you about to start the home buying process? Are you currently in the process
and you feel overwhelmed with the process of home buying? You’re not alone.
Homebuyer surveys find that more people today want to buy a home, but challenges
such as saving for a down payment and student loans are keeping them sidelined.
We know the vast majority of buyers (92 percent) use online
search at some point in their home buying process. Maybe that’s how you found
me at www.bobrutledge.com!
But, before you start picking out your dream house online, take
a minute to make sure you grasp these 7 key facts about homeownership.
1. Go back to school (for a day). We know you
probably just Goggled “how to buy a home,” but did you know there are homeownership
education courses that can really help you prepare? Homebuyer counseling is occasionally
required when using a down payment assistance program, but any buyer can
benefit. You’ll learn about the home buying process, improving your credit,
mortgage terms, planning a budget and more. Plus, a new study finds that by
simply participating in these in person or online courses, you’ll reduce your
risk of foreclosure by 42 percent.
an agent. If you aren’t yet a homebuyer, there’s no reason not to have a
real estate agent. Your agent’s commission will come from the home you
purchase, not your pocketbook. Everybody wins! Even if you don’t think you’ll
need help with lots of showings, a real estate agent will help you navigate
contracts between you and the seller and set up important things like the home
inspection. As a new buyer, you’ll benefit from the expert help.
the right lender. (PICK ME) Your mortgage lender will help you
secure your home financing—and, there are many types of banks and lenders who
can help. Unfortunately, according to the Consumer Financial Protection Bureau
(CFPB), nearly half of homebuyers don’t shop around for a mortgage lender. Like
you, your finances and home buying goals are unique. So, it makes sense to shop
around and interview your lender for the job. Find a lender that can work
within your parameters and not their own, too many lenders will make YOU
credit score matters. The type of loan you get, including
interest rates and points paid, is primarily determined by your credit score.
The better your credit score, the more affordable loan you can get, often with
more options for a low down payment. For low down payment loans, your MIDDLE
credit score needs to be a minimum of 620. Review your credit report, make
adjustments and get prepared so you can enjoy the lowest interest rate possible
and save cash over the life of your loan.
don’t need 20 percent down. You may have heard or read that you
need 20 percent down. It’s not necessarily a bad thing, but that’s just not the
case. And, if using a low down payment can get you in a home now (instead of 3
years from now), you’ll enjoy low rates and get out of a rising rent situation.
Low down payment options have been around for a long time. In fact, data shows
that low down payment loans with sound underwriting (loan is fully documented,
income verified) are just as successful as loan with large down payments.
payment programs offer savings. Did you know the average
down payment assistance benefit is more than $8,000? Many homebuyers don’t know
about homeownership programs that can help them get in a home much more quickly
and provide a valuable cash cushion for other home buying expenses. You could
save on save on your down payment and closing costs, or even get ongoing tax
credits. If you would like to see how a low down payment mortgage and down
payment programs can help to get you into a new home with zero out of pocket
expense follow this link to my ZERO PROGRAM.
forget to budget closing costs. Most buyers focus on saving
for a down payment, but your closing costs can run you another 3 to 5 percent
of the sales price. It’s important to factor in those costs so you are prepared
for the closing table. Ask your agent about negotiating those costs with the
seller. In addition, some homeownership programs can help you cover your
(1) Shopping for a
house before a mortgage
It is so much more
fun to look at homes than it is to talk about your finances with a lender. So
that’s what a lot of first-time home buyers do: They visit properties before
finding out how much they are able to borrow. Then, they are disappointed when
they discover they were looking in the wrong price range (either too high or
too low) or when they find that right home they scramble to get financing, and
the mortgage is not something you want to rush or put too little of time in to.
In today’s housing market you want to show home sellers you are a serious buyer
and able to make a serious offer when you find that right home.
How to avoid this mistake: Talk to a mortgage
professional about getting pre-qualified or even preapproved for a home loan
before you start to seriously shop for a place. The pre-qualification or
preapproval process involves a review of your credit, income and expenses. Having
a per-qualification/pre-approval letter in hand will make your offer more
competitive, and most offers today must have this letter.
(2) Not looking for first-time home buyer
As a first-time
home buyer, you probably don’t have a ton of money saved up for the down
payment and closing costs. But don’t make the error of assuming that you have
to delay homeownership while saving for a huge down payment. There are plenty
of low-down-payment loan programs out there.
Besides low down
payment mortgage programs there is a lot of down payment assistance programs available
to first time home buyers. Many times the funds that are available to you from
DPA (down payment assistance) Programs will cover your entire down payment.
Even if you have saved enough for a low down payment mortgage program keeping
your savings in your pocket will allow you to pay with cash for the items you
need for your new home. I see too many home buyers use credit to purchase new
home items, increasing your monthly credit obligations just after purchasing a
Visit my website
at http://www.bobrutledge.com/MODPA to learn more about what is available in the State of Missouri!
How to avoid this mistake: Ask a mortgage lender about
your options. You might qualify for a Veterans Administration or U.S.
Department of Agriculture loan that doesn’t require a down payment. Federal
Housing Administration loans have a minimum down payment of 3.5%, and some
conventional loan programs allow down payments as low as 3%. Ask about down
payment assistance programs as well. Do your own homework too, search for DPA
programs in your area.
(3) Not hiring a buyer’s agent
Too many home buyers
make this mistake! Do not make the mistake of working directly with the
seller’s real estate agent, who was first hired and obligated to secure the
best price and terms for the seller. Do not be persuaded that a Real Estate
Agent can negotiate in all fairness to both sides, it is impossible. As a
novice home buyer, you could be overmatched when negotiating with an
experienced agent who’s working on the seller’s behalf.
How to avoid this mistake: Work with an exclusive
buyer’s agent, who has a duty to work in your best interests. If you do not know
a real estate agent, seek out referrals from your friends and family. But, if
you are working with a Mortgage Lender they will know many qualified real
estate agents in the area and especially an agent who will fit your needs.
(4) Using up all of your savings
If you buy a
previously owned home, it almost inevitably will need an unexpected repair not
long after. Maybe you’ll need to replace a water heater, repair a crack in the
chimney or get rid of hidden mold.
Having money in
your account after you close is one of the best situations for any home buyer.
Besides the home repairs that will come, what about the small items that will
be needed for your new home the moment you move in.
Using your own funds
and not your credit cards will keep you from increasing your debt loan. You
have a new house payment, normally at or higher than your previous rent, try
not to add to your monthly debt with additional credit card purchases if you
don’t have to.
Read about my ZERO
PROGRAM at http://www.bobrutledge.com/zero-down-payment-closing-costs and how easy it is for new home buyers keep their savings in their
to avoid this mistake: Save enough money to make a down payment, pay for closing costs
and moving expenses, and take care of unexpected expenses. This is easier said
than done. But you can buy a home with a down payment of much less than 20%,
allowing you to conserve your savings.
(5) Ignoring a home’s flaws and drawbacks
A lot of
first-time home buyers fall in love with one of the first properties they look
at. They ignore the negatives of the house and its neighborhood.
But you can’t disregard
the downsides forever. For example, you might think you’ll be OK with a
long commute, but after a few months of spending too many hours stuck in
traffic, you’ll wish you had bought a house closer to work.
How to avoid this mistake: Do two things. First,
resolve to visit many of houses before
making an offer, you’ll be less likely to fall in love with the first or second
or third home you look at.
Second, write a list of the
attractive and the unattractive qualities of each house, and pay attention to
each home’s downsides.
(6) Being indecisive
The flip side of
choosing a place too quickly is acting too slowly when you find the right home.
In a market with more buyers than sellers, you have to move fast.
I see this a lot when I first
pre-approve a home buyer, they needed some time to think about it and made an
offer two or three days after viewing a house, only to discover that another
buyer had swooped in and made a successful offer. This will only happen to you
after the first couple times, but by then you will know what you want in a
home. If this happens to you know that it is normal and simply a part of the
learning process of being a first time home buyer…..all things happen for a
How to avoid this mistake: Once you look at multiple
houses, and you get a feel of the market and you know what the market is like
and where the prices are at, and you see something you like, don’t hesitate to
make an offer, because you and 10 other people will be interested in that same
property, this is today’s housing market.
(7) Overpaying for a house
home buyers tend to pay more than experienced buyers would pay for the same
house, according to research conducted by two economists with the Federal
Housing Finance Agency. In their analysis of appraisal data from more than 1.7
million home sales, FHFA economists Jessica Shui and Shriya Murthy concluded
that first-timers overpay by an average of 0.79%, which was nearly $2,200 per
house, according to the data set they examined.
and Murthy pointed to the inexperience of first-time home buyers. Real
estate agents say newbie buyers let their emotions take over, too. First Time
Home Buyers tend to overlook potential negatives and only look at the positives
of a particular house. I tell me home buyers to act with their heads and not
with their heart, but I know I am asking for the impossible so just use as much
of one as the other.
How to avoid this mistake: Ask your agent for
a competitive market analysis, a report that looks at the prices of comparable
nearby homes that have been sold recently. And it helps to fully understand the
real estate process, so seek out as much information as possible. If you
have friend that recently went through the process or are currently seek out
(8) Skipping the home inspection
markets, a lot of buyers compete for a small number of properties for sale. In
these strong seller’s markets, buyers are tempted to waive a home inspection.
It gives them a competitive edge over smarter buyers who wouldn’t dream of
forgoing an inspection before plunking down hundreds of thousands of dollars
for a home.
It’s a HUGE
mistake to buy a previously owned home without an inspection because there
could be expensive, hidden damage that you wouldn’t spot but an inspector
How to avoid this mistake: Simple: NEVER EVER ALLOW
THIS TO HAPPEN. Hire a licensed home inspector. Your real estate agent will
gladly make a recommendation, but it’s better to hire an inspector of your own
choosing who doesn’t depend on your agent for referrals. Plus, require that a
home inspection contingency is included in your sales contract, your BUYER AGENT
who represent you will help you get this negotiated in the sale contract.
(9) Underestimating the costs of ownership
After you buy a
home, the monthly bills keep stacking up. This can come as a surprise if you’re
Keep in mind it’s not just
your mortgage payment, you’re going to have the utilities bills that you did
not or may not have been paying when you rented.
Renters may have been paying
these kinds of bills, too. But the new home could very possibly have
higher costs simply because your new home is bigger. Your house may come with
entirely new bills, such as homeowner association fees.
How to avoid this mistake: Work with a real estate
agent who can tell you how much the neighborhood’s property taxes and insurance
typically cost. Ask to see the seller’s utility bills for the last 12 months
the home was occupied so you have an idea how much they will cost after you
move in. Ask for a seller disclosure for every house you are interested
in, many times this will help you.
(10) Miscalculating repair and renovation
First-time home buyers are frequently surprised by high repair
and renovation costs. Buyers can make two mistakes: First, they get a repair
estimate from just one contractor, and the estimate is unrealistically low.
Second, their perspective is distorted by reality TV shows that make
renovations look faster, cheaper and easier than they are in the real world.
How to avoid this mistake: Assume that all repair
estimates are low.
Seek more than one estimate
for expensive repairs, such as roof replacements. A good real estate agent
should be able to give you referrals to contractors who can give you estimates.
But also seek independent referrals from friends, family and co-workers so you
can compare those estimates against ones you receive from contractors your
purchasing a home in need of repairs with a renovation mortgage program that
will allow you to use your mortgage to purchase your home as well as fund the
repair/renovation costs all in one new home loan. Want to learn more about
renovation mortgages visit my website to Learn More About Renovation Mortgages at http://www.bobrutledge.com/HomeStyle-Renovation-Mortgage
The 3% Down Alternative to FHA
It seems that a
lot of people think that Conventional financing requires a minimum down payment
of 20% or more.
I am shocked at
how many folks I speak to every day that think that a conventional loan is not
an option for buying a home with a low down payment.
Both Fannie Mae
and Freddie Mac, the conventional mortgages, have special loan programs
available that, based on your income, and/or the geographic region you are
buying in, allows you to buy with as little as 3% down payment.
Credit is Best
conventional loan programs they tend to favor better credit scores, through
their risk based pricing they punish borrowers with lower credit scores with
costs to the lender that increase interest rates if you are not perfect in the
eyes of Fannie or Freddie.
If you’re one
of those homebuyers, or homeowners that has excellent credit to decent credit,
but not a lot of equity or money for a down payment, you may be surprised at
conventional loan options offer.
HomeReady program is designed to meet the diverse needs of today’s buyers using
flexible underwriting guidelines for credit worthy low-to-moderate income
borrowers trying to finance a home.
Income from non-borrowing household members can be considered as
a compensating factor to allow debt to income ratio greater than 45%, up to
Can use income from rental unit and boarder income for
Allows non-occupying borrowers, like a parent, to help meet debt
to income requirements.
Financing up to 97% loan to value for the purchase of a one-unit
Financing up to 95% loan to value for limited cash out
refinances, or 97% loan to value if mortgage being refinanced is owned or
guaranteed by Fannie Mae.
You are NOT required to be a first time home buyer to qualify
for this program
Private mortgage insurance is discounted, in many cases below
that of FHA and a regular conventional mortgage.
Gifts, grants, community seconds, and cash-on-hand can be used
as a source of funds for down payment and closing costs.
Nontraditional credit is allowed. An example is rental
history, or utility and insurance payments.
Requirements for HomeReady
HomeReady are required to meet certain criteria that are not necessarily
required if you’re using a traditional conventional loan with a maximum loan to
value of 95% (5% down payment for purchase).
Education Requirement – A homeownership education course may be required unless you
have previously taken a course required by a community seconds program, or if
you’ve completed a course from a recent attempt to purchase another home.
Eligibility – HomeReady is available to any homebuyer or homeowner that
meets the income limits of the property location. The income limits may
be waived if the property is located in a “targeted” low-to-moderate income
You can look up
the income and property eligibility by entering the address of the home you’re
interested in into Fannie Mae’s
Eligibility Search Tool Here
Home Possible Mortgages
Home Possible mortgage offer low down payments for low-to-moderate income
homebuyers, or buyers in high-cost or underserved communities.
offers two different low down payment options, Home Possible 95% Loan to Value,
and Home Possible Advantage 97% Loan to Value. I will only address the 97% or
3% down payment option.
Maximum loan to value 97%. Minimum 3% down payment for
1-unit single family unit homes, condominiums, and planned unit
developments are eligible.
Flexible sources of down payment. Down payment can come
from a variety of sources, including friends and family, employer-assistance
programs and secondary financing.
No cash-out refinancing is available up to 97% loan to value for
borrowers who occupy the property.
Income flexibility. Borrowers with income above the area
median income (AMI) may be eligible in high-cost areas. No income limits
in underserved areas.
You can check eligibility by using Freddie Mac’s Home Possible
Income & Property Eligibility Tool Here.
Private mortgage insurance is discounted, in many cases the
monthly mortgage insurance is well below that of a regular conventional
mortgage and below that of FHA
All borrowers must live in the property. Non-occupying
borrowers not allowed at 97% loan to value.
How Do I Choose
The Best Option?
There is very
little to no difference between the costs and interest rates of these two programs,
so it comes down to your financial situation that may determine which option is
best for you. In a sense, the best option chooses you.
or Home Possible should all be considered for many home buyers that in the past
were placed only in a FHA mortgage. What use to be has changed, if yesterday
you were a FHA mortgage today you may have a better option
example is if you have student loans with Income Based Repayment (IBR) payments.
FHA, Freddie Mac, and Fannie Mae all handle this situation differently.
is that the targeted income and property lookup tools offer different results.
If you look up a property using Fannie Mae’s HomeReady lookup tool, you
may make too much income to qualify, whereas if you look up the same property
using Freddie Mac’s Home Possible lookup tool, you may qualify. FHA does not
have a maximum income limitation.
If you are
considering a new home purchase and want a low down payment option you need to
consider a mortgage lender that has experience with FHA, Home Possible, and
HomeReady, and is willing to consider all possible options for you.
If you want to
talk with me about what options are available to you please contact me, Bob
Rutledge, at 314-628-2218 or email me at email@example.com