Understandably, first-time homebuyers may feel overwhelmed by the daunting process of financing their inaugural home purchase. They’ve heard the stories about buyers with stellar credit being turned down for home loans, that there are more hoops to jump through, and those hoops are being held higher than ever before.
It’s enough to make anyone throw their hands into the air and exclaim, “Never mind.”
Not so fast, advise Eric Peltier of Premier Mortgage Group and Eric Engel of Cobalt Mortgage. Both companies have branch offices in Boulder and Longmont. Getting a mortgage is easier than one may think. Yes, the housing bust and subprime loans changed the nature of the business, but inking the loan papers is still doable.
What do first-time homebuyers need to know before heading out to their first open house? Engel and Peltier offer some advice:
Prepare in advance
Preparation is critical. Meeting with a lender six months to a year before you’re ready to start looking. A competent lender will help you to understand your financial situation and determine exactly how much house you qualify for. He or she will guide you through the paperwork labyrinth and help to get you prequalified. For buyers with less-than-perfect credit scores, they can help develop a strategy to raise your score, which ultimately will save the buyer thousands of dollars over the life of the mortgage.
“Inventory in the price range that most first-time buyers are shopping is limited, and the seller often gets multiple offers,” Engel said. “If a buyer doesn’t have everything ready to go when they make their offer, it won’t even be considered. You have to be prepared or you will be left behind and you may lose the house of your dreams.”
Know your lender
Buyer beware. While a low-interest rate offered on a website may be enticing, a local mortgage professional (whom you run into at the grocery store or a parent/teacher conference) will work hard to make sure you have the best deal possible. Lenders rely on their good reputations, otherwise their livelihoods can be jeopardized. They count on your referral to build their business. They will work hard for you, which can result in a loan that suits your needs for the long haul. An Internet loan originator won’t be as caring about the quality of the loan, which can have long-term ramifications.
Consider the down payment
Don’t let a 20 percent down payment become a stumbling block. The bare minimum down payment for an FHA loan is 3.5 percent, a figure that is more reachable for that first-time homebuyer who has not yet built significant equity. VA mortgages are available for no money down for qualified buyers. Keep in mind that that you will be responsible for private mortgage insurance when the down payment is less than 20 percent. Mortgage insurance protects the lender from losses if the buyer defaults on the loan. Once your loan balance reaches 78 percent of the home’s appraised value, the lender is obligated by law to drop the private mortgage insurance. Colorado Housing and Finance Authority has programs for qualified buyers that can help lower down payments and private mortgage insurance costs. Lists of programs and participating lenders can be found on the authority’s website, www.chfainfo.com.
In addition to affordable mortgages and down-payment assistance, CHFA offers Homebuyer Education courses, both in the classroom and online.
“When I work with an informed homebuyer, the process is much smoother and the whole experience is better for them,” Peltier said. “I cannot stress how important it is to be well-educated when it comes to buying a home. These buyers are more confident. They ask the right questions and are less intimidated during negotiations.”
CHFA is a nonprofit organization and “they don’t have any bias,” Peltier said. “Their only goal is to help people achieve homeownership.”
Interview at least three Realtors and three mortgage lenders. Make sure you have a strong rapport with the team that will support you and advise as you make one of the most important fiscal decisions of your life. Ask friends, colleagues and family members for recommendations. Don’t hesitate to ask a lender or Realtor for client contact information so you can ask about their experiences.
Once you’ve decided on your team, trust them. Listen to them. They have the expertise to help you buy the home of your dreams. You only buy your first house once, make it a good experience.