan with a monthly PITI ( Principal, Interest, Taxes, Insurance ) payment of $2,300 but that may be too much home payment for you and your family. Remember that mortgage lenders will not take into account utilities, maintenance cost, personal expenditures such as vacation money, childcare, education expenses, and other personal expenses. Besides the mortgage payment, you need to consider utilities such as electricity, gas, cable, internet service, water, scavenger services, and monthly maintenance costs. There are added costs in being a homeowner versus renter such as water bills, scavenger, landscaping/snow removal service, and general maintenance where as a renter, it was included in your monthly rental payments but as a homeowner, it will be your responsibility.

What Is Better? Existing Home Or New Home

Advantages of purchasing an existing home is that it is much more convenient and is much faster. Once you decided on purchasing an existing home and have the sales contract signed by both the home buyers and home sellers, you can be closed and moved in to your new home in as little as 30 days. Disadvantages of buying an existing home is that you cannot customize the features of the home. You get what the existing home comes with and cannot choose your selection of granite counter tops, choice of pain, choice of flooring/tiles, appliances, layout, or other features. An existing home will probably need to have work done on the home to fit the needs to the new home buyer and may need basic repairs as well due to not everything being new and used by the previous homeowner. An existing home has aged landscaping and the neighborhood is developed with mature trees whereas with a new home, you will need to start planting new trees and shrubs.

Also, major benefits of purchasing a brand new home include building the home to your needs with the layout, colors of the walls, flooring selection to suit your needs, choice of appliances, and upgrades to the home by your builder as long as you are able to afford it. Disadvantages includes that new homes take longer to close and move in, normally six months.

Choosing A Mortgage Lender

Unless you are purchasing a home with cash, home buyers will need to choose a mortgage lender. There are variety of ways of choosing a mortgage lender and not all mortgage lenders may be the right lender for you depending on your credit and financial profile. If you have very high credit scores, perfect credit, and solid income, you can about go anywhere and shop for the best mortgage rates and terms. Unfortunately, many first time home buyers or seasoned home buyers may have had prior credit issues, bankruptcy, foreclosure, low credit scores, unpaid collection accounts, judgments, tax liens, high debt to income ratios, and recent late payments. Home buyers can qualify for a home loan with bad credit. If you are seeking a home loan with bad credit, a bank or credit union is not the place to go to. Most banks and credit unions require a minimum credit score of 640 FICO, they require no collection accounts with unpaid balances, and most have mortgage lenders overlays on debt to income ratios that will cap the debt to income ratio at 45% where the federal maximum debt to income ratio cap on FHA Loans is 56.9%. If you are a home buyer with bad credit, the best mortgage lender to go to is a mortgage lender who has no mortgage lender overlays such as myself.

What Are Mortghttp://gustancho.com/high-debt-to-income-ratioage Lender Overlays

There are two types of mortgage lending guidelines. The first type of mortgage guidelines are federal lending guidelines which are set by FHA, VA, USDA, FANNIE MAE, FREDDIE MAC. The second type of mortgage lending guidelines are the mortgage lenders own set of guidelines which are called mortgage lender overlays. The best way to explain mortgage lender overlays is to use an example. For example, the minimum credit scores required by HUD to qualify for a 3.5% down payment home purchase FHA Loan is a minimum credit score of 580 FICO. A mortgage lender like myself will just go off the FHA lending guidelines of the 580 FICO credit score and can close this FHA Loan for this borrower as long as the borrower meets all other qualifications such as income and other conditions requested by the Automated Underwriting System. However, most mortgage lenders will most likely not accept a borrower with a 580 FICO credit score and will require a minimum credit score of 640 FICO even though the federal minimum FHA credit score requirements is 580 FICO. This is called a mortgage lender overlay on credit scores implemented by the individual mortgage lender. Another example is debt to income ratio mortgage lender overlays. The maximum debt to income ratio allowed per FHA guidelines on borrowers with at least a 620 FICO credit score is 56.9%. However, most mortgage lenders will not accept any mortgage loan borrowers with a debt to income ratio of greater than 45%. This is called a mortgage lender overlay on debt to income ratios. One last and final example is lender overlays on collection accounts. FHA does not require that you pay off old collection accounts even though there is an unpaid balance. However, many mortgage lenders, especially banks, will require that all old collection accounts with balances be paid off. This is called a mortgage lender overlay on collection accounts. If you are a home buyer with prior credit issues, low credit scores, high debt to income ratios and need a mortgage lender who has no mortgage lender overlays, please contact me at 262-716-8151 or email me at gcho@gustancho.com .

 

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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