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Here are some frequent questions regarding home loans:
1. How Much Can I Afford?
As a first-time home buyer, it's important to have an accurate idea of how much home you can afford and how much you are qualified to borrow. Few things are more frustrating than falling in love with a home only to discover that it is not in your price range. But, how do you know what you can afford? Santa Cruz is a small community with a lot of diversity of property types, so having a local lender is of benefit.
2. Should I Get Pre-Approved, Pre-Qualified, or Qualified?
Often a broker or lender will tell a potential buyer they are "pre-qualified" or "pre-approved" for a loan. However, the borrower may find a house, only to later learn that the amount they were "pre-approved" for wasn't what they could actually afford. Knowing the type of lenders that will lend in different areas of Santa Cruz County is important.Many a transaction has blown up because an out of area lender and appraiser don't know how to value homes here.
To fully approve a borrower, a lender will complete the application process by pulling credit and verifying income and assets.
It is important that you are fully approved before you shop for a home. That way, you're in a better position to negotiate because the seller knows that your financing is in place and that your offer is solid. It also saves you time because you already know how much you can spend and don't waste time looking at homes outside your price range.
3. What Is My Credit Score?
Before applying for a home loan, first-time home buyers should obtain a copy of their credit report and review it. If there are errors or issues that need to be fixed, it's easier to address them before a house has been found, rather than dealing with it when trying to close on the loan.If there are a few blemishes on your credit, as a first-time home buyer, you should talk to your lender for advice.
4. What Kind of Loan Options Are Available to Me?
For first-time home buyers, all of the mortgage lingo can be a bit confusing and overwhelming. Ask your banker a lot of questions. Deciding what mortgage loan is best for you will depend on a few key factors:
* Your current financial situation
* Whether or not you expect your finances to change
* The length of time you plan to stay in your home
* If you are financially able to adjust to periodic changes in your monthly payment
Interest Only loans gives home buyers flexibility and allows you to afford more than a traditional principal and interest loan. Because interest-only loans are fairly new in some markets, some people are wary. Make sure you research all loan options before making a decision.
5. What Documentation Do I Need to Have?
To make the loan process faster and easier, you should have these items available when you're ready to complete your application:
* W2s
* Pay stubs
* Bank statements
* Written verification documenting where the down payment will come from
Some loan programs are more flexible and require less documentation, so if you are self-employed, work on commission, or have difficulty documenting income you do have other options for processing your loan.
6. I Found My Dream House! How Do I Know What Is a Reasonable Offer?
Since living in Capitola, Seascape or Santa Cruz, as well as any of the intermediate area each have their own flavor, the pricing should be relevant to that area specifically. In hot and cool markets, values can be hotter or cooler in individual locales.When deciding how much to offer, you should weigh several factors: asking price vs. comparable home sales, market conditions, other potential offers, the home's condition and whether you're approved for a loan. As a local Santa Cruz real estate agent I can be very helpful in deciding how much you should offer.
7. What Is a Purchase Agreement?
This document indicates the amount of your offer and may also include details that stipulate, for instance, which appliances stay and when you'd like to take possession of the house. The seller or selling agent will need you to sign a purchase agreement and put down "earnest money." Earnest money is a deposit showing that you're willing and able to buy the home; it's usually a small percentage of the asking price and later applied as part of your down payment. We can discuss what is customary for each situation.
8. Should I Have the Home Inspected?
Yes, you should. You have a right to inspect the home you've made an offer on, and most purchase agreements are contingent upon inspection. Hire a qualified professional to inspect the home--it's the best way to ensure the home is in good condition.
A thorough inspection is an objective examination of the home, from top to bottom, inside and out. It includes:
* Heating and cooling systems
* Plumbing and electrical systems
* Structural integrity of walls, floors, ceilings, foundation, roof
* Condition of gutters, spouts, insulation and ventilation, major appliances, garage, etc.
The home inspector should check everything and leave you with a very detailed report listing the condition of each item, as well as recommended repairs. It's best to be there when the home inspection takes place. It usually takes a few hours and you'll learn not only about the condition of the house but how everything works and you can ask questions as you go along.
9. Do I Need Homeowner's Insurance?
Yes, you'll need homeowner's insurance before you close on your home. No reputable lender will give you a mortgage without it. Once your home is inspected and you've decided to go ahead with the purchase, the loan processing will go forward. It's at this time you'll need to show proof of homeowner's insurance.
10. What Are Closing Costs?
This is one of the most asked questions by home buyers. Lenders are required by law to disclose in writing your estimated closing costs and fees. This is known as a "good faith estimate." Additional costs might apply depending on your state, loan and down payment amount. Before your closing, you'll receive a document that outlines the costs you'll pay at closing.
You'll be asked to bring a valid picture ID, a certified check (if applicable) and any other additional documents that your circumstances may require. It's customary to take a final walk through of the property shortly before the closing to make sure the home is in the condition you expect it to be, within 5 days of closing.
At the sign off or closing, usually you, possibly the lender and agent, and the title company representative meet. These meetings usually take from half an hour to as long as 1-1/2 hours depending on the number of loans and their complexity.The escrow officer explains what the documents mean. For specific loan questions, you will need to call the lender. Many good ones review the documents before they go to escrow. Sometimes the lenders change things and do not alert the mortgage broker. Once everyone signs the appropriate documents, usually you will need to bring in your down payment within in 2 days. After the lender has the loan documents often times it is a week before they fund the loan and the checks are exchanged. Once this occurs you go "on record", you'll be given the keys to your home and that's it! You are now a homeowner. Congratulations are in order.
Now that you know the basics, you're on your way to being better prepared for getting a mortgage and buying your first home.
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