Categories
Mortgage News Matters

Common First-Time Homebuyer Mistakes & How to Avoid Them

Navigating the housing market can be challenging for seasoned and first-time homebuyers alike. And in an ever-changing, competitive market – like the one we find ourselves in today – it can feel even more overwhelming.

To help, we’ve listed FIVE of the most common mistakes that first-time homebuyers often make – and how they can best avoid them.

Mistake #1: Looking for a home before applying for a mortgage.

In a competitive market like today’s, offers are typically not even considered without a buyer providing a mortgage loan preapproval. Most sellers won’t entertain these offers, because removing a home from the market before a buyer has even applied means the potential loss of other, serious buyers.

To avoid this common mistake, borrowers should make sure to get a full underwritten preapproval BEFORE starting their home buying search.  This shows the seller that their offer is solid and can be taken seriously. Borrowers should also make sure they are working with a mortgage lender who is doing a full review of their credit, income, and assets so that they know they can assist with meeting all the contract terms before the borrower makes an offer.

Mistake #2: Purchasing a home that is OVER budget.

Though it may be tempting – especially when it feels like they have finally found the perfect home – it is never a good idea for borrowers to overextend themselves. Not only will it add more day-to-day financial stress, but it also puts buyers at risk for foreclosure if their financial situation suddenly changes.

Borrowers can avoid this common mistake by focusing on the amount of monthly payment they can afford, rather than the maximum amount of loan they qualify for.

Mistake #3: Being careless with your credit.

Many borrowers make the mistake of taking on new loans or credit cards after their initial preapproval, which can greatly jeopardize their closing and final loan approval. Most lenders will do a final credit check prior to closing and any changes to the borrower’s credit profile could impact the ability to close or the final terms of the loan.

Borrowers can avoid this mistake by deciding not to take on new credit cards, close existing accounts, or take out new loans in the period leading up to applying for a mortgage through closing day. If possible, borrowers should spend their time paying down their existing balances to below 30% of their available credit limit and continue paying all monthly bills on time.

Mistake #4: Waiting for the ‘unicorn’.

It’s understandable that many buyers – especially those who are purchasing a home for the first time, will want to wait until they find the PERFECT home. You know, the one they have been building in their mind for years – the one that checks off all the boxes. The reality is, the perfect home is rare, and if borrowers spend their time waiting for it to come around, they are likely to pass up options that could be great – even if it isn’t exactly what they imagined it would be. This is especially important to keep in mind when buyers find themselves in a highly competitive seller’s market, like the one we find ourselves in today.

Borrowers can avoid this common mistake by deciding ahead of time to be flexible with certain elements they are looking for in a home and to also be willing to put in sweat equity. There are even some loan programs that allow borrowers to include the cost of repairs into their loan amount.

Mistake #5: Overlooking all your mortgage loan options.
Many home buyers might not know that there are programs out there that provide down payment assistance specifically to first-time home buyers. From zero to low down payment options, to flexible credit requirements, these programs can often be lifesavers for many borrowers.

So, what are they?

FHA Loans

Insured by the Federal Housing Administration, an FHA loan is ideal for first-time homebuyers with less-than-perfect credit.

With a down payment as low as 3.5% and interest rates generally lower than conventional loans with the same terms, this type of loan is perfect for those who may not meet the qualification factors required for a traditional conventional loan program. An FHA loan encourages homeownership by providing affordable housing opportunities with low down payments and flexible credit requirements.

What’s more, is that borrowers have the option to use gift funds and seller credits when borrowing money to purchase a home with an FHA loan. Making it particularly beneficial to those borrowers with less cash available to them.

Pros of FHA loan program:

  • 3.5% down payment
  • Easier credit and income qualification
  • Up to 6% in seller credits allowed
  • Gift funds available

Cons of FHA loan program:

  • Requires monthly mortgage insurance
  • Mortgage insurance is permanent for life of loan

VA Loan

Backed by the U.S. Department of Veteran Affairs, a VA loan is ideal for veterans or active-duty military who are looking to purchase a home.

This type of loan offers low-interest rates with zero down payments and no monthly mortgage insurance. With an upfront funding fee that can be rolled into the loan amount, veterans are not required to pay out of pocket.

The VA loan program is an excellent choice for first-time and repeat buyers alike. With zero down payment and up to 6% seller concessions available to cover closing costs and pre-paids, it is possible for borrowers to structure a VA loan with little to no money out-of-pocket at closing.

Pros of VA loans program:

  • Zero down payment required
  • No monthly mortgage insurance
  • Low monthly payment

Cons of VA loan program:

  • Not available to all borrowers, this program is limited to veterans or military personnel
  • Has an upfront funding fee (VA’s version of mortgage insurance)

A VA (Veterans Administration) guaranteed home loan is the preferred loan program for active, non-active, Reserve, National Guard, and retired military of the armed forces because there is no down payment needed and no private monthly mortgage insurance required.

USDA Loan

Backed by the U.S. Department of Agriculture, a USDA loan is ideal for buyers looking to purchase a home in a rural or suburban area with no down payment and minimal investment.

This type of mortgage loan program offers many advantages for borrowers who may not qualify for other programs, such as flexible credit guidelines and low monthly mortgage insurance costs. It is important to keep in mind that properties that qualify for USDA funding must fall within certain geographical areas.

Pros of USDA loan program:

  • No down payment option
  • Flexible credit and qualifying guidelines
  • Ability to finance repairs and closing costs into loan

Cons of USDA loan program:

  • Geographical restrictions
  • Income limits
  • Single family, owner occupied homes only – no investment properties

Purchasing a home, no matter what your financial situation may be, is a big decision. Before starting your search, make sure that you know what some of the most common first-time homebuyer mistakes are, and how you can best avoid them.

To start your homebuying journey, contact a VanDyk Mortgage Loan Originator today!

Categories
Mortgage News Matters

What are the Benefits of Working with a Real Estate Professional?

Working with a real estate professional can be extremely helpful – especially for first-time homebuyers with little to no experience. They can help save time, money, and the stress that can come with navigating the unknown of the real estate market.

To help, we’ve listed the 4 MAJOR BENEFITS of working with a Real Estate Professional:

  1. Paperwork. Real estate professionals provide assistance with all the necessary paperwork and disclosures required in today’s heavily regulated environment. Their expertise can help save time by avoiding common errors made by those who are unfamiliar with the laws and regulations.

  2. Experience. Highly educated and with years of real estate experience, a professional knows the ins and out of the entire sales process, saving you both time and unnecessary distress.

  3. Negotiations. Real estate professionals often act as “buffer” in negotiations with all parties throughout the entire transaction. Which can be helpful and even necessary when negotiations become more complex.

  4. Pricing. Lastly, real estate professionals can look to their understanding of today’s market when setting an offer price. Not only do they have the years of experience behind them, but they also have access to online tools and resources that are only available to industry professionals.


To learn more about the benefits of working with a Real Estate Agent and to speak with one of our referral partners, contact a VanDyk Loan Originator today!

Categories
Mortgage News Matters

Is Delayed Financing Right for You?

What is delayed financing?

Delayed financing is when a buyer pays for their home upfront with cash, and then immediately obtains a mortgage after the home is purchased.

What are its advantages?

The biggest advantage of delayed financing is the power of paying cash. A cash offer provides buyers with a competitive edge and allows them to stand out in a seller’s market, much like the one we find ourselves in today.

This method allows the buyer to make an enticing all-cash offer, then immediately puts the money right back into their pockets with a cash-out refinance.

What are the restrictions?

  • The amount of the mortgage loan obtained cannot be greater than the amount of the purchase price, closing costs, prepaid fees, and points, combined.
  • Applicants must have proof of cash purchase.
  • Applicants must provide proof of the initial source of cash used for the purchase of the home.
  • Applicants cannot apply for delayed financing with a home they purchased from someone they have a personal relationship with.
  • If funds are provided from a third party, applicants must provide a gift letter.
  • If applicants were provided a gift fund for the purchase of the home, they cannot give the cash from the cash-out refinance back to the donor.
  • The property must be free from any liens.

To learn more about delayed financing and if it is right for you – contact a VanDyk Loan Originator today!

Categories
Mortgage News Matters

Is the Lowest Rate the Best Rate?

Homebuyers who are new to the market may find themselves asking the common question, ‘Is the lowest rate the best rate?’ It’s a good question to ask because the answer can be somewhat complicated.

The short answer is no.

In some cases, even, a borrower might end up paying more for a lower rate. This is why understanding the difference between the lowest rate and the best rate is important. 

When determining the best rate, you will want to look at two major things: (1) the interest rate and (2) the APR.

What is the difference between Interest Rate and APR?

Interest rate is the rate a borrower pays on their home loan. This rate varies due to many factors, such as home price and loan amount, down payment, loan term, interest rate type – adjustable vs. fixed – loan type, and credit score, to name a few.

APR is the interest rate plus other fees and costs that go into buying a home. Which is, what a borrower will end up paying on top of the principal. These fees include the interest rate, origination fees, discount points, and closing costs – which include application and attorney fees, administrative or processing fees, insurance fees, property taxes, and expenses from the title company.

To determine the best rate, you will want to find the one that saves you the most money once you factor in fees, closing costs, and loan terms. You will want to look at the APR.

When looking at the APR you should pay attention to these major factors:

  1. Which fees are included? Sometimes fees, like appraisal fees, property taxes, and insurance costs are not included in the original APR quote. It can be helpful for borrowers to ask these questions upon receiving a quote from their lender, so they are not hit with unexpected costs later.
  2. Upfront costs? In some cases, lower APRs may have higher upfront costs, this is important for borrowers to acknowledge as well so they are not stuck paying unexpected upfront costs at closing.
  3. Take into consideration PMI, credit score, and down payment. Borrowers with less-than-perfect credit may qualify for a loan but will have a higher APR because of it. Likewise, those who put a smaller amount towards their down payment or who haven’t accounted for mortgage insurance may see an increase in their APR.
  4. Consider the length of the loan. The APR is calculated in relation to the length of the loan. This means, for a 30-year loan, the APR is determined assuming it will take 30 years for the loan to be paid off.

    However, many borrowers choose to pay their loans off earlier than the original term, which ultimately affects the APR. The best way to get the most accurate APR would be to keep the loan for the entire term. Or, if a borrower is anticipating paying it off early, they should be prepared for an increase in APR.

Understanding the difference between interest rate and APR is crucial when it comes to finding the best mortgage loan rate.

Moreover, understanding the costs that will affect your APR in the long run, is the only way to make sure you are getting the best rate possible.

Your best option is to sit down and talk with a Loan Originator who can help you break down the real, and sometimes hidden costs, that affect your APR to help you find the best deal for you!