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Hi Kurt Nilsen here, I’ve been wanting to write a blog post on this topic for quite awhile now. I’m going to cover my top tips…my very best advice on how and where to start the home buying process without stress. These are tidbits of advice I’ve learned from being in the mortgage business since 2002. This information is very important to know if you are about to enter the home buying market.
These easy to use tips will help you feel confident by getting you started on the right foot, and taking the guesswork out of where to begin your home buying journey…
I talk to a lot of future Oregon homebuyers and have been hearing a lot of talk about the lack of home buyer education available to people in the process of buying a home…So I decided to change that and I’m going to work hard to bring you ongoing homebuyer information that will help you feel more knowledgeable and confident before you start the home buying process I want to be your source for reliable, trustworthy home buying information
Anyhow….In this post I’m going to go over the top tips you need to know before you start the home buying process. I surveyed a very large group of future homebuyers and the topic of “where do I start”? Kept coming up..
I understand how homebuyers feel in this day and age….there is so much information floating around out there and it can be so intimidating to people that they freeze up at the thought of moving forward with their home purchase…not to mention all the well-meaning advice you’re probably getting from friends and family.
What I want to do is help give some clarity as far as exactly what to do and where to start when you’re first getting ready to delve into the home-buying process.
I have a golden rule in my mortgage business, and that is I promise to give my clients the same advice and information I’d give my kids, my parents or my best friend…so here goes!
The very first thing you want to do, and this may sound really dumb, is truthfully ask yourself “Am I really ready to be a home owner????” I know…. You’ve probably given this topic a lot of thought already, but I’ve found that many people only look at the upside to buying a home…so it’s important to ask yourself am I REALLY ready to be a home owner?.
Yes, there are many great reasons to buy a house, and you likely have your own set of reasons.
Having a place to call your own, having privacy, getting out of that crappy apartment environment, wanting a fenced yard for the kids to play safely, being able to fix the place up how you want…there are tons of pro’s to buying a home.
Not the least of which is the massive tax benefits that come from owning a home. I’m not a tax professional, so be sure check with your accountant for your numbers but depending on the size of the home loan most people get 3-6 thousand more in tax refunds each year because of the mortgage interest deduction from owning a home, heck 3k a year is 250 a month…again ask your tax professional how your numbers will look…..lots of good reasons to own a home for sure….Butttt !
On the other hand there’s also some downsides to owning a house. My wife and I have been home owners for many years and we’ve enjoyed all the wonderful things that owning a home brings and we’ve also had some interesting times when things didn’t go so smooth, but after having been a renter and a homeowner I still much prefer the homeowner option but…as they say….and I’m using air quotes here…..stuff happens you know? …ask yourself…are you prepared to stick it out if the market drops?
Nobody has a crystal ball and nobody knows what the market is going to do or when, there were people that purchased homes back in 2005, 2006, and 2007 that bought their home at the top of the market and then in 2008 through about 2011 just about everybody in the Oregon market and the US for that matter lost 30 to 40% of the equity in their house. It’s important to be prepared to have a long-term attitude when you’re purchasing a home and have the nerves to stick tight if the market drops.
I remember one couple who called me in 2010 freaking out because the home they bought in 2007 for $180,000 was now worth $150,000 three years later. Because of that drop in value she said they were going to let the house go back to the bank and be foreclosed on.
I said “hold on, not so fast Linda, you’re not in any kind of weird risky loan, your payments aren’t going up you’re comfortable with the payment why would you let the bank foreclose on you?” I added, “your credit will be fried and you won’t be able to buy a home for at least 3 years after the foreclosure”. Unfortunately, a lot of people took on this attitude and it is not a smart way to go. She said well it’s not worth what I paid for it why would I want to keep it?. I politely said, “join the club, everyone’s house has gone down, you can afford the payment I think you should stick it out” Bottom line…she panicked and let the house go back to the bank. This is an extreme example and I’m not being insensitive to those that suffered severe hardships and lost their homes but the point is that it’s important to hang tight if the market drops as it has always come back. It may take some time but the values come back…usually even higher.
Side note: That same house she bought in 2007 for $180,000 that dropped in value to $150,000… a few years later is literally worth $240,000 in 2016 and climbing. In the first few years the house dropped in value but overall it has gained $60,000 in 9 years. That’s over $6000 a year in equity gain. The point is, real estate values go up and down just like the stock market, but over time, like the stock market, real estate has proven to be a very good investment
Obviously there’s maintenance to owning a home, there’s lawns to mow, there’s gutters to clean, appliances breakdown, roofs need to be replaced, painting. The list goes on and on. We always encourage people to get a home inspection before they complete their real estate transaction, .but sometimes stuff happens not matter how careful we are.
We all know the wonderful things that homeownership can bring us but I felt it was important to touch on the reality of the cons as well. I still like owning over renting and I believe most homeowners would agree.
The next bit of advice is to be mindful about who you listen to and where you get your advice from about home buying. We all have well-meaning friends and family who want to protect us and offer us good advice, but I’ve heard so many well-meaning friends and family give my clients the crappiest advice about what you should do and what you shouldn’t do regarding the home buying process.
It’s obviously not intentional crappy advice, it’s just that when the advice stinks it’s because it’s based on outdated information
When it comes to home loans, the home buying process, our well intentioned friends and family can sometimes foul us up and confuse things with well intentioned, outdated advice. No respect to Uncle Joe, but if Uncle Joe purchased his house in 1975, 2005 or for that matter even in 2015 dear Ol’ Uncle Joe might not have helpful, accurate, up-to-date information to share with you. Things change every year in the mortgage and real estate business as far as what can be done and what can’t be done.
Things change sometimes monthly in the real estate market regarding best practices for getting your offer accepted, or whether or not a lower offer may work….Are sellers apt to pay closing costs right now?….Should you be prepared to make a higher offer than the listed price?
The market is constantly changing. My point is, find a respected, trusted lender and real estate broker and stick with them like glue. You’ll know when you’ve found a good lender and real estate broker. Trust your instincts and gut feelings. They want to help you and they want to earn your business. Your lender and real estate broker want to do a great job for you so you will come back to them again and refer your friends and family.
I’m not saying your friends and family don’t have valuable input, but take advice from people not currently in the mortgage or real estate industries with a grain of salt. My best advice is once you’ve found your trusted lender and real estate broker listen to their recommendations as they are the market experts. It’s ok to ask questions of friends and family but try and do it with those who only very recently had a real estate transaction.
Ok…let’s move on to the next subject.
This topic is one that I feel very strongly about and it is far and away the most critical step any future homebuyer could take to help insure their success at home buying and eliminate massive disappointment and frustration.
Please hang with me on this for a few minutes and hear me out. I’m passionate about helping you buy a home, whether its next week or two years from now. I’m giving you the straight scoop.
Frankly, I REALLY struggled with the tip I’m about to give because I feared you would think of it as some kind of sales jive. That is the last thing I want you to think. This one tip I’m about to give is likely the last thing people want to hear or do…it’s not sexy, you may not like it…but it is very, very important. Here goes…
Far and away the most important step before you get started down the home buying road is to contact a lender very early in the game. (Don’t worry, I’m not going to hammer on you to call me :)) Please don’t tune me out, because I have some very good reasons why this is so important to you.
How early in the home buying process should you call a lender? Well, that’s a great question! Obviously if you’re just toying with the idea of buying a home and you haven’t really made the decision that you definitely will buy a home then there’s no reason to call a lender at this time. On the other hand, if your goal is to buy a home in the next 12 to even 24 months, I highly encourage you to call a lender now.
Let me explain, after helping 100’s of people get financing for their homes the most common, painful mistake beginning homebuyers make is they don’t call a lender first. I see it happen all the time. People get excited about looking at homes, they look online, they go to open houses they make assumptions about what they could afford based on outdated information, or they look at some (usually inaccurate) online mortgage calculators.
In the beginning stages of looking at homes many people make guess about what their monthly payments are going to be, or what a bank will qualify them for as far as the price range of home. This is dangerous. Kind of like, trying to clean your own teeth like a dental hygienist would…you wouldn’t do that…hopefully J
This is important stuff to speak to a mortgage professional about. Why invest any time looking at homes and getting excited about buying a home until you know where things are as far as your actual price range, your monthly payment and what your down payment or no down payment options are. Calling a lender takes all the guess work out of it so you can confidently move forward on your home purchase
I do get it though, I understand that looking at homes is the fun part and looking into the home financing part may seem like going to the Dr. for your checkup. You don’t look forward to it but you also know that avoiding it could cause trouble too. But it’s something that has to be done. But I promise, calling a lender to get your financial ducks in a row is actually more pleasant than you may think and you feel really good after you do it.
By now you may be saying… “OK, Kurt tell me why calling a lender early is so important and what will I learn?” Well, it’s important to understand that a home lender or a mortgage broker is there to help you, there’s no cost, or no obligation to do this. All it takes is a phone call and the phone call will only last 10 or 15 minutes, maybe more if you have questions. It’s painless. You’ll be asked some questions about your job, what your current income is, and some questions about what debt you have. Your lender can also get a copy of your credit report, which is important.
After this short call, your lender will do a little free homework for you. You’ll typically hear back from your lender the next day and you’ll learn some very cool things. You’ll learn what price range of home you can be bank approved for, you’ll learn what your down payment options are including low and no down payment options( if that’s interesting to you). You don’t need 780 scores and 20% down payment either. You’ll learn the different loan options so you can decide which is best for you. You’ll find out what your real monthly payment will be (online calculators are notoriously inaccurate) and equally important you can get a copy of your mortgage credit report because credit karma scores mean nothing. With this one call you can learn all you need to get you going into your home search without guesswork
Let’s go back to the last point I made about your “mortgage credit report” score. A mortgage credit report is different from any other credit report. Different industries use different criteria or different algorithms to determine your score, your mortgage credit report score has nothing to do with a credit karma score. In fact, there’s a big misconception that credit karma gives you the score that lenders use…not true. Lenders do not use credit karma to determine your loan qualifications so it’s critical that you get have a lender pull a mortgage credit report for you. It’s well worth knowing where you stand
Having an experienced lender look at your credit report 12-24 months before you buy a home is certainly reason enough by itself to call a lender. By having your lender get a copy of your mortgage credit report, not only will you learn your mortgage credit score (the only one that counts) it will help your lender see exactly what debt you have and what the minimum payments are required on that debt. This helps your lender a lot in figuring out your home loan price range qualifications.
The other big reason to look at your credit report early is your lender will be able to offer expert advice to help bring your credit scores up if needed. Raising your scores can help get you the best interest rate and lowest house payment. Lenders are experts at helping you do often very simple things to help qualify for your home loan. One of the best things your lender may help with early on is showing you which debt you may need to pay off to help qualify for a home loan.
Mortgage lenders are professionals and they want to help you, they’re also patient and there is no cost or obligation for their initial help. Lenders know that you still may be six months to two years before you purchase a home they want to provide you with excellent service so you’ll consider using their service when the time comes time to apply for a home loan. They don’t get paid until after you get the keys to your home
Ok, so I’m jumping up and down about the importance of you calling a lender…so who do you call?
That’s a really good question, but my best suggestion is, if possible ,if you don’t already have someone in mind is to check with family, friend or co-workers who have recently financed real estate and ask them if they had a great experience with their lender, if so, start there. You could call your bank. Mortgage brokers or mortgage advisors are usually very good choices as they typically have many loan program options, usually more than your own bank. Mortgage advisors/brokers will do the shopping for to help find the best loan and interest rate for you
Speaking of your own bank, it’s certainly not a bad place to start but don’t assume that the bank you’ve been with for 20 years is the best place to get a home loan. I’m not saying your bank is not a good idea but often people mistakenly assume that just because they bank in a certain place that they’re going to get preferential treatment when it comes to getting a home loan that’s not the case at all.
Every single lender in the country these days has federal guidelines they need to adhere to and it doesn’t matter if you and your relatives dating back to the stone age have been using ABC bank it makes no difference, they still have to follow the guidelines.
You may consider using someone online who has worked to help educate you and has been providing you a service. Call your bank… get a referral from a friend… but call somebody… trust me on this step you’ll be very glad that you took the time to call a mortgage lender
So what happens when you call a lender? What will they ask and what should you have on hand before you call? 3 great questions. So what does happen when you call a lender? This is just a fact finding mission for you and you’re not going to have to commit or obligate to anything. It is simply just a fact finding call, to get your ducks in a row. As you well know, buying a home is one of your life’s biggest financial transactions, and gaining knowledge and insight into this eventual large transaction is very important. The reason I’m encouraging you to make this call is to help you learn your loan options, what down payment or no down loan may be best, what price range of house you will qualify for and what your payment will look like based on your down payment…before you go out house hunting
As far as what type of questions you’ll be asked, I like to ask some real basic stuff and most lenders will ask about the same thing. You’ll be asked a few questions about your income, your debt, job history, what you’ll be looking for in a house and what is a monthly payment you will be comfortable with. Pretty basic, simple stuff.
What should you have on hand before the call? It would be a good idea to have your previous year’s tax returns , W-2’s from last year and a fairly recent paystub if possible. Also, it’s a really good idea to sit down before you call your lender and pencil out what kind of monthly debt you have. Pencil out the minimum monthly payments required from your debtors not what you pay them each month. I’m not talking about debt like rent, insurance, utilities and cell phones but debt that you likely pay interest on such as cars, credit cards, student loans, installment loans, child support, that sort of thing.
How do you know you have found a good lender? Well, it goes back to what good Ol’ Mom and Dad probably used to say…Follow your heart…Trust your instincts… That type of thing. I’m very confident that you’ll find that most people in the mortgage business today are fantastic, they’re professional, knowledgeable and they want to help you. Remember this is just a phone call. You don’t have to use the first person you talk to. All I can say is that you’ll know at a gut level when you’ve found a good lender. You’ll sense they have a willingness to serve, you’ll get no sales pressure, they’ll ask good questions and you’ll sense whether their experienced or not, (trust me you want experience)
A BIG indicator that you’ve found a good lender (or real estate broker) is whether or not they do what they say they’ll do. Are you getting timely call backs? Are they doing what they say they’re going to do and are they keeping their promises? Those are big indicators, but remember that lenders and real estate brokers are busy professionals who want to serve you. You need to keep up your end of the bargain. If your lender needs a figure off a paystub or tax return respect there time and willingness to help also and get it to them asap.
As I wrap this up I want to say that I find more and more that people think you need 780 credit scores and that you need 20% down payment to buy a home. Heck, it’s no wonder many people think this. I hear supposed financial gurus on TV and in the newspapers say you need 780 scores and 20% down.
Of course having a big down payment would be desirable and so would 780 credit scores, but achieving 780 scores can take a very, very long time for some folks…especially those that have had some credit challenges, not to mention, how long does it take somebody to save up $10,000? Let alone a 20% down payment. A 20% down payment on a 250,000 house is $50,000.
My point is don’t assume that you need to have high credit scores and a giant down payment. As a mortgage advisor with many loan programs available I can tell you that there’s many excellent loans out there that you can get into with 3%, 3.5% or 5% down payment. In many cases even if you have 580 or above credit scores scores.
I often see people block themselves out of the housing market because they think they need to save money for this huge down payment. I’m not saying it’s a bad idea to have a large down payment but a little known fact is that for every $10,000 you use/save for down payment it only lowers your monthly payment by approximately $50 a month.
Here’s a helpful checklist of items to have on hand before you call a lender.
Last year’s Tax returns
Last year’s W-2’s
A recent paystub for each borrower
A list of your monthly debt with the minimum monthly payments required
NOTE: The list of monthly debt only needs to include things like car payments, credit cards, installment loans, student loans and child support. Your lender does not count things like rent, utilities, insurance and cell phone bill
If you’d like experienced help making an informed home loan choice please contact:
Sunrise Mortgage Group
365 Warner Milne Rd. #206
Oregon City, OR. 97045
A Division of Finance of America Mortgage LLC
NMLS # 1071 Equal Housing Lender
If you prefer you can get the ball rolling by going here.
Disclaimer: This resource guide and the loan overviews are not commitments to lend. Prices, interest rates and guidelines are subject to change without notice. Some loan products may not be available in all states or areas. Subject to review of credit and/or collateral; not all applicants will qualify for financing. It is important to make an informed decision when selecting and using a loan product, please make sure to compare loan types when making a financing decision.
Kurt Nilsen-Mortgage Advisor
503-939-6370 or KurtsHomeLoans@Gmail.com
Sunrise Mortgage Group
365 Warner Milne Rd. #206
Oregon City, OR. 97045
A Division of Finance Of America Mortgage LLC