Editor’s note: Mark Argyelan, of HomeStar Bank & Financial Services, is guest coauthor this week.
It’s finally starting to happen. Increasingly, Millennials realize that they can buy a house much cheaper than paying $800 to $1200 a month for an apartment.
If you have children or grandchildren that are millennials, we would suggest passing along a copy of this column to them. For the rest of us, we might want to upsize, downsize or relocate.
This is one of the best times to buy a house. Housing prices that were rising rather rapidly have started to slow down. One of the reasons is seasonality.
If you look at homes on a site such as Zillow.com, you will notice that during the late fall and winter many sellers who are motivated might cut their prices. I regularly look at Zillow, since we are looking to both sell and buy in the next 12 to 18 months.
I recommend to any buyer to get the “lay of the land” through Zillow or other comparable Internet sites first, especially if you are looking out of state as we are. Here you will find good Realtors and also many houses for sale by owner. When we move closer to making our move, we will likely work with a Realtor on both ends. Also, when possible I recommend using a local financial institution in acquiring a mortgage.
Secondly, mortgage rates which started to rise in the last year, in many cases have actually fallen a bit, but there is no guarantee these lower rates will continue. For those of us who bought our first house in the late ‘70s when rates were 13 to 18 percent, the bargain rates of today seem like a gift horse.
One thing I worried about was our age since we are both retired and older than 65. Would we be able to qualify for a loan if we decided to move into a more expensive house? The general answer is yes, if you meet the usual qualifications.
Vivian Marian, in a New York Times column, wrote, “Some may wonder if they can still qualify for a home loan without having a full-time job. But more often than not, banks are willing to lend — as long as you have a regular monthly income, like a pension and Social Security, or retirement assets. About 42 percent of households headed by someone age 65 to 74 has home-secured debt, according to the Federal Reserve’s 2013 Survey of Consumer Finances, its most recent study.”
Let me now turn over the discussion to Mark.
Whether you’re a first-timer or a seasoned veteran buying a home, the process can be intimidating. Not only is the housing market ever changing, but the process of finding a home, making an offer to purchase that home and working toward closing is ever-changing with a wide variety of variables.
Once you do find a home that fits your current needs, one of the most significant determining factors is your ability to pay for it. While a select few have the necessary reserves to pay cash, the majority of home buyers resort to mortgage loan programs offered by banks and other types of lenders.
Financing with a mortgage loan is the most common way to buy a home, condo or townhome. In fact, according to the National Association of Realtors, 88 percent of all buyers financed their homes in 2017.
So, if you are like most of us, you’re going to need a mortgage. Getting that mortgage should really start even before you set out on your search for a home.
Get an appointment with a loan officer.
During your short meeting, your loan officer will be able to let you know what price range and mortgage loan amount you qualify for based on the information you provide. The necessary information you’ll want to provide include your annual taxable income, amount of money set aside for a down payment and any additional savings, as well as information detailing your current debt (credit cards, personal, auto, student loans).
As a rule of thumb, lenders look for down payment availability (some home purchases can be completed with as little as 3 percent down or less). There are special considerations for honorably discharged veterans, who may qualify for a zero percent down payment loan through the Veteran Administration.
Another major factor in obtaining a mortgage loan is your credit score. A credit score demonstrates to the lender how responsible you are repaying current and past debt. With technology today, many consumers monitor their credit scores and keep a close eye on them.
A minimum credit score for Federal Housing Administration and VA loans is around 580 and for a lower interest rate conforming mortgage loans in the 620 range. Credit scores range between 300, very low, to 850, very high. The higher your score, the better.
Your credit score directly affects the terms and interest rates available to you for purchase. Your lender will order a credit report as part of the loan process. However, if you want to review your report, you can get a one free credit report per year at annualcreditreport.com.
Employment history is important when it comes to getting a mortgage loan.
The two factors are the length of employment, and, of course, regular monthly income. Your lender will calculate the estimated proposed monthly housing expense which includes monthly principal, interest, real estate taxes, and insurances then compare that to your income.
Next, the lender considers your overall total monthly debt which includes expenses like this new monthly housing expense along with student, credit card, personal loan payments and auto. As a general rule of thumb, the total monthly home expense should not exceed 32 percent and total debt ratio not exceed 42 percent.
Of course, the lower this percentage, the better. These are guidelines and usually an exception can be made based on other personal and financial information and factors.
Some lenders only take applications for mortgage loans online and then e-chat from there. At HomeStar Bank and other local financial institutions, applications are accepted either online or face to face with a loan expert who can answer your questions and give you the time and personal guidance needed for a smooth transaction.
After you’ve applied for a mortgage and turned in all your required financial paperwork requested by your loan officer, the lender should handle everything else that’s needed. Your loan officer should keep you informed of the process.
DON’T MAKE CREDIT PURCHASES
While the loan is being processed, do not make any major credit purchases. This includes purchasing anything today with payment due sometime in the future. This can affect your loan qualification since credit and employment are reverified just before closing. It’s also the best time to look into homeowner’s insurance, so everything is ready for the moment you become a homeowner.
When the loan processing is complete, you’ll be called to schedule a closing. The title company or your lender will take care of confirming the date-time with you, the sellers and others who may be involved with your transaction, such as the realtors, attorneys. The closing completes the final step in the mortgage loan process.
From the both of us, congratulations homeowner, happy moving day and enjoy your new home.