What NOT To Do When Buying A Home

If you are in the process of buying a home or just beginning your search, you need to be aware of what NOT to do in order for the process to go smoothly.

Do NOT change jobs or become self-employed

The lenders need to see stability in your work history and if you change jobs you are starting the process all over. Plus, they require 1 month pay stubs at the closing of every loan to verify your income and you will not have that by the time your loan closes. Also, if you desire to be self-employed, you must wait until your loan has closed escrow. When self-employed, you are required to have 2 years of tax returns in that profession.

Do NOT open new credit

When you are approved for your loan to buy a home, it is based on the credit history you currently have and the liabilities counted against you. When you open new credit you are telling lenders you are a high risk. Also, it can affect your credit score, which you want to remain as high as possible.

Do NOT buy a new car

This will definitely affect your qualification for buying a home. You should never add more debt when applying for a loan. The new car payment will be counted against you, increasing your debt ratio which ultimately qualifies you for less money. Wait until you own the home before you buy a new car.

Do NOT finance or charge furniture to a credit card

We know how exciting it is when you are buying a house and you want to pick out all your new furniture, but you must wait before you buy the furniture for your home. You don’t want to finance anything in the process of buying a home. You also don’t want to lessen the amount of cash in your bank accounts because lenders like to see 2 months of your funds sitting in your account. So the best thing is to wait to furnish your home until you have the keys in your hand.

Do NOT change your bank

Lenders look for stability when approving a loan for a new borrower to avoid lending to borrowers who are high risk. They need to see 2 months bank statements before approving your loan, so you need to stay with the same bank.

Do NOT be late or miss a payment for any credit account

This is a huge factor. Lenders are providing loans to borrowers who are responsible with credit and can prove they will repay the loan on time. If you are missing payments or have late payments on your credit report, you are telling the lenders you are high risk and they will not lend you the money to buy a home. Be responsible and pay every account on time!

These are a few of the most important things you should not do when buying or thinking of buying a home. Following these guidelines will help your loan transaction go smoothly and get you into your new home faster.

How To Get A Yes When You Borrow

Ever wonder if you will get approved to borrow money when buying a home? Well this information is meant to give you the tips and tools to prepare yourself in getting a “YES” from your lender when buying a home.  These great tips are provided by By Referral Only.

Lenders approve loans based on their impression of your ability and INTENT to pay it back.  To figure this out, they look at five things:  creditworthiness, income, job longevity, job stability, and future income prospects.  We’ll tell you how to make sure you look good in each of these things, so that you’ll get a “YES” when you want to borrow money for your new home.

1.  Creditworthiness

Creditworthiness is your history of borrowing and repaying against things like loans, credit cards, rent, and whether you’ve ever filed for bankruptcy.  Find out what credit bureau the Lender uses, then call or visit that same bureau for a copy of your credit report.  Some are even available online.

This is to make sure that there are no errors or surprises that you’ll have to explain to the Lender.  If there are mistakes, it can take a few months to resolve, so it’s good to have a compelling explanation ready when the Lender sees it!  The best way to demonstrate that you are “creditworthy” is to pay your bills in full and on time, particularly for the year or two before you want to get a loan.

2.  Income

Lenders want to know that you have a history of sufficient and consistent income – so that you’ll be able to repay the loan.  So, when you submit your paperwork to a Lender, make sure to take a letter verifying your employment (how long and what your salary is), your last couple of paychecks, and your last couple of W-2 forms.

3.  Job Longevity

Lenders are looking for borrowers who have a stable source of income.  If you can show that you’ve been employed at least a year in the same company, you should be fine.

4.  Job Stability

Again, lenders like stability – they tend to think that your loan payment behavior will reflect your employment behavior.  So, don’t make lateral moves between companies just for the sake of change.  If you make moves, do it for promotion, or to earn more money.

5.  Future Income Prospects

Because most loans are paid back in 15 to 30 years, Lenders are interested in people who will have income for that amount of time.  Young professionals, or those with high-demand skills, are the most appealing to Lenders because their income will only increase over time.  If you can demonstrate that you have a career plan that only gets better over time, you’ll be in a strong position to borrow.

So essentially, pay your bills on time, stay with an employer, have a career path that shows potential, and you’ll be sure to get a “YES” when you borrow.

Lenders are required to tell you what the APR is on any loan that they’re offering to you so you’ll know what the real interest rate is, including all of the additional costs.

So, when you’re calling around looking for the best rates, make sure and ask what the APR is on each loan you’re being told about!

 

Best Places to Live in California

Where are the best places to live in California?

Money Magazine recently published the top 100 cities to live based on area, population, number of jobs, schools, average income and other criteria.  Since we are a California Mortgage Lender, we wanted to focus on the 5 California cities that Money Magazine chose as the best.

California cities that made the list:

#6 Irvine

Irvine made the top 10 list of the best cities to live in the United States. One of the reasons Money Magazine chose this city was based on the great location in California. Irvine is only 10 miles from the beach and has tons of bike trails and parks for an active lifestyle.

#27 Cupertino

This city has a population of 58,700 and is located in the heart of Silicon Valley. This is city is extremely diverse and highly educated. According to Money Magazine, 60% or more of the population has a bachelor’s degree or higher. If you are looking for high performing schools, then this is the place for you!

#34 Chino Hills

Chino Hills is known for its safe neighborhoods and great schools. According to Money Magazine, this city actually has a higher median income than Beverly Hills! It’s a beautiful area in Southern California with great shops nearby.

#41 Diamond Bar

According to Money Magazine, Diamond Bar is actually most known for their holiday decorating. Neighbors compete in lawn displays and light displays to be known as the best holiday decorator. This city also had the first dog park known as  Bark Park. The only negative thing about this city is the high taxes they have to pay.

#42 Yorba Linda

The last California city to make the list (above the top 50) was Yorba Linda. This city is located in Orange County and has great trails to run and hike on. Money Magazine recognized this city for its beautiful horse trails within the community. If you are going to live here, you need to keep in mind the price tag that comes along with it. Most homes are around $500,000 or higher.

Improve Your FICO Score to Purchase a Home

Your FICO score is a main determinant of whether you will be approved to purchase a home or not.

What is a FICO score?

A FICO score is a calculation derived from different data in your credit report that determines your risk in receiving credit.

The main categories that are reflected in a FICO score are:

1. Payment history
2. Amounts owed
3. Length of credit history
4. New credit
5. Types of credit used

Each of these five categories provide important information that help determine a FICO score.

Once you understand what the main categories are in determining your FICO score, the next step is managing your credit so you can improve your score and eliminate debt.

Here are tips to fix your credit score by category and maintain good credit:

Payment History

• Pay your bills on time

In order to build a strong credit score, you need to be current on all bills and avoid delinquencies. Even if you are a couple of days late, it will still negatively affect your credit score. If you have been late on a payment, start today and become current on all bills. You need to start building consecutive months where you are on time with all payments.

• Pay collections accounts

According to the FICO website, you need to be aware that paying off a collection account will not immediately remove it from the credit report. A collections account will be reflected on your credit score for 7 years.

Amount Owed

• Keep low balances on credit cards and other “revolving credit”

You never want to max out a credit card, or become close to reaching the limit. A good rule of thumb is to never exceed half of your credit limit.  Creditors want to see that you can manage credit and don’t max out ever credit line you receive.

•  Pay off debt rather than moving it around

Paying of your credit cards is the most effective way to improve your credit score. When you are paying of a credit card, don’t keep using it as this is counterproductive.

• Don’t close unused credit cards as a short-term strategy to raise your score

This does not improve your credit score.

Length of Credit History

If you are trying to build your credit and have been managing it for a short time, you don’t want to open several new accounts rapidly. When consumers open too many cards too soon, it can appear risky and lower your score.

New Credit

• Re-establish your credit history if you have had problems

In this economy there are numerous people who have ruined their credit due to financial hardships or other circumstances. One of the most important things when trying to improve your credit after a hardship is to re-establish credit by opening new accounts and showing stability. This will take time but in the long-term managing a new account responsibly will raise your score.

Types of Credit Use

• Have credit cards- but manage them responsibly

Credit cards are not the problem, the lack of control and irresponsibility from consumers that is the problem. Having a credit card is okay as long as you are making timely payments, preferably in full each month.

When buying a home with financing, you typically need a minimum of three credit lines to qualify.  This may be a car loan and two credit cards. If you are paying those on time and managing responsibly, you will be raising your score.

• Closing an account doesn’t make it go away

A misconception that is often thought by consumers is closing a credit card will remove it from your report. This closed account will still show up on your credit report and can sometimes still be considered in the FICO score.

Tips on Buying a Good Home

1. Buy a Home You Can Afford

Make sure when choosing a home that you are comfortable with the mortgage payment. You do not want to purchase a home in a price range that will leave you scrounging for money each month just to make the payment. You need to keep in mind the other payments you still have obligations towards, such as a car payment, student loans and other expenses that add up.

A certified mortgage planning specialist analyzes your debts and will inform you on what a reasonable and realistic house payment is based on your scenario.

2. Make Sure You Can Stay Put

You don’t buy a home with the intention of moving right away. You should only purchase if you are planning on staying put for a few years. A home is an investment. If you are not able to make the commitment of staying in the home for a few years, then you may want to reconsider purchasing at that moment.

3. Get Pre-approved Before Looking

Without a pre-approval from a mortgage broker, you really are not in any position to look at homes. A pre-approval secures the fact that based on your income, assets, debts that you will qualify for a specific price range of homes. You should always seek a pre-approval from a lender to ensure you are not wasting your time, or a realtor’s time in looking for a home.

4. Know Your Credit

If you have issues on your credit report, you want to start getting those fixed before trying to buy a home. You need to also make sure you are current on all credit line payments and not maxing out your credit lines. Also, when you are in the middle of purchasing a home, DO NOT open new lines of credit. You do not want to open any new lines of credit, because that can affect your ability to purchase a home.

5. Do Your Homework

More often than not, homebuyers fall in love with a neighborhood but haven’t done their homework. You need to find more information about the taxes for that area as well as if there is an HOA (Home Owner’s Association) fee. These two things can really increase your monthly payment and you need to be aware of the full cost of the home. You not only have the mortgage payment, but you will also have to pay taxes, insurance and possibly an HOA fee.

A certified mortgage specialist has access to this information for any home on the market. Ask them to research a home in that area to find out what exactly you will be paying.

 6. Choose an Area With A Good School District

If you are just purchasing a home and have small children, or planning on having children, you want to make sure you choose an area that has a good school district. Since a home is an investment, you should only purchase if you are planning on staying a while. You will want a good school district, so do some research on the area before purchasing.

7. Start Saving Your Down Payment

Depending on what loan program you are able to purchase under, you will need to bring in a different down payment. Majority of homebuyers tend to put down anywhere between 3.5 percent to 20 percent of the home price. Start saving the down payment so when it’s time to make an offer on a home, you have the strength of a solid down payment.

8. Work With Respected Professionals

Buying a home is not a simple process, so you need to make sure you are working with the best people to help you through the process. This should be a fun and exciting time, but there will be some stressful moments. Do your research, read reviews, and choose a mortgage professional that knows what they are doing, and has the history to prove it. If you don’t have a real estate agent, your mortgage broker will more often than not guide you to a great real estate agent that will meet your needs.

No Better Deal Than This Summer

If you are looking for a better deal to come along with a home purchase, you probably won’t find a better deal than now. Home prices are at their lowest and are combined with extremely low interest rates.

According to an article on CNN, home prices have dropped 34% nationally since 2006. This is mind blowing how drastically the market changed. Combining that with historic low interest rates, you cannot create a better deal.

A chief economist for PNC Financial Services, Stuart Hoffman, said he expects home prices to flatten out by the third quarter and start climbing by next year. Hoffman also listed a few things that will help improve the housing market, and increase home prices.

Two factors are the decline of the number of foreclosures as well as a continued job growth. In addition, people are getting their finances in order, improving their credit score and gaining more access to mortgages as they improve their financial situation.

All of these factors will help contribute to improving the housing market and leading to increased prices.

So for all the home buyers on the fence of waiting to purchase in hopes of receiving a better deal, you most likely won’t find one. The market is the most affordable right now!

However, for those unable to purchase until 2013, don’t fret. Economists are predicting a 2% increase in home prices, which still leaves home prices at an affordable amount. The only thing we can’t predict is the interest rates since they are fluctuating on a daily, even hourly basis.

With summer approaching, it’s the best time to house shop. It’s warm outside so you don’t mind going out to look at homes. It also gives you a better idea of what the neighborhood is like with people outside being active on the weekends. Hopefully lawns will be looking much better after the winter and cold seasons are done. Spring and summer are the busiest times to house shop.

So as of today, now is the best time to purchase a home because you are combining low interest rates, low home prices and summer time to shop and purchase!

 

Rise & Shine! Time To Buy This Spring

Why is spring the time to buy? Right now home prices are low, extremely low! It’s actually crazy the amount of home one can purchase, in comparison to 2006 before the crash. Buyers have such power right now in this market, and should choose to take advantage of it.

The interest rates are low, which increase buyers’ power even more. Low interest rates help keep your monthly house payment low as well.

The spring and summer are the busiest times for real estate purchases. According to Forbes, “April, May, June and July account for more than 40% of all housing transactions annually, in large part thanks to weather.”

The demand for buying has increased, which has actually lowered the amount of inventory on the market by 19% in comparison to last year’s inventory levels.

Buyers should not be on the fence about jumping into the market and purchasing a home. Prices are low, and if you are waiting for prices to get lower, then you are playing with fire. While waiting for prices to drop further, you could risk interest rates increasing. We have a brief video from a while back that explains how those two situations affect your buying power.

There is also a rising trend of confidence in the housing market. Home builders are already signing contracts to start building new homes again. This shows an improvement in the housing market, and that we are rising out.

What makes spring the best time to purchase a home? There are a few reasons why.

Weather

In warmer weather, buyers are more willing to look at houses and go shopping. It’s not fun to browse homes in the rainy, cold weather. When the sun comes out, so do the buyers.

Foreclosure Sales

New foreclosure sales will be released on the market that had been delayed. We may also see more short sales and bank owned properties become available. Investors have been purchasing a good portion of these homes using cash, approximately 30% of the available inventory.

Improving Job Market

When the job market is doing well, it in turn benefits the housing market. Each one affects the other. When the job market does bad, that’s when we see spiral down turns. But it seems we are rising above that.

So yes, spring is a great time to purchase a home! Get ahead of the other home buyers and take advantage of the inventory available.

California Homebuyer’s Downpayment Assistance Program

Are you a “first time homebuyer”? (meaning you haven’t owned a home in the past 3 years in your name?)

Would you buy a home if you could afford the down payment?

This new program called California Homebuyer’s Downpayment Assistance Program (CHDAP) just may be what you are looking for!

The new California Homebuyer’s Downpayment Assistance Program (CHDAP) is designed to help first time homebuyers who have low-to-moderate income purchase a home.

How Does The Program Work?

When you purchase a home through FHA you have to put 3.5% down on whatever the sales price is for your home. For example, if you purchased a $200,000 home, your down payment would be $7,000.

Well with this new program, first time homebuyers only need to bring in 1% of the purchase price. That is 0.5 percent for the down payment and 0.5 percent for the closing costs.

Using our previous example, for a $200,000 home, $2,000 is needed for a down payment from the buyer. The additional $5,000 that would have been needed with FHA, is now being placed as a second mortgage.

Under this program the buyer will have a first mortgage of $198,000 ($200,000 minus $2,000) and then a second mortgage of $5,000 for the “gift” as a down payment.

With CHDAP, the second mortgage does not need to be paid. It is required to only be paid if the buyer decides to sell the home or refinance. Otherwise it is known as a “silent mortgage”. However, we advise homebuyers to pay the second mortgage as well. In this scenario it is approximately $30 more a month to pay both mortgages.

Speak with a mortgage professional for further detailed information

Borrower’s Eligibility

• To be eligible for the CHDAP homebuyer’s assistance, you MUST be a “First Time Homebuyer”. This means that the borrower cannot have owned a home in the past three years.
• The home purchased by the borrower must be the primary resident
• The borrower will need 3 current consecutive years’ tax returns
• The property must be owner occupied for the term of the loan or until the property is sold.

Speak with a mortgage professional for further detailed information

Borrower’s Income Limits

There are income restrictions for the CHDAP program because it is designed to help those with low-to-moderate income.

The income limits vary on what county the home is being purchased in addition to the number of dependents.

Example for Southern California Areas using FHA as first mortgage:

 

 

 

 

*To view other county income requirements for FHA click here

*To view other county income requirements for Conventional click here

Speak with a mortgage professional for further detailed information

Borrower’s Down Payment Contribution

The borrower is required to pay from their own funds a minimum of 1% of the loan amount or $1,000 (whichever is greater).

Speak with a mortgage professional for further detailed information

Borrower’s Credit Requirements

A typical credit requirement for a FHA mortgage with a LTV of 95% (meaning you are financing 95% of the home) is 640.

Any loan that is financing 95.01-100% of the home with CHDAP will have different credit requirements.

With the program CHDAP the credit requirements vary depending on the level of your debt-to-income ratio. Reference the chart below: 

 

 

 

 

 

Speak with a mortgage professional for further detailed information

Properties Allowed For Purchase

• Single Family Units
• Agency Approved Condominiums
• Planned Unit Developments (PUDs)
• Five Acres Maximum
• Flips (ONLY 91+ days or more)

Speak with a mortgage professional for further detailed information

If you are a first time homebuyer, don’t miss out on this great opportunity using the California Homebuyer’s Downpayment Assistance Program.

5 Mistakes to Avoid When Buying a Home

Here are 5 mistakes that are commonly made by homebuyers, but can easily be avoided.

Mistake #1

Not knowing how much you can afford to pay for a home before you make an offer.

You can avoid this mistake by going through the process of getting pre-qualified and then pre-approved with a mortgage lender. You will then receive a certificate of eligibility to go house shopping and make offers with your realtor.

(Get pre-qualified today)

Mistake #2

Not finding out in advance who the real estate agent represents.

This mistake can be avoided by….Asking your realtor! People think their agent is working for them, but unless the agent is working as your buyer representative, then he or she are representing the seller.

Mistake #3

Not realizing that the wrong mortgage can cost thousands of dollars in unnecessary interest and taxes.

This mistake can be avoiding through consulting with a mortgage consultant before making a final decision on which mortgage to choose. You can never ask too many questions in the home buying process.

Mistake #4

Not looking for hidden defects before buying a home.

A home inspection should always be conducted by a professional before purchasing.

Mistake #5

Not knowing how your debt can affect your ability to buy or refinance a home. Be 100 percent honest about your debts when buying a home. You need a good credit profile in order to purchase a home, so start working on it a year in advance of when you want to buy. Speak with a mortgage professional to help give you guidance and improve your credit.

Also, on a side note, if you are in the process of buying a home, DO NOT add any new debts to your credit! Don’t open credit cards, don’t buy a car, don’t do anything until your transaction has closed and you have the keys in your hand.

Have a question about buying a home? Click here

Guide For First Time Homebuyers

When buying a home there are several things you will need to get in order to move through this process quickly and without complications. Here is a brief list of items to check off before purchasing a new home.

 Fix your credit

In order to prepare to buy a home, it is best to figure out what your credit score is about three to six months prior to buying a home. A typical credit score needed to purchase a home is no lower than 620 to 640 depending on the lender and loan requirements. It is also important to fix any errors on your credit report. The earlier you do this the better to help get your credit profile on the right track to buy a home.

 Start Home Buying Loan Application

Prepare for down payment and closing costs

Your down payment can vary depending on the percent down required for the mortgage loan you are applying for. For example, conventional loans can be 20 percent down. Most first time homebuyers buy FHA (Federal Housing Act) which is 3 to 5 percent down. Look at the following examples to show a comparison of what you would need to save for a first time home purchase:

If you purchase a home for $250,000 your down payment would be $8,750 for a FHA loan of 3.5 percent down.

If you purchase a home for $250,000 your down payment would be $55,000 for a conventional loan of 20 percent down.  

Start Home Buying Loan Application

Find out how much house you can afford

In order to find out how much house you can afford, you need to know what your debt-to-income ratio is. The limitations that most loans require is up to 50 percent; however, it is advised to maintain a 30 percent debt-to-income ratio to avoid a tight budget. The debt ratio is the mount of income that has to be set aside in order to pay off your liabilities such as car payments, credit cards, student loans, etc. 

Also keep in mind that just because you may qualify for a $350,000 home based on your gross income and debt ratio that does not mean you must buy a home for that amount. Lenders typically will qualify you for the highest loan amount you can obtain so that you have more options and won’t need to get re-qualified for a higher amount if needed. Keep in mind you are getting qualified based on your gross income, not your net income which is what you live on after being taxed.

 So with that said, it is up to you as the homebuyer to make a wise home purchase based on your income and typical spending habits.

 Start Home Buying Loan Application

Start housing hunting

Once you have decided on the price range, partner with a trusted real estate agent in your area to help assist you in the home buying process. Referrals are a great way to choose an agent because they are likely knowledgeable and trusted from your family, friends or co-workers. Explain exactly what is important to you in a home like the school district, number of bedrooms, neighborhood area etc. However, try not to be too picky in criteria that you are able to fix. Try to focus on the main criteria that you can’t change like a neighborhood and school district when choosing a home.

Start Home Buying Loan Application

Make an offer

Before making an offer, have your real estate agent pull up a comparable sales list. This will show you what other similar homes in the area have sold for to help you form your offer. This will help you avoid paying a ridiculous amount and paying only what the home is truly worth.

 Be patient

The home buying process is not a quick process. There are times when you may be outbid for a home by a cash offer. You may also not find the home you want right away. We typically say there are typically “88 types of turbulence” you can experience during a home purchase that can slow down your process or cause a hiccup.  But don’t let that overwhelm you. If you are working with a trusted real estate agent and mortgage broker, such as ourselves,  know that they will take care of you.  Typically the home buying process can take up to 4 months. However, there are instances where it is much faster! It all varies. But try to be patient and know that soon you will have the home you have always wanted.

 If you are looking to start your first home purchase you can fill out this loan application.