Pre-Qualification vs. Pre-Approval

You’ve heard the terms pre-qualification and pre-approval, but what do they mean? They are the same thing, right? Not quite! The terms have been used interchangeably, but their true definitions differ. We’re going to break it down and explain the difference between the two.

Pre-qualification

The very first step to take if you are ready to start your new home search is to get pre-qualified. This is a no-cost, no-commitment, 10-20 minute analysis that will give you a great starting point for your new home loan. You can do this in-person or on the phone with a loan officer, or in most cases complete an online form. You will need to provide some basic information such as income, current monthly debts and credit score, but typically you won’t need to provide any documentation. By providing these items, your lender will be able to determine an estimate of your maximum monthly mortgage payment and how much you can borrow. These aren’t concrete numbers, more of a gauge so you know your price range.

Pre-approval

Once you are pre-qualified, the next step will be to get pre-approved. This process is more involved, requiring more paperwork and the help of a loan officer. Documents you typically need to provide are copies of your paystubs, bank statements and tax returns; additional documents might needed as well. The loan officer will also pull your credit report to get a better understanding of your credit history and financial situation. Once your information has been reviewed, your loan officer will provide you a pre-approval letter stating how much you are approved to borrow. Having a pre-approval letter can give you a competitive edge against other buyers. This shows the seller you are serious and ready to buy.

You should refrain from making large purchases and incurring new debt at this time, as this can affect your pre-approval amount. Keep in mind getting pre-approved does not mean final approval. Once you put an offer on a home and the offer has been accepted, the loan will still need to go through processing and underwriting before final approval is granted.

Getting pre-approved will help speed up the home buying process since you will have a solid foundation of information. Once you are pre-approved, you are on your way to homeownership! Contact one of our loan officers to get started.

Steps on the journey to purchasing your dream home!

Get Pre-Qualified

Complete a loan pre-qualification – Contact one of our loan officers to get started!

Submit basic documentation – This can include pay stubs, bank statements, credit reports, and statements for any other debts or loans you might have. Your loan officer will let you know exactly what they need!

Discuss what you can afford – Your loan officer will discuss mortgage program options with you to find the best fit for your budget and situation. A monthly budget worksheet can be very helpful for this part of the process because it helps you to review your spending habits so you know how much money you’ll want to have leftover after your home bills each month.

Finalize pre-qualification – Your loan officer will put together a pre-qualification letter based on your loan choice so you can start shopping for a home!

Shop For a Home

Submit an offer using a pre-qualification letter – Home sellers almost always require a letter of pre-qualification from a lender along with the purchase offer from your realtor. If they accept your offer, you can move on to the next step!

Congrats! You ratified on the purchase of your new home – This means the seller has accepted your purchase offer in writing!

Begin the Loan Process

Activate your loan application – Your loan officer or loan processor will reach out to you to guide you through these steps.

Lock in your interest rate and order the appraisal – Locking your interest rate means that if rates go up prior to closing on your home, your rate stays the same. Your loan processor will schedule an appraiser to verify the current market value of the home you are going to purchase.

Sign loan disclosures and provide additional documentation as needed – Your loan processor will send you important disclosures with information about your loan to sign electronically and let you know if they need any additional documents from you to send over to one of our qualified underwriters.

Submit to underwriting – Your loan processor and loan officer will send all of the information on your loan choices, the home you are purchasing, and the documentation you have provided to our underwriters to finalize the approval of your loan.

Underwriting

Underwriter reviews loan and issues conditional approval – A conditional approval means your loan is approved so long as you provide any additional documents that they might need. There are not always conditions on approval at this point in the process, but it is not uncommon.

Provide documentation to satisfy conditions – Your loan officer, loan processor, and underwriter will work with you to obtain any additional documents needed for the final approval of your loan.

Loan is Approved

Loan is moved to our closing department – Your loan officer or loan processor will reach out to you to find out which title company you would like to use and schedule the closing. They will also send you a Closing Disclosure to review and sign three days prior to closing.

Cash to close amount is provided to you – This is the amount of money needed “at the table” (even though many closings are now electronic!) on the day of closing. This information will have been included in your Closing Disclosure.

Get a certified check or wire – Reach out to your bank to obtain a certified check or wire transfer for the amount needed for closing. Be aware of wire transfer fraud and confirm directly with your title company that the wiring information is accurate!

Settlement Day!

Sign your loan documents – This can now be done in person or remotely!

Get your house keys – Congratulations!! Once the paperwork is signed and completed you’ll receive your new house keys!

You’re a homeowner! All of your hard work has paid off and it’s time to enjoy your lovely new home.

If you have any questions about the process of purchasing or refinancing a home, including questions about low and no down payment options, reach out to one of our experienced Loan Officers today!

Federal House Financing Agency Announce New Refinance Program for Low-Income Borrowers

The FHFA has announced a new refi program to benefit low income borrowers with single family mortgages. These mortgages will be backed by Fannie Mae and Freddie Mac. This new program is designed to help those who were not in a position to take advantage of 2020’s low rates.

This new option could save borrowers and average of $100-$250 a month on their mortgage but lenders will be required to ensure it saves the borrower at least $50 a month. Simultaneously, the borrower’s interest rate will drop by at least 50 basis points. Lenders will also provide a maximum $500 credit for an appraisal if the borrower is not eligible for an appraisal waiver.

“We look forward to implementing Fannie Mae’s new RefiNow option as soon as possible to ensure all eligible homeowners are able to avail themselves of this money saving opportunity,” says Fannie Mae’s CEO, Hugh Frater.

Qualifications for this program:

  • Must own a GSE-backed mortgage
  • Income must be at or below 80% of the area’s median income
  • Current on mortgage payments for the last 6 months and missing no more than 1 payment in the last year
  • Must not have a mortgage with an LTV ratio greater than 97% and DTI cannot be higher than 65%
  • FICO score must be 620 or higher

The Federal House Financing Agency plans to roll this out to those eligible tentatively beginning this summer.

Contact one of our Loan Officers today to see if you qualify!

Source: FHFA releases new refi option for low-income borrowers – HousingWire

10 Obstacles to Avoid when Closing on Your Home Loan

It takes some time to close even the most straightforward of home loans. These tips offer insight for avoiding pitfalls in between application and closing, so you can help make your loan process as quick and easy as possible!

1. Buying Large Items

Avoid buying things like cars, boats, or other high-end items. Purchases like these can alter your debt-to-income ratio or amount of reserves and may impede your home loan qualification or delay your loan closing. It’s best to wait, review your budget after closing, and make any large purchases you can comfortably afford at that time.

2. Job Change

Quitting your job or changing jobs can have an impact on your home loan qualification. If you plan to make a move to a new position or company, try and hold off until after closing if possible. Most employers will be understanding your need to wait.

3. Credit Change

Avoid opening or closing credit lines. Opening new cards create hard inquiries on your credit report, and closing credit lines may increase your credit utilization. Either one of these could lower your credit score and potentially change your interest rate or home loan qualification.

4. Banking

Avoid changing bank accounts. Underwriters often need bank statements and records in order to approve your loan. Changing banks can mean needing to provide all new statements, and can delay closing.

5. Ignore Questions

Answer all questions from your loan officer. Your loan officer is gathering information and documentation from you that is vital to your home loan closing. Ignoring requests from your loan officer or loan processor could cause closing delays.

6. Delinquencies

Do not pay bills late. Even one late payment can have a major impact on your credit score, and even after the payment has been made it still takes time for your score to rebound. This change in your credit score could have a negative impact on your rates or home loan approval, so it’s very important to be extra vigilant and avoid any late payments prior to closing.

7. Credit Checks

Do not let anyone other than your loan officer run a credit check on you. Many credit checks create hard inquiries on your credit report, which can lower your overall credit score. This can alter your rates and home loan qualification, so it is best to avoid any credit checks until after your home loan has closed.

8. Loans

Do not sign or cosign a loan. Obligating yourself to a different loan prior to closing affects your debt to income ratio. Even cosigning for someone else means you are still liable for the payments on this other loan. The best-case scenario is that your loan officer will need additional documentation for you regarding this new loan, which could delay closing. The worst case is that this new loan would negatively impact your debt to income ratio to the point where you no longer qualify for your home loan!

9. Avoid Large Deposits (Other than your paycheck)

Mortgage Companies are required by federal law to look into large deposits, so any unusual large bank deposits often need a written explanation and this could delay your home loan closing.

10. Payday

Do not take an advance on your salary. This can alter your payment schedule which might hinder your home loan approval.

From application to closing, our entire team at First Home Mortgage will be working our hardest to ensure the best customer service and smoothest process for each and every one of our clients! If you or someone you know is looking to purchase or refinance a home, contact one of our experienced loan officers today!

Meet Your Mortgage Team!

When starting the home loan process, you expect to work with a Loan Officer. But you might not be aware of all the behind-the-scenes mortgage team members that work hard to ensure your loan process goes smoothly from application to closing! So, let’s get to know them!

Your Mortgage Team Consists of:

Loan Officer

Your Loan Officer will be your first stop in the home loan process. Your realtor will be able to suggest a trusted Loan Officer but ultimately the decision will be up to you. Purchasing a home is a big decision and you want the best on your side! Your Loan Officer will gather the documentation needed to get your application and prequalification started and will assist you in choosing a program that will best suit your needs!

Production Assistant

Not all Loan Officers have a Production Assistant but if they do, you may often be in contact with them as well. The Production Assistant is an additional set of hands that can assist in collecting paperwork, communicating with various members of the mortgage team, and provides overall support to ensure a hassle-free home loan process.

Underwriter

After the Loan Officer collects what is needed for your loan application, they send it over to the Underwriter for approval. The Underwriter will make the decision whether to make a loan based on your credit, employment, assets, and other factors. Then they will match this risk to an appropriate rate and term or loan amount.

Loan Processor

Another member you will be in contact with throughout the home loan process is your Loan Processor. Your Loan Processor works with you to collect all the necessary documentation for your loan file. This includes pay stubs, W-2 forms, bank statements, and credit report explanations. They work as a liaison between you and the underwriter, title company, and other parties that may be involved to get you to the closing table.

Closer

Finally, we are at the finish line! The Closer reviews all loan-closing documentation to ensure accuracy and that your mortgage loan is fully compliant. They review for errors and work alongside the Processor, Loan Officer, and title company to get anything corrected as need. Once your closing date approaches and all documents are ready, the Closer prepares the loan package and forwards it to the title company for settlement!

The home loan process may seem a bit daunting at first but having the right mortgage team by your side makes all the difference! At First Home Mortgage, we pride ourselves on having a highly qualified mortgage team to ensure you have a stress-free homebuying experience. To find a Loan Officer in your area, visit www.firsthome.com/loan-officers.

To learn more about the home loan process, read our blog post about home loan milestones.

The Dangers of Rate Shopping

Buying a home will most likely be the largest purchase you ever make.  With that in mind, you might assume having the lowest interest rate is best, but this is not always the case.  The lowest advertised interest rate may not be your best option.  Some lenders and mortgage brokers advertise low rates but don’t inform you of all the additional points and fees that come with the mortgage.  Here are a few tips to take into consideration before rate shopping.

Rate Shopping Tip #1: Look at Points and Fees

Always ask about points, lender fees, broker fees, and settlement costs. Points are pre-paid interest that affects the quoted interest rate.  You can ask to have your points quoted as a dollar amount instead of just a percentage.  For example, on a $200,000 loan, one point would equal $2,000.

Rate Shopping Tip #2: Shop Smart

Interest rates fluctuate daily. Talk to your Loan Officer about when the best time to lock in on a rate is.  First Home Mortgage values honesty and service, so any questions you may have for your Loan Officer will be answered diligently, fairly, and in regard to your best interest. If you contact different lenders, make sure you provide each lender with the same information.  Such information will include the quality of your credit, location, type and use of your property, the size of the down payment, and/or the amount of home equity you have.

Rate Shopping Tip #3: Finding the Best Lender

Customer service may be the most important consideration when shopping for home financing. During the loan process, you should feel comfortable disclosing your financial information and asking questions. A trustworthy lender will be responsive and will assess your situation carefully to best suit your home buying needs. Make sure to choose a lender who can offer personalized options and takes the time to understand your goals.  Just remember interest rates don’t always matter.

If you have any questions or would like to get started on this home-buying journey, contact First Home Mortgage Corporation today!  We provide the mortgage you need to make “home” happen by delivering customer service that not only fulfills goals but exceeds expectations.

5 Misconceptions About Home Buying

Many people have preconceived notions about how to buy a house and what it takes to do it, but they aren’t always true. There are many pervasive myths surrounding the home buying process; read on for 5 misconceptions about home buying.

The First Step is to Look for a House

When someone is interested in buying a home, often times the first thing they do is start looking at houses. Before looking at homes, you should consult with a Loan Officer about getting pre-qualified for a mortgage. There are lots of benefits to prequalification including getting a more concrete estimate of how much you can afford and signaling to sellers that you are serious about buying.

Down Payments Are the Only Up-Front Cost

As nice as it is to think the only up-front cost of buying a home is the down payment, that’s not true. It’s important to keep closing costs in mind. A buyer can generally expect to pay closing costs between 2% to 5% of the loan amount, so it can be a considerable amount. Don’t forget about the cost of a home inspection, too. There are also moving costs to consider as well. It’s important not to completely drain your savings to put towards a down payment as there are these other costs to keep in mind (plus you should keep some money saved for potential emergencies and unforeseen expenses).

You Must Make a 20% Down Payment

The rule of thumb when it comes to down payments is that you should put down 20%. This doesn’t have to be the case. There are an abundance of down payment assistance programs and specialty loan programs available that allow for smaller down payments. For example, FHA loans allow for down payments as low as 3.5%. However, bear in mind that in most cases, you’ll have to pay private mortgage insurance (PMI) or mortgage insurance premium (MIP) when putting down less than 20%.

Your Credit Score Has to Be High

When it comes to buying a home, the higher your credit score, the better. However, you don’t necessarily have to have a stellar credit score to qualify for a home loan. There are even some loan options specifically tailored towards people with lower credit scores, such as FHA loans. Additionally, there are things you can do to improve your credit score so you’re in a better position to buy.

Don’t Buy a Home in Fall or Winter

Spring is notoriously the most popular time to buy a home, but that doesn’t mean you can’t, or shouldn’t, buy during other parts of the year. While many assume home buying in the fall and winter is something to avoid, it doesn’t have to be. There can even be benefits to home buying during the colder months, such as less competition from other home buyers and particularly motivated sellers.

There are a lot of misconceptions about home buying, so seeking the help of real estate and mortgage professionals can help you clarify what’s true and get you on the right path to homeownership. If you’re interested in learning more about the mortgage process and exploring your options, contact one of our experienced Loan Officers today!

Protecting Your Personal Information Online When Applying for a Mortgage

In this day and age, parts of the mortgage process have evolved to include virtual components. It is essential that you take steps to safeguard your personal information and data online. Here are some tips to keep in mind:

Apply with a Reputable Lender

It’s important that you choose a trusted lender to handle your mortgage needs. Be sure to do your due diligence when picking a lender and certainly before sending them any information. There are scammers out there who create fake mortgage websites with the goal of collecting your personal information. Check your lender’s NMLS number to ensure it is valid and correct and look for reviews online or referrals from people you know.

Use Secured Networks

You want to use a secured network for all your online dealings but especially when submitting personal information. Avoid using public networks. Make sure you’re on a password protected network that you trust so hackers can’t get in and steal your data.

Be Cautious Responding to Emails

Even if an email appears to be from your bank or loan officer, if it seems suspicious, don’t answer it. Beware of phishing scams that imitate legitimate email addresses with the purpose of gathering your personal information to use and exploit. If you’re unsure an email is on the up and up, reach out to your loan officer to confirm the email is actually from them before you click any links or submit any information. When possible, you should avoid sending sensitive information or documents over email, and instead opt to deliver this information in person or through a secure online portal.

Use Strong Passwords

When creating any online account, you want to make sure you have a strong password. This is especially the case when it comes to accounts associated with your mortgage. Seek to not only meet password length and complexity requirements but exceed them; the stronger the password, the better. Avoid using the same password across platforms. Enabling two-factor authentication when possible is also a good idea as it adds an additional layer of security when signing into accounts.

Trust Your Instincts

If something seems fishy to you, contact your loan officer directly to ensure everything is legitimate and you’re safe to act. It is much better to be safe than sorry when it comes to the security of your personal information and data. When in doubt, give your loan officer a call.

If you’re interested in starting the home loan process, contact one of our Loan Officers today to learn more!

Questions to Ask When Applying for a Mortgage

There are a lot of factors to consider when beginning your journey towards a home loan. It can seem overwhelming at first, especially if you’re a first-time homebuyer. There are some questions you can ask your Loan Officer that can help clarify the situation and get you on the path to the best possible mortgage solution for your needs. Here are some of the questions that may prove helpful when pursuing a new mortgage.

What Types of Loans Are There?

There are many mortgage loan options available and it’s important that you understand what they are so you can ensure you choose the best one for your unique situation. Your Loan Officer should explain the difference between fixed and adjustable rates, the different terms available, and additional special programs you may qualify for. While you don’t need to be an expert on every loan option on the market, you should feel like you have enough of an understanding that you know the loan product you and your Loan Officer choose is the right one for you.

Do I Qualify for Any Special Programs?

When it comes to special mortgage programs and loan types, your Loan Officer will need to ask you some questions to learn more about you and your background in order to determine whether you qualify. For example, to qualify for a VA home loan, there are certain military requirements you must fulfill in order to be eligible. Your Loan Officer should also be able to fill you in on various other special programs such as down payment assistance programs or special programs for first-time homebuyers.

How Much Home Can I Afford?

Getting prequalified can help you determine how much you can afford to borrow. Prequalification offers an estimate of how much home you can afford based on your finances and credit. It’s beneficial to consult a Loan Officer prior to starting your home search as you’ll know what your mortgage budget is so you don’t waste time looking at homes beyond what you can afford.

What Is My Interest Rate and APR?

It’s important to understand what interest rate you’d be getting on your mortgage loan. You should be able to receive a quote from your Loan Officer. You may also want to discuss locking in your interest rate if it’s one you want to ensure doesn’t change. Additionally, you’ll want to ask about the annual percentage rate, or APR, for your loan. The APR is the annual cost of a loan expressed as a percentage and factors in fees and other charges.

How Much Do I Need to Save for a Down Payment?

How much you need to put down depends on your particular loan type and any special programs you may qualify for. The rule of thumb is generally 20 percent of the purchase price but sometimes you’re able to put down far less—or even nothing at all. However, be sure to ask about private mortgage insurance, or PMI, which you’ll likely have to pay if you put down less than 20 percent.

These are just a few of the many questions you can ask at the start of the mortgage process. When you work with an experienced Loan Officer, they will be able to answer these questions and more so you have a solid understanding of what to expect. If you’re thinking about buying or refinancing, contact one of our knowledgeable Loan Officers today to get your questions answered.

Home Loan Milestones

Buying a home may seem like a daunting process but being prepared can ease your mind. It is important to understand what to expect when preparing to buy a home, and what to expect during the home buying process. Below we’ve provided a short outline of the five main home loan milestones of the home buying process.

Home Loan Milestone #1: Pre-Qualification

You’re ready to buy a home, congratulations! The very first step to take if you are ready to start your new home search is to get pre-qualified. This is a no-cost, no-commitment, 10-20 minute analysis that will give you a great starting point for your new home loan. Especially during times of social distancing, we’ve made this process even easier by offering pre-qualification applications to be taken over the phone or by completing an online form. This will allow us to determine an estimate of your maximum monthly mortgage payment and how much you can borrow. Pre-qualifying for a loan before you go home shopping helps you set a budget and strengthen your negotiating position when making an offer.

Home Loan Milestone #2: Application

Once you have found a home, you will make an offer to buy it from the seller. A real estate professional will conduct negotiations and a contract will be submitted to purchase, accompanied by the pre-qualification letter. Once your offer is accepted, you will receive your initial disclosure package and you will begin the application process. You will most likely need to provide your loan officer and processor with updated income and asset documentation, such as pay stubs and bank statements. To ensure your loan stays on track, you’ll want to have your docs completed quickly and thoroughly.

Home Loan Milestone #3: Processing

In this step of the process, your appraisal and title work will be ordered. Once all necessary documentation is collected, the processor will review everything for completion and accuracy. He/she will verify information on the title work, appraisal, credit report, and any additional docs needed. Once the processor has completely reviewed the full application package, he/she will pass it on to the underwriter. Your loan officer will keep you informed, answer any questions and navigate you through every step of the way.

Home Loan Milestone #4: Underwriting

Once your loan gets to this milestone, the underwriter will review the entire loan package to determine if your loan meets the guidelines for approval. Your underwriter will review your disclosures, credit, asset documentation, employment, appraisal, and additional documents along with the loan program’s guidelines and regulations. Once conditions have been met and any contingencies on the loan have been cleared, the underwriter will give the clear to close/final approval and the loan is sent to closing.

Home Loan Milestone #5: Closing

You are now in the final home loan milestone, closing! This is the best part! A date, time, and location should have already been confirmed for closing. At least 3 days prior to closing, you will receive your closing disclosure (CD). This document will show you your closing costs, terms of the loan, and how much money you need to bring to settlement. Closing may look a bit different due to COVID-19 restrictions. You may be asked to wear masks, wait in your car, or sign documents without other parties present. Once documents are signed, funds will be distributed, and ownership of the property will transfer from the current owners to you. The house is finally yours!

It may seem like a long process, but we strive to make it as seamless as possible. If you are ready to start your home buying process, contact one of our loan officers today!

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