Honest Answers from a Lender to Top 10 Home Buying Questions FULL VERSION Intro
(Please excuse grammatical mistakes - this is a direct transcription of the original video.)
Honest Answers to Top 10 Home Buying Questions
Hey, what's up guys? It's Larry the Mortgage Guy, Your Mortgage Insider. And the purpose of this video is to address the top 10 questions that most borrowers and applicants ask when they're starting the home buying process. So I'm going to review the 10 questions real quickly, and then I will individually answer them.
- What do I need to qualify?
- Do I really need to be pre-qualified or pre-approved in order to shop for a house?
- What is the first step of getting pre-approved?
- Who do I need to talk to first? A loan officer or a real estate agent?
- How do I know how much I can afford?
- How much money do I need in order to buy a house?
- What loan programs are available?
- How do I get 0% down?
- What's the interest rate?
- And probably the most popular question, how do I get the best interest rate?
Okay, so question number one, what do I need to qualify?
Normally there's three major components. Number one - income. Number two - assets. Number three - credit. So income could come in the form of a job or self-employment, or any kind of retirement funds. Assets, meaning funds or money for down payment, closing costs and future taxes and insurance and HOA, if necessary. It can come in a form of a gift or a 401k or just money you have in the bank.
And credit. Normally you can get started at 580 credit scores. Some banks can do 500, depending on how much you are able to put down, but most banks or lenders are not able to help anybody below a 640 credit score.
It really seems that it should be obvious, but it's not because a lot of people come at me with two out of three.
Like they'll come at me with income and credit, but they're broke or they'll come at me with credit and funds, but they ain't got no job! The one that's not as obvious are self-employed people whenever they make a bunch of money, but they write everything off. So basically they make nothing on paper. You got to pay your taxes if you want credit for your income!
Okay. Number two, do I really need to be pre-approved in order to shop for a house?
The answer is yes, most listing agents and sellers will require a person to be fully pre-approved in order to entertain any sort of offer, especially in a hot market. The worst thing that can happen to a seller is to take their house off the market and possibly lose 30 plus days because you don't qualify for the house and they have to put their house back on the market. And you could possibly lose your earnest money, which could possibly be 1% of the entire purchase of the house, because you were denied after the expiration period or the contingency period. And the seller would have rights to your earnest money and take it from you. And therefore you lose that money because you didn't get properly pre-approved.
So what's a pre-approval? Well, a lender would review your credit. They would look at your income history, verified through W2's, tax returns and pay stubs. And they would verify your assets through bank statements and such, and they would structure your file and submit it to the automated underwriting system and receive an approval result.
Let's put it this way, being pre-approved shows that at least you did it, you took the time and effort and someone actually verified your information, but you're not some sort of crazy stalker guy, that's just trying to get into the house.
Yeah..nah..Not going to happen. I mean, seriously, the worst thing that can happen is for you to get denied while you're under contract and you end up wasting everyone's time and you might lose your earnest money, and they have to put the house back on the market. Man, ain't nobody got time for that!
Number three, what's the first step to get pre-approved?
Well, you have to talk to a lender like myself and fill out a mortgage application or 1003.
Yeah, it's a really long form. You're going to get frustrated with it. Uh, we need to know your blood type. We need to know your favorite food. We need to know where you were last week. Just kidding. Or am I?
Number four, who do I need to talk to first, a loan officer or a real estate agent?
The answer is the loan officer. I know a lot of real estate agents might not like to hear this, but they really can't do anything with you until they know where you stand financially.
But you know what everyone always gets this ass backwards, they always talk to the real estate agent first, and then they want to look at a house and everything and they want to make an offer.
And they just like, "How much can you afford?" And you're like, "I don't know." And then - so come on, common sense guys. Pretend you went shopping and you don't know your shoe size - got to try it on, right? That's what a preapproval is. Actually there may be an exception. It does make sense to talk to a real estate agent that you love, know and trust. That way, if you don't have a loan officer, you can ask them for a referral or a suggestion. And that way you are being guided to someone that you know is already vouched for, or, you know, you're, you're being referred to someone who- they already have a working relationship with. So you might have me there.
Number five, how do I know how much I can afford?
Well, that's kind of like the whole point of a loan officer, right? So you got speak to a loan officer first. But if you must avoid speaking to one of us, you can do quick math.
You have to consider the monthly debts on the credit report and divide it by your monthly income.
What makes a monthly debt? Well credit cards, car payments, car notes, student loans.
Maybe you bought some furniture from a furniture store and you financed it. Something from Conn's. Light bills, phone bills, electricity bills. - those don't count because they're not considered debts. They're services that you're paying for on a monthly basis, and can get cut off any time. We're talking about debts that you owe that you must pay back. Money owed to the IRS, child support - yeah, you better pay your baby mama. You're allowed about 40% total. So if you take your monthly debt and it's 20%, that means you can use about 20% of your monthly income towards a monthly mortgage payment. If your monthly debt is 30%, then you have about 10% of your monthly income in order to use towards your mortgage.
If you have 0% monthly debt, then you can use up to 30%, not 40%, but 30%. Okay. That's the maximum that they'll allow you for the most part. It can be tweaked a little bit, but 30% is a good rule of thumb. If your monthly debts is 40% and you don't even have a mortgage payment on it, you're not buying a house. You have to remember to add monthly taxes, monthly insurance and HOA, if there's any.
It's funny when people ask me this question, when I go, "Well, let's find out." And they're like, "Well, what do you mean?" It's like, "Well, I need your application." And they're like, "Well, can't you just tell me?" No. And there's also all sorts of nuances and things that we have to look at. So even though you might be a math genius, there might be things that you don't understand that should be considered.
When I look at credit or tax returns, there's things that you might think might be different from what, the way the underwriters look at it. So there might be details about your income, or your credit, whatever that you might think is one way, but the underwriter looks at it another way.
Number six, how much money do I need in order to buy a house?
It's about 3 to 5% depending on the loan program that you qualify for and you choose to go with. VA and USDA is 0%.
You also have to consider about 2 to $4,000 for closing costs, which is like appraisal, the loan itself, maybe underwriting, processing, title work, other fees that might be kind of weird. But it's part of the deal.
You have to consider escrow as well, meaning money that's put into an account for you to save for future insurance and taxes. Which is not really a closing cost, but it's money that's expected for you to bring to the table, so you can start your mortgage process.
To be safe, I say about 10% as a rule of thumb. So if you're buying a $200,000 house, that's $20,000. If you're buying a $400,000 house, that's about $40,000. Remember this is like the minimum. You probably should have more.
See, a lot of people try to squeak in. They're probably like, you know, "I got exactly 3.5%. I'm good." No, you need to understand that there's a possibility that you need closing costs, you need to pay for appraisals. Dude, sometimes you need reserves. That means like extra money after the fact. So what I mean by that is you close on a house - you still have to have something. We don't want to make someone cash poor. The worst thing that we can do is get you to buy a house and you have nothing in the bank, and you're going to be eating ramen for like the next 6 months.
Number seven, what loan programs are available?
We have conventional, we have FHA, we have USDA if you're purchasing in a rural area and we have VA, if you are a veteran or married to one. There's also non QM. Non-qualified mortgage, like bank statement loans, which are available depending on your lender.
And each of these products are totally different. You know what? There's just too much information to share about each loan product. Not enough time on this video to explain it all. So just talk to a loan officer. I know a guy!
Number eight, how do I get 0% down?
Well, you can go with a VA loan, if you're a veteran, or if you're married to one. You can go USDA, if you're willing to purchase in a rural area, but there's also income limits and credit limits. And there's also down payment assistance programs, depending on your lender and your area.
I want you understand that for the most part. There's no such thing as a 0% down-home purchase. Like you can't have nothing and expect to buy a house. You got to got, you got to have something and no food stamps won't work.
Number nine. What's the interest rate?
Which is probably the worst question to ask, because there's no way of knowing without a full mortgage application, because otherwise it's all advertisement, which you should know is total bullshit.
You have to understand the internet that tries to get your information so they can sell your information, the online lenders, the loan officers, they're all salespeople. They all just want your business. So they're going to tell you whatever you want to hear, just to get you to apply. And then that's when reality hits when they actually look at your credit report. And that's when you get your true interest rate.
And of course the question that everyone loves to ask number 10, how do I get the best interest rate?
This is gonna take a little bit of work, okay? I learned this when I used to sell cars. You go to your second favorite car dealership that you're willing to buy a car from, and you get them to give you a price on paper. You take that offer and you take it to your favorite dealership and ask them to match it or beat it because if they match it, then they're your favorite dealership, so therefore it's the better deal. Or they beat it, which of course you won. Now, if they can't beat it, that you already know you have the best deal because your favorite dealer cannot beat it. The same thing goes with mortgage rates. You choose your second favorite loan officer that you're willing to work with and you ask them to give you a locked loan estimate on the property that you have a contract on.
And then you take that locked loan estimate and you take it to your favorite lender. You ask them to beat it. If they can't be in it, ask them to match it. If they match it, then you win because your favorite lender has the same deal as the other place. And if you can't beat it, then you know that the second lender, the original loan estimate, is the best deal you've got, and that's who you with. There's actually an in-depth method to achieve this that I teach to my home buying coaching clients, but there's too much information for me to share it on this video, so I'm going to either link it or put it in the comments below. You got to remember though, the best interest rate doesn't always mean the best price or the best lender.
I know someone told you that's the way you're supposed to look for a lender, when in reality that's actually the worst way, because think about it, the best interest rate, isn't always the best situation to be in. A lot of online lenders and loan officers know that that's all you're looking for, so they're going to give it to you, but then, they're going sacrifice quality of service.
They're going to think because they have the best rate, they can treat you like crap. Remember the saying, "You get what you pay for!"
Bonus question - a lot of people ask me, do I actually need to pull their credit or do a hard inquiry in order to see if they qualify?
The answer is yes, duh! How do you expect for someone like me to vouch for you and sign my name on a document and give it to you, so you can go make offers, if I don't even know what you're working with?
It's like a drug test. I'm not gonna let you bring a sample from outside. How do I know it's your piss? Duh!
All right, so those are the top 10 questions that most people ask when they're applying for a mortgage. Of course, there's a lot more questions that can be answered, but those are the top 10 questions that most people ask of me whenever they're applying for mortgage. Of course, if you have any questions that I didn't answer, go ahead and put it in the comments, or you can call, text me whatever you like, and I'll do everything I can to give you the best answers possible. If you liked this video, make sure you check the comments below or the links to the videos, because I will make sure I will connect you to the full version of this video and other videos that pertains to this particular question or topic. Hopefully you learned something today, either way, I appreciate you guys watching this is Larry The Mortgage Guy,
Your Mortgage Insider. I'm out.
Also if you want to set up a ZOOM CALL or PHONE CALL to learn more about this particular topic, you can do so by setting an appointment with First Time Home Buyer Coach Larry Le here: www.homeloandate.com.
If you want to start the home buying process you can follow any of these options:
- Call/Text Loan Officer Larry Le right away at 214-225-6323
- Email Loan Officer Larry Le at [email protected]
- Start the preapproval process on your own - you can start at www.LarryLeTeam.com or https://larryle.floify.com/apply-now
- Set an appointment to speak to Loan Officer Larry Le on the phone or via ZOOM at www.homeloandate.com
Also you can check out Loan Officer Larry Le's blog at http://yourmortgageinsider.com for information, news, and updates on the mortgage and housing industry or check out his YouTube channel at https://www.youtube.com/channel/UCYYE06pvAn0lG7proyLIUqQ.
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