Frequently Asked Questions
Owning a home has been called the American dream. But if you haven’t owned a home before, or haven't purchased one in a while, you may have a lot of questions. After all, for most of us, a home is the largest purchase we'll make. See if the answers to the questions below help, and if you have more don’t hesitate to reach out and contact me.
There are many “rules of thumb” for this, but the best way to answer this question is to talk with a lender. The factors you will need to consider are:
- Down payment: how much cash do you have for your share of the price of the home??
- Income and assets:what resources do you have to make your monthly payments??
- Liabilities: where else is your money going??
- Credit score: how good is your credit?
There are many different programs you can look at depending on such factors as how long you plan to stay in the home. I’d also recommend taking a look at the ‘How much house can I afford calculator.
The choice of mortgage is a decision that will be based on your home ownership goals. Items such as the amount of your down payment, the interest rate that results from your credit score, and the amount you want to borrow will also have an impact. To learn more about different types of Loan Products, please don't hesitate to reach out. My goal is to find the right mortgage product that fits with your short and long term goals.
Down payments affect both the balance of your loan and the amount you will pay per month. A down payment of less than 20% often means you will have to pay mortgage insurance. Most programs will require a minimum of 3%. However some programs, such as a VA loan for veterans, allow you to purchase a home with 0% down.
You also need to be aware that the source of the down payment will differ between loan programs. Some allow a gift for a down payment, but others do not. And some programs will require you to document the source of your down payment. It’s worthwhile to bring this up during our prequalification conversation so we can look at programs that best fit your needs.
Oh, and be aware that the amount of money you need to “bring to the table” when you close on your loan includes more than your down payment. It can also include various loan costs including insurance and interest payments. If you need to know more about what’s included and how much might be required, please feel free to give me a call.
Your interest rate is, first of all, subject to the general level of interest rates in the economy. There are a number of factors that come into play here, including actions of the Federal Reserve Bank.
The second element in determining your interest rate is how much you are borrowing, for how long, and how much “skin in the game” you have. While your mortgage uses your home as collateral, there is no guarantee what the home will be worth if you default on your mortgage. So the more you contribute to the cost of the home in the form of your downpayment, , the more favorable the rate.
The third element in your rate is the program you are choosing. Some programs, such as VA, have rates which are designed to provide assistance to veterans. Other programs may use rate as a matter to mitigate risk.
And speaking of risk, that is another important factor. This includes such elements as your employment history, credit history, and credit score. The better a risk you are, the lower the rate.
If you speak with a lender who gives you a rate without examining these factors, then the rate isn’t “real.” It is a rate for someone, but it may or may not be the rate for you. Many lenders will quote you the lowest rate they have to offer on any given day. At Sente, we will always give you a range of rates, then look at your specific situation to help you find the rate you are most comfortable with.
There are 3 broad parts of the process: pre-qualifying, property search, and contract-to-close.
- During pre-qualification, which usually happens before you even begin looking at homes, you’ll be asked to complete a standard loan application and then provide initial documentation supporting the basic decision factors: assets, employment and income. Your mortgage banker will look at this, talk with you about your financial and homeownership goals, and give you an amount that you “qualify” to borrow.
- After pre-qualification, you conduct your home search. As you find homes you are interested in purchasing, you’ll interact with your mortgage banker to verify that you are qualified for the purchase and begin to think about the loan program that you will choose.
- Contract-to-close is the most paperwork-intensive part of the process. Once you have a sales contract, you will receive legal disclosures that inform you of your rights and obligations during the loan process—you will need to sign and return these. You will then need to update the documentation you provided during qualification. As this documentation is reviewed by the underwriters, they may ask for more clarification or additional documents. You’ll also need to make sure you have identified your insurance agent so you can insure the home.
Prior to closing, you’ll receive information about what you will need to bring as well as the date, time and location. At closing, you’ll show up, sign a large number of documents that your escrow officer will explain, and then you’ll be a proud new homeowner!
First, it’s important to note that full approval for a mortgage doesn’t happen until after the sales contract has been signed, all of your documents have been reviewed by an underwriter, the appraisal has been reviewed and approved, and all is in order. Some lenders talk about “pre-approvals,” but really they are just talking about pre-qualifications (see question above).
Once the underwriters have looked at your documentation, the property appraisal, and reviewed all of the numbers, they will issue a “clear to close” determination. When this happens, you will receive a copy of the settlement statement known as the CD - Closing Disclosure. The CD provides you with an itemized list of all financial aspects of your loan, including the amount you need to have with you at closing. Note that you’ll have to bring that amount in the form of a cashier’s check, or arrange for a wire transfer. You’ll also receive information about where and when the closing will take place.
Generally you will receive your keys when you close on your new home. However, after closing your loan must be funded. That means that all of the parties to the contract must have signed. If, for example, the seller hasn’t signed, it could delay your move.
A good rule of thumb is to give yourself 24 hours after closing to move. While this is rarely the case, it allows for possible delays in the closing itself. Because of new (2014) regulations, there are a number of last-minute verifications that can have an impact on closing, so a little extra time allows you to play it safe.
What type of loan is right for you?
5 Things to Consider When You’re a First-Time Homebuyer
You’ve had it with renting. The thought of writing another check that’s not going towards your financial future is too much. But buying a house can be daunting. Where do you start? What’s the process like? Am I really ready to do and own this thing? Here are 5 quick points that will help you through the process of making the biggest single investment of your life.
1. Price Check
Your first task is to look around at the kind of houses available in the neighborhood you’re interested in. You can do a quick search of actual multiple listings service (MLS) in your area on a number of websites including the National Association of Realtors. You may also get in touch with us as we have plenty of mortgage bankers that are willing to help.
2. Be Realistic
After you get an idea of housing costs in your desired area, it’s really important to determine how much you can actually afford. You can do this using our mortgage calculator. Just enter in how much you can comfortably afford each month for a mortgage payment to get a glimpse of what your monthly payments would be if you bought today.
3. Check Your Credit
Having the best credit score possible is advantageous when purchasing your home loan. While there are no strategies to immediately improve your credit score, you are able to correct it by identifying its shortfalls, all in time to make a meaningful impact on your home purchase. Here are a few sources where you can get a glimpse of your credit score.
4. Other Expenses
Of course, your mortgage won’t be your only financial responsibility. It’s important to check out the costs of property insurance, taxes, homeowners association, and maintenance dues in your desired neighborhood. In some areas, the amount you pay for taxes and insurance escrow can almost double your mortgage payment.
5. Get Prequalified
Homeowners are often afraid to become prequalified for a loan. It’s not nearly as much fun as looking at houses. Becoming prequalified for a home loan positions you to make a smart decision over an emotional one.
Buying a home is a daunting decision. The financial and emotional investments involved with purchasing a home are a challenge. But by following these tips, you will soon discover and enjoy the comfort that a home provides.
5 Things to Consider if You’re Buying A New Home for the First Time In While
Some years ago, you bought your first home. If you’re like most people, you don’t have a photogenic memory of what the experience was like. Rather, it was just a blur of people, paperwork and hand cramps from signing your name and initialing the corner of documents for so long.
Well, consider this a refresher course for your very specific set of needs. In addition, there have been some changes in the process since you bought your last home -- we’ll highlight those here.
1. Determine how much of your current home you actually own.
Most of us to don’t own our houses completely when we turn our attention to an upgrade. But hopefully you’ve been in your house long enough to have equity that can be used in the purchase of your new home.
2. Be aware of the costs of selling and buying.
Selling your home may incur commission costs, marketing costs, and some seller closing costs, depending on the circumstances. And in addition to the down payment on your current home, don’t forget you’ll have to pre-pay insurance and taxes for the year. And, of course, there are closing costs as the borrower as well.
3. Think about the timeline.
If the market is a seller’s market (as it is today), you may sell your home quickly but it could take you a while to find a new home. If you need to move before your new home is available (or even contracted), what will you do? And if the market is a buyer’s market, you could find a home quickly. However then you have 2 house payments while you are waiting for your home to sell.
4. Big changes since 2006.
If you haven’t purchased a new home since 2006, recall the burst of the housing bubble and the Dodd-Frank Act that created a significantly new regulatory environment since then. You’ll experience more questions to be answered, more paperwork required, and a longer time in getting the loan to close than you may remember in your last purchase.
5. Other recent changes:
- New regulations emerge with regularity. Some of the rules that may impact you even if you had a more recent home purchase include:
- New Forms: The old Good Faith Estimate you may have received as you were shopping for your loan has been replaced by the Loan Estimate. The old settlement statement (known as a HUD-1) has been replaced by the Closing Disclosure.
- New Timelines: The biggest change is a requirement that the borrower receive the Closing Disclosure 3 days prior to the closing of the loan. This adds time to the loan process and can mean that last minute changes may require the closing date to be postponed.
Finally, the personal financial situation of the borrower has become a much bigger part of the mix with the Ability to Repay requirement. Your experience will not be the same as your best friend’s experience, even if you are going through the process at the same time. In choosing a lender, looking beyond rate to someone who can help navigate the rough waters of the more regulated and paperwork-intensive process is a smart move.
Everything you need to know about VA Home Loans
When Congress passed the GI Bill of 1944, Congress created a variety of programs designed to help those returning from World War II. One of the most popular and enduring programs is the VA Home Loan, a one-of-a-kind mortgage program that allows qualified US Veterans to finance a home at a competitive rate, with no monthly mortgage insurance and no down payment.
Today, there are more than 22 million veterans and active duty personnel who may qualify for a VA Loan to purchase a home. If you’re a qualified US Veteran ready to explore the VA home loan process, you’ve come to the right place. Below you’ll find a step-by-step guide to understanding the qualifications, application and paperwork you’ll need to get the ball rolling.
A Sente Mortgage Banker can help make this process easy. Contact us today if you have any questions.
Step 1: Determine your Eligibility
Many of the US Veterans we work with don't immediately realize that their service to our country makes them eligible for a VA Home Loan. To clarify the eligibility rules, below is a list of the basic qualifications one must meet to apply for a VA Loan.
Who exactly is eligible for the VA home loan benefit?
Veterans: The largest single class of eligible borrowers is veterans of the Armed Forces. A veteran will need to provide evidence of the discharge with form DD-214, and the discharge must be read as an “honorable, under honorable conditions and general” discharge.
Active Duty Personnel: Those who are currently serving in any branch of the Armed Forces may qualify by showing evidence of at least 90-days of continuous service.
National Guard and Reserve Members: Current National Guard and Armed Forces Reserve members with at least six years of service are also eligible for the VA home loan benefit. Honorably discharged members of the National Guard of Armed Forces Reserves who have at least six years of service may also qualify.
Surviving Spouses: Unremarried, surviving spouses of veterans who have died as a result of a service-related injury may also claim the VA home loan benefit, as well as the spouse of a service member missing in action. Surviving spouses who later remarry on or after turning 57 may also be eligible.
Others: Cadets at the United States Military, Air Force and Coast Guard academies may qualify, as well as midshipmen at the U.S. Naval Academy.
If you fall into one of these categories, and are ready to make your dream of homeownership a reality, next step is your Certificate of Eligibility.
How to get your Certificate of Eligibility
First, let’s define what it is. A Certificate of Eligibility is often considered the first step in the VA Loan process. It’s is a document that proves that a potential buyer has met the VA Loan service requirements and is eligible to qualify for a VA Loan. It’s a fairly simple document that is obtained in several ways:
- Have your VA lender request a copy for you. The easiest way to get your Certificate of Eligibility (COE) is to have your VA lender request it for you. Approved VA lenders (like Sente) have access to an online system that allows the VA lender to request and receive a copy directly from the VA. Once the lender makes the request, the COE is delivered electronically and is received in a matter of moments.
- Request a copy online or by mail. You can obtain your COE by making a written request directly to the Department of Veteran’s Affairs, or you can apply for a copy of your COE by visiting the portal set up by the VA where you can make your request online, in person or by writing the VA. You will need to complete a Request for Certificate of Eligibility by filling out DOD Form 26-1880. You’ll also need a copy of your DD Form 214 to make sure the information on the DD Form 26-1880 matches the DD-214 exactly. Once the VA has received your request, the COE will be delivered to you.
What if I’ve already used my VA Loan Eligibility?
Veterans can use their home loan eligibility more than once. For most who use the VA Loan to buy a home, once the home is sold, the entitlement is completely restored for use on another home. And, if you’re refinancing an existing VA Loan with a VA Streamline Refinance, there is no need to request another COE as eligibility was already verified.
Please note: If you decide to keep the original home purchased as a rental or investment property, the VA Loan entitlement isn’t available for a new home unless you refinance the original property to a non-VA Loan.
Step 2: The Application and Pre-qualification Process
Once you’ve determined your eligibility and are ready to hit the streets to find your dream home, it’s smart to begin with a lender to get the application and pre-qualification process started.
Pre-Qualification is a fairly simple process that will allow a mortgage banker to review your income, assets and liabilities and will give you an estimate on how much money you can borrow. Armed with this information you can shop with a budget in mind. The pre-qualification process also gives you an opportunity to discuss financing options with your lender, and to review any potential credit issues during this process.
Credit Scores and VA Loans
VA Lenders validate a responsible credit history by reviewing the credit report and the credit score. VA Loans don’t require perfect credit, but they do require what might be described as an “average” or better credit history. Of primary importance is the most recent two years of payment history. There can even be a late credit card payment or two in the recent past, but if those payments are isolated and the only late payments showing up, then the credit score is more than likely good enough to qualify.
Using credit scores when approving a VA Loan has been around since the late ‘90s, and today credit scores are used to quickly assess a borrower's credit history. Most lenders require a minimum credit score of around 620, but there are exceptions to that guideline on a case-by-case basis. Credit scores might seem a bit foreign to many, but they’re calculated using an algorithm established by a company called Fair Isaac & Company who goes by the name “FICO.” Credit scores are three digits and range from 300 to 850, and the higher the score the better the credit history. When lenders pull credit on a veteran’s loan application, they pull a report from the three main credit repositories of Equifax, Experian and TransUnion.
Rental history is also a major factor when evaluating a veteran’s payment history. It has a greater impact on a credit profile than a late payment on an automobile loan or student loan, and is defined as a payment made more than 30 days past the due date. When a borrower applies for a VA Loan, the borrower also gives permission for the lender to contact the landlord or otherwise provide 12-months of cancelled checks showing the rent was paid on time. Lenders want to see at least a two-year history of rental or housing payments. There are exceptions made, however, for those recently discharged or recent graduates from school who have just started to work full time.
Step 3: Loan Processing & Paperwork
Armed with your pre-qualification letter, it's shopping time. Once you’ve selected your dream home, you’ll make an offer and submit your pre-qualification letter to show your commitment as a buyer.
If your offer is accepted, your loan will move into the processing phase. As you might expect, obtaining a mortgage requires your fair share of loan documents and paperwork, and VA Loans are no different. In fact, VA mortgages might even have a few more processing requirements and pieces of paper to sign compared to a conventional home loan. This is primarily due to verifying eligibly for this special zero-down-payment program.
Once your VA mortgage banker receives your loan application, here’s what you can expect them to ask you to provide as part of the process:
Certificate of Eligibility
You’ll need to provide your Certificate of Eligibility (COE), which you can obtain directly from the VA, or you can have your VA approved lender obtain it for you.
VA lenders are required to show evidence that the veteran has the ability to comfortably repay not just current monthly credit obligations but the new mortgage payment, including a monthly portion toward property taxes and homeowners insurance. This verification is completed by reviewing the most recent paycheck stubs covering a 30-day period. If you’re active duty, you’ll be asked to provide a copy of your LES.
If you’re self employed or you rely on other income that doesn’t come directly from an employer, you’ll need your two most recent signed federal income tax forms, all schedules as well as a year-to-date profit and loss statement. The year-over-year income should be consistent without any significant drop in income from one year to the next. The profit and loss statement can be prepared by you or your accountant and does not have to be an “audited” profit and loss.
Even though veterans are restricted from paying certain kinds of closing costs and there is no down payment requirement, there will still be closing costs that need to be addressed. Your VA loan officer will provide you with a list of expected charges and what they’re for but will also make sure there are enough funds in an account you own that will cover those fees. Verification of sufficient funds to close is performed by submitting your most recent copies of those accounts. If you’re getting a financial gift from a relative to help defray these costs, your lender will provide you with a Gift Letter for the donor to complete.
You’ll need to have insurance coverage on the home you’re going to buy that will cover at least the amount borrowed. Once you select a property and the property appraisal has been completed, your insurance agent will provide a policy.
There are multiple VA home loan disclosures you’ll need to review, sign or initial and return to your VA approved lender. Those include the Occupancy Statement, Fair Credit Reporting Act, Equal Credit Reporting Act, Right to Financial Privacy, Disclosure Authorization Form, an Anti-Coercion Statement and Flood Insurance Notice. If you select an adjustable rate mortgage, you will also receive a booklet entitled Consumer Handbook on Adjustable Rate Mortgages. In addition to these loan disclosures, you will also receive and sign copies of your initial, typed loan application.
A VA lender might need additional information from you while the loan is being processed. This could be a missing paycheck stub or signing a disclosure that was previously left blank. When the loan is documented and sent for an approval, the underwriter may have some questions or even ask for additional information for you to bring to the closing table. These additional items brought to the closing are called “loan conditions” and are typically nothing more than updating the file to conform to VA guidelines.
Step 4: Closing
Once the Underwriter gives your file the final approval, a closer will draw up the legal documents and send them over to your title agency and attorney for final preparation. You’re in the home stretch now! A closing date will be scheduled at the title agency and the celebration can soon begin!
Perhaps the most attractive feature of a VA Loan is the absence of a down payment. However, it’s important to note that there are closing costs associated with any VA loan, it’s just a matter of who pays them and how they’re handled (according to the VA there are certain closing costs the veteran is not allowed to pay).
VA Closing Costs Explained
An easy way to remember which charges are considered “allowable” is to remember the acronym ACTORS.
- Credit Report
- Title Insurance
- Origination Fee
Other fees are considered to be “off limits” and veterans are not allowed to pay them. When you speak with a loan officer, be sure to discuss any charges you can expect to see at the closing table and have your loan officer explain what each of the charges are for and the third party services needed in order to close your VA Loan application.
Over the last couple of months we've had several past clients, friends, and family members reach out to ask the same question, "Should I refinance?" While much depends on your personal financial goals and objectives, there are four questions that might provide some guidance:
1. Are you planning to stay in your home for more than 5 years?
When you refinance your existing home, you will be readjusting your mortgage to a new interest rate and term. Due to closing costs there is a breakeven point that represents the amount of time it will take to build enough equity in your home to recoup those costs. For the average client and market, that breakeven point on refinancing is somewhere between 3-5 years. If homes in your area appreciate quickly, that number may be less. It’s important to consider how long you plan to stay in your home as you are evaluating refinancing your mortgage.
2. Would you like to pay off your mortgage early?
Refinancing from a 30-year loan to a 20- or 15-year term might be appealing if you’re interested in increasing your long term cash flow. Depending on your life situation, increasing your cash flow in the long term can be really attractive, even if it might mean paying a little more in the short term. If you’ve ever paid off your car note and kept driving the same vehicle, you know how satisfying this can be.
3. Would you like to eliminate debt and improve cash flow?
In certain situations debt consolidation can improve your household cash flow. Refinancing your mortgage may make sense in this scenario if it would help to strengthen your overall financial situation. Depending on the current interest rates and terms associated with your outstanding debt, refinancing may offer a more favorable outlook.
4. Do you know how your current loan fits in with your overall financial plans?
From tax benefits to building equity in an investment vehicle, owning your own home offers multiple financial and lifestyle benefits. In reality, everyone’s financial plans change over time. It’s important to take a step back and evaluate the larger financial picture to determine how your home factors into that plan. Every month that you make a mortgage payment is another month that you’re paying down what you owe on your home. Not only does this decrease the amount that you owe over time, but it also increases the amount of equity (or value) that you have in your home.
If you answered yes to any or all of these questions, then it is possible that a refinance of your mortgage is a good idea. If you're interested in a free assessment of your current mortgage and how it fits your financial goals please contact us. We're more than happy to help.
5 Things to Consider if you're interested in becoming a Real Estate Investor
For many, investing in real estate is appealing, especially in hot markets. Oftentimes it’s a great way to diversify a portfolio or to make sure you’ve always got a place to stay when you’re on vacation. So if you’re in the market for an investment property, here are a few things to consider before you decide to pull the trigger:
1. Consider the Time Investment: If you’ve ever watched Flip or Flop on HGTV or a similar show, they make the process of finding a property, fixing it up, and reselling look like a breeze. The reality, however, is that each of these steps in the process is time consuming. Depending on your investment goals, it’s important to consider your time involved with finding the perfect property and either managing it as a landlord or managing a renovation project. While we all know there is a lot of potential in several Texas markets to turn a profit, it’s important to calculate the personal time and investment it will take to make that happen.
2. Tax Implications: Real estate Investing has several tax implications that are important to consider, especially if you are planning to keep the property and rent or lease it out. Any rental payments that you receive are taxed at ordinary income rates. You’re also able to utilize front-end depreciation on your rental property to reduce the taxable amount. Before buying your first investment property you should consider talking with a tax specialist to understand the full financial and tax implication. For additional information, you might also want to check out this article from BiggerPockets.com.
3. Portfolio Diversity: One of the great things about becoming a real estate investor is the expansion of your investment portfolio. Real estate is one of the earliest forms of investing, and even pre-dates the modern stock market. It also has a psychological advantage as it’s an investment that you can see and touch.
4. Illiquidity: One of the challenging aspects of being a real estate investor is the inability to change your investment into cash quickly. Depending on the market, you may be able to sell your investment property with relative ease, but in most circumstances it would still take 30 days for you new buyer to close on the property and for the cash to be in your hand.
5. Tolerance for being a Landlord: If you are purchasing an investment property and are planning to rent it out, you’ll need to consider the investment it takes to be a landlord, or the monetary investment it will take to hire a property management company. It’s important to keep in mind that is there’s an issue with the home or rental unit, you’ll be the person that gets called.