The First Home Buyer’s Guide: Adjustable Rate Mortgage Part II

In the second part of the First Home Buyer’s Guide to Adjustable Rate Mortgages, we will be discussing both an advantageous and disadvantageous scenario for the first time home buyer, in an attempt to illustrate the benefits and cons of an adjustable rate mortgage.

For the first time home buyer, the Adjustable Rate Mortgage option may seem like a risky one because it’s not a “standard” mortgage type. First time home buyers may think that just because they’ve rarely heard of someone else they know doing an adjustable rate mortgage, it may not be for them as well. While this may or may not be the case, the first time home buyer only increases their chances of getting a better mortgage by understanding the different options that are available and not being limited to just what is “normal” for their first home. 

For a first time home buyer, the adjustable rate mortgage option can save them money, especially if they are only looking to own the home for a few years, and not for a full 30 year term. For example, the first time home buyer, depending on the program and credit-worthiness, may be eligible for a better interest rate for the first 5 years of a 5/1 adjustable rate mortgage term than would be possible with the standard 30 year fixed. This initial fixed interest rate is usually what makes the adjustable rate mortgage term so attractive, especially if the first time home buyer is looking to save money on their monthly mortgage payments. This can lead into some financially smart strategies for the first time home buyer.

For example, the first time home buyer is looking to up-size to a bigger home in the future, but wanted to buy a home for now to become accustomed to first time home ownership.

If the loan program allows the first time home buyer to sell the home after the 5th year without penalty, for example, then the mortgage payments that could have potentially increased will not affect the first time home buyer, who will now be selling the home and moving into something bigger.

The adjustable rate mortgage term flexibility allows for strategies such as this, which may help the first time home buyer have home-ownership experience, as well as the first time home buying experience to take with them as they pursue something greater.

An example of a disadvantageous situation for a first time home buyer, is if the first time home buyer decides on a home in which the mortgage payments are affordable. The first time home buyer may love this home and choose to stick with it for the entire life of the loan. The mortgage payments, after the determined years of fixed interest rates are up, can fluctuate up or down depending on the interest rate adjustments. The first time home buyer needs to keep in mind that the interest rate adjustments are based on an index and the margin, which was decided by the lender when using the adjustable rate mortgage loan terms. The margin is the rate at which your interest will increase, and typically won’t change after closing. Unfortunately for the borrower, this means that as the loan life continues, the mortgage payments may increase.

Hopefully this blog has helped the first time home buyer with understanding a common advantage and disadvantage to pursuing the adjustable rate mortgage route when purchasing a first home.



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First Time Home Buyer Guide: A Guide to Adjustable Rate Mortgages Part 1

For this blog update, we’ll be adding the discussion of ARMs, also known as Adjustable Rate Mortgage to the First Time Home Buyer Guide. For the first time home buyer, this topic may seem a bit more confusing, especially since Adjustable Rate Mortgages aren’t the norm. Most First Time Home Buyers are under the impression that there are only a few amortization terms, with the most known term as a 30 year mortgage term, with 15-year mortgage terms being possible as well. The good news is is that the first time home buyer is not limited to just these terms, and hopefully a first time home buyer may find an ARMs mortgage a bit more attractive than other options. If not, at least the first time home buyer can be aware that a flexible mortgage term like Adjustable Rate Mortgages exist, as well as provide a comparison and/or leverage when determining the best strategy when determining mortgage payments.

Adjustable Rate Mortgages are mortgages where the interest varies throughout the life of the mortgage loan. Usually the interest is set for a specified number of years, and once that time is up, the interest rate will fluctuate on a year-by-year or month-by-month basis for the rest of the loan. For the first time home buyer, this means that the mortgage payment for the specified amount of years will be the same, until that period is up. After that, the first time home buyer can expect fluctuations in their mortgage payments either annually or monthly, depending in which type of adjustable rate mortgage was decided on.

Adjustable rate mortgages have different forms, and can change depending on the kind of adjustable rate mortgage term. For an example, a first time home buyer can decide to do a 5/1 adjustable rate mortgage. This means the interest rate will stay fixed for 5 years. After the 5 years are up (year 6, 7, and so forth), the interest will adjust based on the index rate. This is one kind of adjustable rate mortgage, as there are more varieties. Another example for the first time home buyer, can be a 4/26 adjustable rate mortgage, where the first number still shows the number of years that will be fixed (4 years at a fixed interest), and the 26 shows the number of years that will be an adjustable interest rate. To add even more, the first time home buyer could elect in a 5/6 adjustable rate mortgage, where the adjustable rate is set for the first 5 years, and then adjusts at a variable rate every 6 months.

The flexibility of the adjustable rate mortgage is what makes can make it a good choice for the first time home buyer. For example, the first time home buyer, may find an adjustable rate mortgage a better choice for their goals than a typical mortgage term of 30 years, or even 15 years fixed. In part two of this discussion, we’ll be going over these scenarios which may drive a first time home buyer to favorably decide to go with an adjustable rate mortgage, or the reasons why they would wish to choose a more traditional route with the 30 year or 15 year fixed. 




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First Time Home Buyer Guide: The Earnest Money Deposit and Due Diligence

The next topic we’re going to cover for the First Time Home Buyer Guide is the Earnest Money Deposit. The Earnest Money Deposit is basically an offer that is not a part of every contract, but can be negotiated to show the seller that the first time home buyer is serious about purchasing a particular home. The Earnest Money Deposit will count towards the purchase of the home and closing costs, and typically is held by the title company or seller’s agent.

The Earnest Money Deposit is negotiated between the first time buyer and seller, and will then be added to the purchase contract. The Earnest Money Deposit is very important because the size of the Earnest Money Deposit may determine whether or not the seller chooses to sell the home to the first-time home buyer or not, as there may be many other people bidding on the home. It’s not unheard of to see the Earnest Money Deposit reach even up to 10% of the sales price of a home to show how serious the first time buyer is about purchasing the home. The first time home buyer must keep in mind that the Earnest Money Deposit offered can be too little, making the decision to choose another buyer easy for the seller if the Earnest Money Deposit isn’t competitive enough.

Even though the Earnest Money Deposit may be a good strategy for purchasing a home, the first time home buyer needs to make sure that the home they are choosing is what they really want when an Earnest Money Deposit has been negotiated. If the home does not close for any legal reason, the Earnest Money Deposit may not be returned to the borrower depending on whether or not there are any penalties illustrated in the purchase contract. For example, if a first time home buyer was buying a home with his or her significant other, and during the mortgage process has a falling out with that significant other, the first time home buyer still has an obligation to go through with this purchase. If there are any implications that the first time home buyer can no longer afford the home due to losing the income of the first time home buyer’s significant other/spouse, the Earnest Money Deposit can be used as a penalty for not closing on the home, and be lost.

For the Earnest Money Deposit, a few tips for First time home buyers is to make sure that there is a penalty-free contingency in place, in case the home, after the purchase contract is accepted, is for any reason not insurable or appraises in a very damaged condition. This way, the first time home buyer is insured to get the Earnest Money Deposit if closing doesn’t happen for reasons out of their control. USDA Loans, for example, require a home to appraise at no higher than a “C4” quality rating. If that home appraises as a C5 or C6 quality rating, that means that the home does not fulfill the requirements in USDA guidelines due to needing too many structural repairs, and that deal is dead. USDA will not provide a loan for these properties. In this case, if the purchase contract has a penalty-free clause, then that first time home buyer will be able to see their Earnest Money Deposit back.

We hope this sheds a little light on the Earnest Money Deposit, and why it may be an important part of the first time home-buying process. Until next time!



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First Time Home-Buyer’s Guide: Asset Documentation For Your Mortgage Loan Process

One of the biggest sources of anxiety for the first time home buyer is the asset documentation needed for submission and for the final approval. First time home buyers can easily feel overwhelmed with the amount of documentation that is needed, especially when it comes to sending in their bank statements, large deposit sources, and other asset documentation. This blog post will aim to help the fist time home buyer prepare for this part of the loan process, and offer some tips and insight to make it as painless as possible. 

For asset documentation, the typical requirements are the most recent two months of Bank Statements for the main borrower on the loan. If the first time home buyer consists of a borrower and a co-borrower, and they have two separate accounts along with a joint account, all accounts must be sent in. For USDA requirements, all household member assets are required, as long as they are over eighteen.

Any accounts where the first time borrower is listed as a joint-account holder, a full access letter will be required. This letter indicates that the account holder not on the mortgage is giving the first time borrower full access to the funds in the account. This letter is required if the first time borrower wishes to able to use the funds in this particular account for closing. 

Another tip that can help first-time home-buyers with the sending in of Bank Statements, is to go over their transactions prior to sending the Bank Statements in to your Loan Officer or Loan Processor. Underwriters will be looking for “large deposits” on your Bank Statement, and will need an officially signed (in pen) and dated letter of explanation detailing where this money came from. The first time home-buyer will also need to provide a copy of the source of this deposit. This can range from a Pay stub to another Bank Statement as a source if it’s a transfer, for example. 

Underwriters need to identify what the first time borrower’s large deposits are for different reasons, based on the loan program. For USDA Loans, the underwriter needs to know the source of large deposits to insure that it is not another source of income.  For other loans, such as Conventional, FHA, and VA for example, the deposits just need to be able to be sourced to protect against potential money laundering. USDA guidelines for large deposits vary, as there is no set rule. If the first time borrower has a lot of $20 dollar deposits not shown as from an employer on the Bank Statement , the underwriter may ask these deposits just to be sure. For the other loan types, the general rule is any large deposits that are 1% of the purchase price or higher will need to be explained or sourced.

For other asset documentation, such as 401K Accounts, and/or IRAs, these may be used for closing and/or to show fund reserves if the appropriate documentation is given. First time borrowers may use any retirement, 401k, and/or IRA accounts provided that account allows for hardship or early withdrawals. In order to prove this, First time borrowers will need to provide their most recent statement and a copy of their Plan Summary, which details the Terms and Conditions of Withdrawal. 

Hopefully this blog post has helped with easing the concerns most first-time home buyers encounter with submitting asset documentation. The loan process will be much faster if the first time borrower provides all the required additional documentation before it’s asked for, especially for the asset conditions!



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First Time Home-Buyer’s Guide: Tips for Searching For Your First Home

For the first-time home-buyer, choosing the first home can be a daunting, intimidating process. There seems to be a lot of rules and regulations, many different loan programs to choose from, and a lot of fancy mortgage jargon that can leave a first-time home-buyer intimidated and fearful they will not qualify. In this blog post, we’ll go over several tips we recommend when starting the process of buying a home. The hardest part of the mortgage lending process, just like any real goal, is getting started.

For the first-time home buyer, the housing market can seem full of beautiful dream homes that the potential buyer feels they cannot afford. It’s very important to understand exactly how much you can comfortable afford when buying a home, and a pre-approval from a lender can give you a great idea. We recommend getting a pre-approval before shopping for a home, so you know exactly how much your first home can cost. This allows for more comfort and less anxiety when it comes to choosing that first dream home, because you know you can afford it. 

We also suggest seeing more than one home. In the housing market, your first dream home may have multiple bids. Additionally, you can also be rejected outright by the seller or seller’s agent. While rejection feels bad at first, if you have multiple homes that you are looking to buy, it will lessen the blow. If the first time home buyer only focuses on one home, that home may lead that first time home buyer to spend more than they can afford because it’s their first dream home. However, spending too much for a home can lead to many problems down the road, and defaulting on a first mortgage is definitely what needs to be avoided at all costs.

When attending open houses, try not to give too much information to the seller’s agent. First time home buyers can easily make the mistake of doing this, and potentially jeopardizing their chances for purchasing their first home. If a seller’s agent feels that you are not financially stable, for example, they may not accept your offer on the home. For example, if you’ve recently quit your job, even if it’s to go to another job at a different location, that may leave the impression that you’re not financially stable yet. 

Another tip that can be used for the entire first time home-buying process, not just the beginning, is to be careful with what you spend your money on and opening new lines of credit. If a first time borrower makes a big purchase with credit any time during the process, this can change the debt-to-income ratio, leading into a possibility of making them ineligible. This can kill deals, or delay closing by several months as the first-time borrower attempts to pay down that credit. Opening new lines of credit can also affect debt-to-income ratio, especially if you’re deciding on taking out a personal loan or buying a new car. These activities should wait until after the purchase of your first home, if necessary. 

Hopefully this blog has brought some insight into the first-time buyer’s experience to shopping for a home, and these tips help you avoid pitfalls that can stop you from obtaining your first home! 


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First Time Home-Buyer’s Guide – The Completion Report (1004D)

For the first time home-buyer, a completion report may bring confusion, anxiety and uncertainty. However, I’m here to tell you that these completion reports should bring ease and comfort to the first time home-buyer. These reports are requested by lenders when the original home appraisal report has a label of “Subject To,” and has recommended inspections and repairs. For the first-time home buyer, this might spark anxiety, but usually the seller has to pay for these repairs and inspections, unless otherwise written in the purchase contract. 

When an Appraisal Report has a label of “subject to the following repairs,” or “Subject to the following inspections,” that typically means that a Completion Report will be needed. The Completion Report is a shorter form that indicates that the appraiser went back out to the home, and all of the conditions listed in the “Subject to” category have been taken care of. This can range from peeling paint, installing handrailings for stairs or decks of a certain height, or the inability to access a crawlspace and/or attic. First time home buyers can be at ease, knowing that their first home being purchased will be safe, and also have the required repairs performed. And as mentioned before,  these repairs are not covered by the borrower, but by the seller, unless an agreement has been made in the purchase contract.


When a first-time home-buyer looks at an Appraisal Report, they can feel overwhelmed. However, the Completion Report is relatively simpleand is only one page. Any additional pages will be added by the Appraiser, and typically consists of photos of the areas that needed repair or inspection, to show that these conditions have been repaired, and inspections performed. 

There are three labeled sections on the Completion Report: Summary Appraisal Update Report, Certificate of Completion, and Signatures. The Summary Appraisal Update Report section is filled out only if there is a Re-Certificate of Value, or if the Property was in an area recently hit by a Natural Disaster. In this case, the Appraiser will add notes if the value of the home decreased in any way since the original Appraisal Report. First-Time Home-Buyers typically do not have to worry about this section, as it is usually left blank. 

The Certificate of Completion section is used if there have been any repairs or required inspections needing to be performed. The Appraiser will add what repairs and inspections were needed, which have been completed, and whether the home now conforms to FHA or USDA guidelines, depending on the loan program. This section usually has photos of the home, showing each repair item and each inspected item. The last section is the Signatures section, where the signature of the Appraiser and Supervisory Appraiser and their information is added, along with the Lender/Client.

For the First Time Home Buyer, this form is very straight-forward and should spark little confusion. Hopefully, this blog  will help ease any concerns when First time Home-Buyers have to deal having a completion report ordered for a property they wish to purchase.



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First Time Home-buyer’s Guide to Appraisals Part 2

For this second part, we will be going additional information in regards to the appraisal as well as some information in regards to the cost, who orders the appraisal, and other information. We’ll take a quick look at the sections of the Appraisal Report.

The Home Appraisal is typically ordered by the buyer’s lender, but the is covered by the home-buyer. The Appraisal itself can vary, usually around $550 depending on the Appraisal Management Company or AMC that is ordered to do the appraisal. Additionally, a Completion Report, which is a follow-up Report that’s needed if there are repairs that were needed, or further inspections that the appraiser was unable to perform. Completion Reports are typically around $175 as well, and are also typically covered by the buyer.

The blank Appraisal Report form is 7 pages before any information is added. The first page has the legal description of the property being appraised, the borrower’s information, contract information, neighborhood and site information, and improvements. As you can tell from the names of the sections, this page is comprised of the general information about the property as well as the purchase contract. This includes the property address and parcel number, the borrower and seller names, zoning information, neighborhood information, and improvements. Despite how it sounds, the improvements section lists all of the information about the home, such as foundation, the number of bedrooms, as well as if there has been any additions.

Page Two of the Appraisal Report has the Comparisons of up to three similar homes in the area. This Comparison section is used to compare the values of similar homes in the neighborhood. This section also includes transfer dates, which is necessary for certain loan programs. For example, FHA doesn’t allow for homes to be sold within 90 days if a previous sale, unless it fulfills very specific requirements. Reconciliation, the last section of this page, shows the appraised value, lists whether or not the property is “As Is” or “Subject To,” and also includes the date (same date of the appraisal). USDA Appraisals are good for 150 days, while all the other Loan programs have a 120-day expiration period.

Page Three of the Appraisal Report has a space for additional comments, that the Appraiser can use if they wish to identify any further information or recommended repairs. The Cost Approach gives the breakdown for the value, and also includes the economical remaining life of the home. It’s very important that this Economical Remaining Life number meets or exceeds the life of the loan. For example, if the home is being purchased for a term of 30 years, the economic life should read 30 or longer. If it is less, there’s a risk of not being able to be approved for the loan to buy this home.

Pages Four through Seven includes the “Scope of an Appraiser’s Work” information, which illustrates exactly what it is they are able to do with an appraiser, as well as disclaimers that this is not a home inspection. This shows what the appraiser is entitled to do, or able to do in regards to navigating around the home and performing the appraisal. 

While this blank Appraisal Report is only 7 pages, the actual report can have considerably more, as it includes photos of the home, as well as photos of the comparisons. This pretty much covers the Appraisal Report. We will cover the Completion Report next section! 

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First Time Home Buyer’s Guide to Appraisals Part 1

Appraisals can seem like a very daunting document when you look at it. Fortunately, it’s not as intimidating as it seems. In the process of purchasing a home, an appraiser is sent out to the property being purchased to appraise the home. This appraiser’s job is to get a value of the entire property, including land, and notify of any recommended inspections or repairs.

As mentioned previously, the appraiser’s main job is to place a value of the property being purchased. This value can be higher or lower than the contract price, but it should be close. However, there are reasons as to why the Appraised value can be higher or lower than the contract price amount, especially if the home has additions that are not common for the area. For example, having a pool, an extra room added to the house, or even remodeling can make a home’s value increase in a neighborhood with older homes that do not have pools.

To be clear, Home Appraisals are not Home Inspections. While the Appraisal Report will include things that need to be fixed in order for a home to be purchased under certain Loan programs (such as USDA and FHA), these inspections from the Appraisal Report are only visual. In other words, Appraisers are not liable to move furniture or items inside a home, and any issues that they find, they will note it on the appraiser, and recommend an inspection from a professional to determine whether or not the item needs any further repairs.

Appraisal Reports can be labeled as one of three options: As-Is, Subject To Repair, or Subject to Inspection. For USDA and FHA programs, an appraisal labeled as Subject to Repair, or Subject to Inspection, must have the mentioned repairs or inspections done before the lender will approve the mortgage loan. 

For USDA and FHA Loan Programs, there are certain repairs that the appraiser can point out that need to be repaired or rectified before a home can be purchased. Some examples are peeling paint, decks and stairs without railings, and other safety concerns. If there is evidence of a leaking roof or a cracked foundation, a roof inspection or foundation inspection, respectively, effectively labeling the appraisal report “subject to.”

In part 2 of this series, we will go more into depth of an actual Appraisal Report. Until next time!


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Fannie Mae’s HomeReady Program: A Guide for The First Time Homebuyer

For this blog update, we will talk about the HomeReady Program and the advantages for First-Time home buyers. HomeReady is the program by Fannie Mae that serves as a very attractive package towards first time home buyers and repeat home buyers with low to moderate income. This program specifically targets low to moderate income borrowers, in that 620+ credit score range, who are looking to put down a minimum down payment. This program also allows “boarder” income, just like Freddie Mac’s Home Possible program, so this allows those who would be ineligible by themselves to supplement their income through occupants in their home.

As mentioned above, Fannie Mae’s HomeReady program is tailored towards the low to median income borrowers. This income is calculated also by the Area median income, or AMI, just like Freddie Mac’s Home Possible and Home Possible Advantage Programs. And just like those programs, the family and occupants of the new home can all count their income towards this amount. Supplemental Boarder income is the term used for occupants in the home whom either have their own income, or whom are paying rent to the borrower looking to own the home.  


Credit-worthiness is more of a factor with Fannie Mae’s HomeReady program, versus Freddie Mac’s HomePossible program, which allowed those without a credit score to apply. The requirement for the HomeReady program is a score of 620, however there are perks for those that are above the 680 score, which leads to better pricing.

Another great perk for first time home buyers, is that the requirement for the down payment is only 3%. This also includes income from other sources like borrower down-payment assistance programs, employers, churches, etc. This 3% down-payment requirement is lower than the FHA program, which is 3.5%. As a first time home buyer, this is definitely one of the reasons people choose HomeReady and Home Possible programs over FHA. Additionally, this down-payment can completely be achieved without using personal funds. This is extremely attractive to those who may be gifted funds for the home purchase.

Fannie Mae’s HomeReady program, similar to Freddie Mac’s HomePossible program, allows for Cancellable Mortgage Insurance. Borrowers may have the option to cancel their mortgage insurance once their home equity reaches 20%. What this means is that the initial monthly payments will decrease at this point once the borrower stops having to be responsible for paying the Mortgage Insurance. As a reminder, for FHA programs, Mortgage Insurance is never cancellable, and is required for the entire life of the loan. 


Lastly, Fannie Mae’s HomeReady program does allow for refinancing options. Refinancing may also help lower the monthly payments for a loan, but going for a refinance may also mean the borrower pays more in interest in the long run. This may be an attractive offer for first-time home buyers who first purchased the loan at a higher rate and wish to lower that rate, along with their monthly payments.




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Freddie Mac’s Home Possible and Home Possible Advantage: Part III Guides for the First Time Home-Buyer

For this last section, we will be going over the Income Guidelines and Eligibility, Credit Guidelines, Residency, and possible Refinance Options!


For both the Home Possible and Home Possible Advantage programs, the income requirements are very flexible. Not only do these programs both allow “boarder” income, but they also take into account the Area Median Income, also known as AMI. This was created to counter excluding areas that have a much higher cost of living (example: buying a home in San Francisco, California and buying a home in Wilmington, Delaware would not be able to have the same flat income guidelines, as the cost of living in San Francisco is significantly higher) or by alienating those in areas with much lower than average income. Both of these programs are targeting lower-income families to enable them to affordably purchase a home, after all. However this does not exclude borrowers who have higher than Area Median Income.

Area Median Income is estimated by HUD (The Department of Housing and Urban Development). HUD estimates median family income for an area in the current year and adjusts that amount for different family sizes so that family incomes may be expressed as a percentage of the area median income. With this said, these programs do allow borrower’s who would be a bit above the Are Median Income, especially in high cost areas.

For the Home Possible Program, borrowers without a credit score can still be approved for a home. And even though borrowers can still be approved for these homes, the down payment can still be as low as 5%. Unfortunately, this is not possible at this time with the Home Possible Advantage program.

Both of these programs allow for refinancing, as long as it’s a No Cash-Out Refinance. A “No Cash-Out Refinance” essentially is a refinancing of a home for an amount equal or less than the existing outstanding loan balance. However, this refinance only affects the mortgage term and/or the interest rate. While this program can lower a borrower’s monthly payments, it can also result in an increase in interest paid over the life of the loan. 

And finally, the Home Possible and Home Possible Advantage programs has a requirement for the borrowers: All borrowers must occupy the property as their primary residence. The ideal profile for these programs is for first-time home buyers, move-up borrowers and retirees.

Next blog post will be about the in-depths of Fannie Mae’s Home Ready Program!



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