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Old 08-21-2013, 01:26 PM
 
8,133 posts, read 5,702,064 times
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I'm at the point in my life where I think it makes sense to buy my first house. That said, I'm somewhat confused about how to start the process. I understand that I need to get pre-approved, but the stumbling block is the best way to go about doing this. I know my primary options are 1) a mortgage broker; 2) a credit union; or 3) a community bank. My regular bank is Wells Fargo but I have heard to stay away from the big banks for mortgages due to how difficult they are to deal with.

Any suggestions on how to go about starting this process? In terms of mortgage brokers, how do I find a reputable one. A real estate agent I spoke with recommended one but I am weary that he might have done that due to getting some kind of kick-back. In terms of credit unions/community banks, I assume it's simply a matter of contacting each.

A bit about myself: I have a stable job and make in the $70,000-$80,000 range. I don't have debt and have about $80,000 in the bank and another $25,000 or so in investments. This is all in addition to the pension program I have through work, which will eventually be my primary source of retirement income. The only bad thing about my credit history is that I don't have a big ticket purchase (such as a car) since I have saved money and bought them in cash previously.

Any advice would be appreciated.
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Old 08-21-2013, 02:49 PM
 
Location: New York
2,251 posts, read 4,162,931 times
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.

I commend you on your income description, not many people your age are in the same boat as you are. Like many in your age group the dream of owning your first home, your looking for the quickest way to achieve getting one.

Think about this - do you want to spend more or less over the lifetime of the loan?

Rushing to get a mortgage by using a broker. They can shop around with different banks (A+, Private and Hard-Money lenders). The result is getting you a loan, but you'll end up paying more in closing costs and higher rates ending up with higher payments. Over the term of the loan paying as much as 5 times or more than the original amount borrowed.

The obvious problem is your credit, it would be wise to take a little time to improve it. That way you can qualify for better loans with less costs, lower interest rates and smaller payments. Over the term of the loan only paying 2 to 3 time more than the original amount borrowed.

Taking steps to improve your financial resume in the short term, you will spend less in the long term
.

Stop paying cash for huge purchases. Over the next year recommend learning about the five parts of credit and how each affects your credit score. Then taking steps leaning how to invest in yourself.

I do not recommend as a first time buyer approaching a credit union for a mortgage. Credit Unions have limited loan programs, if any issues come up after you submit an application and pay $350 to $500 for an appraisal. You app. is dead.

If you are rushing to get your first home, you can go to an independent broker as mentioned previously. They can shop around with your qualifications finding a you a loan. Due to your lack of knowledge and experience with mortgages, you could be setup and lied to then get to closing and all the numbers change. Not all brokers are bad, be careful there are many looking to get as much as they can from you.

Going to a direct lender such as Wells Fargo, they keep a large percentage of their loans they originate. "Big Banks" have different loan programs which is a benefit if you do have issues. Their rates and closing costs competitive.

There are first time buyer FHA loans, with easier requirements compared to conventional mortgages. The main issue I do not like about FHA loans is the mandatory mortgage insurance (this is different the home owners insurance). It use to be after 5 years and reaching an LTV of 78%, the mortgage insurance could be dropped off. Recently the FHA rules changed, now your paying mortgage insurance (M/I) for the life of the loan.

Your best bet is a conventional mortgage putting at least 20% for the down payment. Anything less you could be paying principle mortgage insurance (PMI) until you reach a LTV ratio of 80%. One hard important fact with PMI, there is no mechanize in place for it to automatically drop off. If is the responsibility of the home owner to notify the mortgage bank so they can remove it. I recent worked with a home owner after reviewing his documents, looked at his value was and question why he was paying PMI at a 60% LTV. Banks will not refund what you over paid.

There is a lot to understand about home loans, many people try seek out as much information as then can, only getting frustrated trying to learn things that don't even apply to them. Every individual is different due to their situation. Just get a general knowledge, then ask other home owners about their lender/mortgage.

Good Luck...



.

Last edited by Modification Specialist; 08-21-2013 at 04:18 PM..
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Old 08-21-2013, 03:23 PM
 
8,133 posts, read 5,702,064 times
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I'm really not in any rush. I just am looking for tips on the most effective and safest ways to begin the process, with the primary goal the avoidance of paying more than is necessary. I'll reconsider the big banks as an option.

My housing needs are relatively modest, so I should be able to put down the 20%.
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Old 08-21-2013, 05:56 PM
 
Location: New York
2,251 posts, read 4,162,931 times
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.

Another important topic to consider for first time home buyers.......

It's human nature for home owners trying to get the most they can when selling their home. They increase the price knowing they have room to drop it. Due to values not raising as fast as before our last recession. I personally believe it is going to be a buyers market at least for the next few years.

Most people make the mistake by looking for homes first before getting approved for a mortgage. They find a house that is many times above their income spending limits. Then they go shopping for a loan. Each bank they talk to runs their credit report, driving the score lower....lol...

It is wise to speak to a loan officer first so you know your budget range. Later they can give you a pre-approval letter the showing the amount you tell them (within your income limits). That you can use as a tool when negotiating to price.

Make sure your are aware of the neighborhood value of the area your considering purchasing a home. On line your can check out websites like Chase-Home Value, Zillow, Cyber-homes, etc... Many people argue these sites are not accurate as what an individual home value may be compared to a MLS listing.. The objective is to see the overall value of the neighborhood giving you knowledge to negotiate.

Realtors do not like what I am about to tell you because it cuts into their commission. Plan on making a few offers, the example below is only one reference how to negotiate a lower purchase price.

1) Make your first offer 30% less than the asking price. A low offer might appear as an insult, the point here is your starting low to have room to come up. Saying your interested if they will come down off the price.

2) After they come down say you are really interested, you want to have the home inspected before make your second offer. Home inspections range from $350 to $450 to get a detailed report of the home. These reports are worth it! This is your report, you do not have to share, that you can use as another tool to discuss any issues with the home to negotiate a lower price. Plan on making your second offer at 15% less of the revised price. Saying you extremely interested if they come down again. Pointing out any issues with the home inspection.

3) When they revise the price lower and before you make your final offer. Ask the loan officer for a printed pre-approval letter indicating the 1/2 way point between your second offer and last revised price. Show this to the seller, saying you are ready to give them earnest money to take the home off the market and your ready to sign a purchase agreement....

The goal here is for the buyer getting a smaller mortgage resulting in lower payments.



.
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Old 08-21-2013, 07:51 PM
 
Location: Kansas City North
3,628 posts, read 6,764,696 times
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OP - you seem to be pretty squared away when it comes to your finances, so you probably know this: just because some loan officer says you can borrow $215,000 doesn't mean you HAVE to.
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Old 08-21-2013, 08:52 PM
 
Location: Scottsdale, AZ
1,987 posts, read 3,789,077 times
Reputation: 2892
Quote:
Originally Posted by War Beagle View Post
I'm at the point in my life where I think it makes sense to buy my first house. That said, I'm somewhat confused about how to start the process. I understand that I need to get pre-approved, but the stumbling block is the best way to go about doing this. I know my primary options are 1) a mortgage broker; 2) a credit union; or 3) a community bank. My regular bank is Wells Fargo but I have heard to stay away from the big banks for mortgages due to how difficult they are to deal with.
Some people prefer brokers, some bankers. Quite honestly both can provide a good or bad experience. A lot has to do with the Loan Officer and their team. Some of the best experiences my clients have had have been through the big banks that are scourned on forums like this. In fact I have worked with a LO at your bank, Wells Fargo, that does an great job, she cares about her clients, and provides excellent service. I never hesitate to recommend her.

Quote:
Originally Posted by War Beagle View Post
Any suggestions on how to go about starting this process? In terms of mortgage brokers, how do I find a reputable one. A real estate agent I spoke with recommended one but I am weary that he might have done that due to getting some kind of kick-back. In terms of credit unions/community banks, I assume it's simply a matter of contacting each.
Many agents recommend lenders based on positive experience. It is a violation of RESPA to receive any kind of incentive from a lender and could lead to fines or loss of license by both the loan officer or agent. There are crooks in any industry, but most are honest.

Quote:
Originally Posted by War Beagle View Post
A bit about myself: I have a stable job and make in the $70,000-$80,000 range. I don't have debt and have about $80,000 in the bank and another $25,000 or so in investments. This is all in addition to the pension program I have through work, which will eventually be my primary source of retirement income. The only bad thing about my credit history is that I don't have a big ticket purchase (such as a car) since I have saved money and bought them in cash previously.
You do need to build your credit profile and the only way is to use credit. Your loan officer may be able to show payments like rent, and other type of reoccurring payments to show your ability to pay, but you really should open some lies of credit and pay them regularly to improve your profile.

I would speak to a couple of lenders and find the one that makes you feel the most comfortable with regard to their ability to close your loan. Not just promises they can't deliver.
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Old 08-22-2013, 07:08 AM
 
Location: Phoenix, AZ > Raleigh, NC
14,310 posts, read 17,512,523 times
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I'd say the first step for the OP is to pull her own credit report,check it for accuracy, and pay the ten bucks to get her FICO score. She may have used credit cards, etc and have a higher credit score than she realizes.
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Old 08-23-2013, 09:25 PM
 
643 posts, read 831,921 times
Reputation: 463
Hi Modification Specialist --

Can you explain more about brokers shopping your loan around but still ending up with a higher rate? It is because they aren't using smaller lenders?
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Old 08-26-2013, 10:54 AM
 
8,133 posts, read 5,702,064 times
Reputation: 11527
Any tips on how to vet a mortgage broker? I spoke to the recommended one on Friday. She seemed professional, though I really have no baseline for evaluating her or other brokers. She said she charges a flat $1,500 fee and makes her money off of volume rather than individual loans.
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Old 08-26-2013, 12:06 PM
 
Location: New York
2,251 posts, read 4,162,931 times
Reputation: 1607
Quote:
Originally Posted by dravogadro View Post
Hi Modification Specialist --

Can you explain more about brokers shopping your loan around but still ending up with a higher rate? It is because they aren't using smaller lenders?
Don't get me wrong, there are many mortgage brokers that can help qualify you for a good loan. However going with a broker you are opening yourself up for loan origination and junk fees. That might not be added to a loan if you went to a direct lender.

When you're shopping - the first important point to remember, every time you speak to a different broker. Your subject to having your credit report run again. Three or more trimerge pulls in one week will bring your score down!!

Here's an inside tactic having your credit report run once. Asking if the broker to email a copy of the trimerge to you. That way when your shopping, you can black out your social security number when you talk to the next broker.

Above the $1,500 fee sounds reasonable, what your not being told is how much profit in YSP is going to the broker. Example you qualified for a lower interest rate, your were up sold a higher interest rate. The typical payout in yield spread is 1% per 25%. Meaning if you qualified for 4%, and you accepted 4.5%, the yield spread payout from the bank to the broker could be 2% of the loan amount.

I have heard countless story's of borrowers getting to closing and all the numbers change. They are push into signing for a different loan that was not the intial loan originally offered. Up until this point the only money you have invested is paying $350 to $450 to the appraiser that the broker ordered for you. Even though you paid the appraiser directly, because the broker ordered it they retain the assignment rights. Noting the life of an appraisal in 90 days, and walking away from closing because the numbers changed. There's a good chance you would have to pay for another appraisal, if you walked away for the closing table.

One ting you could do is find out which company they use and say you want to order your own appraisal. That way - you retain the assignment rights. If the numbers change at closing, all you have to say is no thank you and walk away. The call you the appraiser and have your appraisal re-assigned to another broker.

What I just explained is an inside tactic for keeping broker's honest is ordering your own appraisal. On purchases there is no recend period, once you walk away for the closing table you agreed to the terms of the loan and the property is yours. The most important word first to understand is organization, then working on an action plan to accomplish your goals.

Good Luck....

.
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