best mortgage loan officer sacramento
7 Common myths about mortgages is a very insightful post written by our very own preferred lender, Dan Tharp. — JaCi Wallace.
In my almost two decades in mortgage lending, these common myths still come up often. For example, just yesterday, I was on a call with a first-time homebuyer who assumed they needed 20% down to get a conventional loan and thought his only option was an FHA mortgage, which he heard was not a good option in this current seller’s market. Thus he was going to wait a year or so to save money for his down payment. I am glad his agent told him to call me as we pre-approved him to purchase a new home today with only 3% down. So let’s take the next minute or so to clear up some of the most common mortgage myths and truths about buying a home.
#1 Myth: You Must Have 20% Down To Purchase A Home
Nope, you can buy a home with as little as 3% down, and some types of government-backed loans have 0% down payment requirements. This myth stems from mortgage lenders’ private mortgage insurance requirements or PMI, a kind of protection that pays your mortgage lender if you default on your mortgage loan. If you put less than 20% down, your lender will require you to pay monthly PMI. Keep in mind that if you put less money down, the more interest you will have to pay, in addition, to the monthly PMI. To get a real-world example, use Guilds Mortgage Calculator.
#2 Myth: Prequalification Is The Same As Preapproval
The difference between preapproval and prequalification is the level of verification your lender does before they issue you an estimate. If your lender’s approval letter is not worth the paper it’s written on; it has no value. Unfortunately, this is something Realtors and sellers know all too well. And in an extremely hot seller’s market, you need to make sure your offer, among many others, will stand out!
A good rule of thumb is to make sure you are preapproved before you begin shopping. Whereas a prequalification is a good start, it doesn’t carry much weight when it’s time to make your offer. We offer a Verified Approval at Guild Mortgage via our Home Buyer Express (HBE) to give your offer a competitive edge. Our HBE verifies your credit, income, and assets and shows the sellers that your finances are sound and you’re a serious buyer.
#3 Myth: Your Down Payment Covers Your Closing Costs
When purchasing a home, the standard rule is you can’t roll the closing costs (lender fees, title and escrow fees, appraisal, etc.) into your loan. In addition to closings costs, there are also some pre-paid items you need to pay for as well – these include pre-paid interest, property taxes, and homeowners insurance. It adds up, so you want to be clear with your lender and ask the question, “What is my TOTAL cash to close, not just my down payment?”
A Few Tips –
Instead of dolling your own funds out of pocket, you could ask your agent to negotiate a seller concession, where the seller pays for some or all of your costs. But beware, this is much harder in a hot seller’s market. Another method is to “buy up” the interest rate so your lender can pay for some or all of the closing costs. Remember, this means a higher interest rate and higher monthly payment, so be sure to walk through the numbers with your lender.
#4 Myth: You Can’t Pay Your Mortgage Off Early
Some lenders may include clauses called “prepayment penalties” inside the terms of your loan. This penalty is an agreement that penalizes you if you pay off your mortgage too early. I don’t see this very often now, but the myth still lingers, and another good reason to read the fine print and ask your loan officer. If you choose Guild Mortgage as your lender, you are free to pay off your loan as soon as you wish or make extra payments to the principal balance with no penalties.
#5 Myth: My Debt Ratio Is Based On My Net Paycheck
Your debt-to-income ratio (DTI) is a calculation that represents the percent of your gross monthly income that goes toward debt and recurring expenses. For example, let’s say you earn $6000 a month before taxes. And, your proposed new mortgage payment (with taxes and insurance) will be $1800, and you have another $200 a month in student loans and a $200 minimum due on your credit card. So, in this example, you would divide your total monthly debt of $2200 by your gross pre-tax income ($6000), which equals a DTI of 37%.
A good rule of thumb is to keep your ratio below 50%, which will improve your chances of getting your mortgage loan approved. Some programs allow you to exceed 50%, but the most crucial factor is your budget at the end of the day! Are you comfortable with that total monthly mortgage payment? Please read our article on DTI ratios to learn more about this critical factor and how to calculate yours.
#6 Myth: Bad Debt Will Ruin My Loan Approval
Most folks don’t have perfect credit, and it’s not uncommon to have a few blemishes on your credit report. And most of the time, unless the debt issues are excessive, you can get away with a few old collections and still have an underwriter approve your loan. It’s best not to make any assumptions. Have your full credit reviewed by a mortgage professional who can help you get your loan approved now. They can also put you on a track to improve your scores and get approved later.
#7 Myth: Once My Loan is Approved, I Can Buy Stuff
With a typical purchase escrow taking between 20 to 30 days, your lender will first conditionally approve your mortgage. You get that awesome call from your loan officer telling you the good news! Your loan is approved, and soon you will be closing on your new home. NOTE – This is not the moment to celebrate by buying new furniture or that car that will fit nicely in your new garage. Basically, anything you might pay for in installments. You think you are good as you put the bubbly on ice but don’t realize that your credit will be rechecked before closing. Any new purchases you have made will be scrutinized and could derail your approval.
For professional representation in listing or buying a home, please call Weintraub & Wallace Realtors, with RE/MAX Gold Real Estate at 916.233.6759.
Guild Mortgage NMS #3274 Equal Housing Lender
–Dan Tharp 916-257-1470
In the land of no such thing as a free lunch, you can actually get free money through a 1% down payment assistance program from Guild Mortgage. OK, the catch is you have to buy a home and get a loan through Guild Mortgage. But even so, it is still free money if you’re a home buyer. You don’t have to be a first-time home buyer. The trick, if there is such a thing, is to buy in an area where there are no income restrictions. Especially if you make too much money for most other down payment assistance programs.
Many of my listings do not qualify without income restrictions but I have a couple of listings that do qualify for the 1% down payment assistance programs. Our preferred mortgage lender, Dan Tharp, at Guild Mortgage, checks my new listings to see if they qualify. When they do, I include a line in the confidential agent remarks to let other agents know about this great program. It is in conjunction with Fannie Mae.
But agents don’t know what it means. Sometimes I receive offers in which the buyer’s agents ask the seller to give a 2% credit to the buyer. I have to explain, no, it is the lender, not the seller. Why is this so difficult to understand? Probably because we’re used to no free lunch. We wonder what’s going on.
There is no catch, though. No downside. Buyers do not have to pay back the money. It is not a loan. It is a gift. Instead of putting down 3% to get a conventional loan, buyers can put down 1% and Guild Mortgage, alongside Fannie Mae, will give buyers the other 2% absolutely free. Or you can use the 2% as a credit toward closing costs. Buyers need a fairly decent FICO score, at least 680 minimum, but that’s about it. Oh, there is a quick online class to take. Easy peasy qualifying.
Click here to fill out a loan application at Guild Mortgage. What kind of home can you buy with the Guild 1% downpayment assistance program? How about a mid-century, 3 bedroom, 3 bath with hardwood floors and more than 2,100 square feet at $349K? The address is 10829 Glenhaven Way in Rancho Cordova, CA. Call Dan Tharp at 916.257.1470 for more information.