How to Avoid Homebuyer Mistakes During The Mortgage Process

This article covers How to Avoid Homebuyer Mistakes During The Mortgage Process. How to experience a smooth home buying and mortgage process with no stress:

• The home buying and mortgage process does not need to be stressful.
• Certain mistakes to avoid for home buyers.
• Monitoring bank accounts and credit reports.

How to Make Sure the Mortgage Process Runs Smoothly 

However, getting educated in the overall mortgage process is one way to avoid stress during the homebuying and mortgage process.

Learning How To Avoid Homebuyer Mistakes during the homebuying and mortgage process will definitely relieve stress and avoid delays in mortgage closings.

How to Avoid Homebuyer Mistakes Prior To Entering Into A Real Estate Purchase Contract

The home buying process can be very exciting and stressful at the same time.

We can discuss How To Avoid Homebuyer Mistakes by going over the most common mistakes made by home buyers. One of the most common mistakes made by homebuyers is skipping the mortgage pre-approval process.

They take it for granted they have good credit and down payment so what they do is have the home purchase under contract and then apply for a mortgage. Skipping the pre-approval process can often lead to closing delays or the borrower may not qualify for a mortgage.

The very first step of the homebuying process should be getting pre-approved. See how much home you can afford versus how much you qualify. Research the best loan program which suits your goals and needs.

Shop for the best mortgage rates. Not all lenders have the same rates. See what you need to do to maximize your credit scores. Higher credit scores mean lower mortgage rates. Make sure to go over the various mortgage programs and terms with your loan officer.

How To Avoid Homebuyer Mistakes By Not Buying A Dream Home You Cannot Afford

How much home can I afford? This is the most important factor all homebuyers should consider. It is not how much home you can qualify for but how much home can I afford.

Monitoring Your Bank Account And Credit Reports

Overdrafts in bank accounts and late payments in the past 12 months can be deal killers when it comes to qualifying for a mortgage.

Monitor your checking accounts and make sure you will not get any overdrafts. Many lenders will automatically deny applicants with bank overdrafts in the past 12 months.

Many lenders consider that consumers with overdrafts in their checking accounts cannot manage their finances. They are often scared they will bounce their new mortgage payments.

Check your credit reports and make sure you have no credit disputes. Credit disputes during the mortgage process are not allowed. All credit disputes, with the exception of medical disputes, need to be retracted for the mortgage process to proceed.

Your loan officer will help you maximize your credit scores. Higher credit scores mean lower mortgage rates. If there are errors on your credit report, your loan officer can help you correct errors with a rapid rescore.

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:

1. Government Loans are the residential mortgage loans that are insured and guaranteed by a governmental entity against default
2. 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:

1. Conforming Loans are Conventional Loans
2. 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:

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.

VA Loans:

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:

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.

Conforming Loans

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 800-900-8569 or text for a faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.

Types Of Mortgage Loan Programs For Homebuyers

There are various different types of mortgage loan programs.

Go over with your loan officer the best mortgage programs and terms. VA and USDA loans offer 100% financing with no down payment required.

In most cases, closing costs do not have to be paid by borrowers if they can get a seller’s concession from the home sellers. FHA loans require a 3.5% down payment for homebuyers with at least 580 credit scores.

Borrowers with under 580 FICO and down to 500 can qualify for FHA loans but need a 10% down payment. Conventional loans require a 5% down payment.

Fannie Mae and Freddie Mac offer 3% down payment conventional loans for first-time homebuyers. Non-QM mortgages do not require any waiting period requirements after bankruptcy and foreclosure.

Non-QM loans allow late payments in the past 12 months. However, a 10% to 20% down payment is required on non-QM loans.

There are so many unique loan programs that are available. Please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response to go over the best mortgage program and terms for your individual needs. Or email us at gcho@gustancho.com.

Buying Older Versus Newer Homes

Reserves for potential repairs are not required by lenders.

• When buying an older home, homebuyers should hire a home inspector and make sure there are no major renovations required
• The HVAC, plumbing, electric, septic, and well systems should be thoroughly inspected and checked for longevity
• These are high ticket cost repairs
• Older homes may need repairs
• Appliances are another high ticket cost items
• A new refrigerator and washer/dryer set may cost several thousand dollars

Buying Versus Renting

For those who know where they want to live and can keep their home purchase for at least five years or longer, buying is definitely better than renting. Longer-term thinkers will benefit from gaining equity in their home purchases. Selling a home too early after buying it can cost homeowners money. To recoup the costs of a home purchase, they need to keep the home for at least three years. Homeowners have full control of their property. They are no longer dependent on a landlord that can not renew their lease. Renters need to get permission to paint and/or decorate their apartments and/or homes by their landlords. You cannot own a pet without the landlord’s permission. However, homeowners have full control. Homeowners can have a dog and/or cat or both. They can plant a garden and decorate their homes the way they want.