First Time Home Buyer Guide: What You Can Expect: FHA Loans Part 2

In the last section, we discussed the importance and some documentation that would be needed with the submission of pay stubs and Bank Statements for a first time FHA mortgage. In this section, we will go a bit more into some additional asset documentation as well as credit documentation that will need to be provided by borrower looking to purchase their first home.

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For acceptable asset documentation, the first time home buyer can bring in 401K, retirement and/or IRA funds for closing to show reserves. The underwriter for the lender will require the first time home buyer to provide the official most recent statement for these accounts, which shows any withdrawals and contributions as well as the vested balance. The other requirement for the first time borrower will be the terms and conditions. This document, which is usually labeled “Plan Summary” will outline all of the information in regards to taking a loan or withdrawing from the 401K account. Most first time borrowers may not even use the 401K to show funds for closing, but for reserves. In other words, the first time borrower just wants to show the underwriter that in case of hardship they will have a few months of reserves for paying the mortgage. By having these documents ready beforehand, the first time home buyer can send in a complete package with the assets mentioned in the previous update. Just as a reminder, the first time home buyer needs to provide the most recent official statement available, which may be quarterly or even annually. 

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As with other programs, the lender will wish to see the credit history and current credit score of the borrower looking to purchase their first home through the FHA program. The credit of the first time home buyer is pulled for many reasons, such as seeing if there are any recent debts, any new credit lines, and inquiries from other mortgage companies for the first time borrower. For the FHA loan program, as well as other loan programs, the credit score must be above a certain requirement and all debt-to-income must be documented. If a borrower has inquiries within the last 120 days, these inquiries must be explained and documentation is required if any of the inquiries resulted in a new credit account or line being opened. The underwriter also wants to make sure that the first time borrower isn’t going through the mortgage lending process at the same time with another home. If the first time home buyer has to open a new line of a credit, it’s highly recommended to talk with the Loan Officer first. It is a possibility that opening a new line of credit, especially taking out a loan for personal purposes, can actually result in being denied for the home loan. More specifically, if the first time home buyer opens a new account that puts them over the debt-to-income ratio limit, they will no longer be eligible for that loan.  It’s very important that any actions from the first time home buyer that may affect debt to income and also the credit score be discussed with the Loan Officer working with them on their first loan first.

For the next section, we’ll talk a bit about the Appraisal Report required for the FHA loan program. There will be some differences compared to the USDA program, so we will also outline those as well.

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First Time Home Buyer Guide: What You Can Expect: FHA Loans Part 1

For this part of the series, we will be discussing what a first time home buyer can expect with applying for a loan through the FHA program. While this process will be similar to the USDA loan process, there will be a few key differences. The FHA program is another fantastic option for first time buyer’s looking to purchase their first home. This program’s creation was to target first time home buyer’s as well. This is achieved by having low down payment requirements (3.5%) and other benefits. This program is not only tailored to first time borrower’s, but it is definitely a great choice if someone is looking to find their first home. If you’d like to learn more about the FHA program in depth, please check out the FHA Loan Program update!

Similar to the USDA First Time Home Buyer Guide, we will be discussing Assets and Income first. The FHA program is a bit more lenient in terms of requirements for asset documentation, such as bank statements. The first time home buyer can rest assured that household asset documentation is not required for this program. While large deposits do need to be sourced for this program, the large deposit “threshold” will be much more forgiving than the USDA program. Non-payroll deposits of 1% or more of the purchase price will need to be sourced for FHA programs. The underwriter needs to make sure that the first time home buyer’s money is coming from a credible, legal source, and will need to be documented. Non-purchasing spouse can submit their asset documentation only if they wish to. This includes others in the home that are over eighteen years of age. The only difference is if there are transfers going into the first time borrower’s account from another person’s bank account. If this is the case, that Bank Statement will need to be provided so the underwriter can source the transfers. Joint accounts will need to be submitted as long as the first time borrower is listed as an account holder as well. Other than that, submitting of Bank Statements is pretty straight forward.

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Just like for the USDA program, the underwriter will require 30 days of the most recent pay stubs for submission. As mentioned before, pay stubs are used for determining the baseline for income, and can also see if there any deductions for other things, such as child or spousal support. In order to get an accurate reading on debt-to-income, if there are any other additional deductions besides taxes, social security, etc., then there will need to documentation provided to the underwriter to show how long the additional deductions will be affecting the income. If the first time borrower pays or receives child support, a child support order is needed, and if a first time borrower pays or receives spousal support, a divorce decree and separation agreement will be required. Both of these items are required because the first time borrower will need to have debt-to-income recalculated if these items weren’t previously shown. 

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For the next section, we will dive into a bit more for the FHA loan program with Part Two of the series!

 

 

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First Time Home Buyer Guide: What You Can Expect: USDA Loans Part 5

In the last blog post, we spoke about the Uniform Residential Loan Application, or the 1003 Form. In this final post, we will be talking about what happens after the initial submission for the first time home buyer.

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After the first time borrower,  along with the Loan Officer, submits the application with all of the required documentation to the lender, the underwriter will review all of the documents. Unless there is a statement of denial right then and there, the lender will reply with what is called a Conditional Approval. This approval outlines all additional documents required by the Loan Officer or Loan Processor, First time borrower, Seller’s and Buyer’s Agents, and Title companies associated with the transaction.

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Most documents required by the first time borrower at this stage may be any additional pay stubs and bank statements that have since expired. The first time borrower has to remember that pay-stubs expire after thirty days, and Bank Statements after forty five days. Also, if the first time borrower still does not have the needed funds for closing, the underwriter will ask for an updated Bank Statement to show those funds being available. Any funds added to a first time home buyer’s bank account that is not labeled on their statements as payroll will need to be sourced if this is the case. 

The title company will be responsible for sending in accurate title documents. These title documents include a Pre Closing Disclosure, Wiring Instruction, tax Certificate, Title Commitment, Errors and Omissions Insurance, Chain of Title and a Closing Protection Letter. The Pre Closing Disclosure outlines all of the costs of a loan is similar to a Master Statement that is received when a loan closes.  The Wiring Instructions are just instructions for sending money to the title company to pay for title documents. The Title Commitment includes the lender and first time purchaser, outlines any policies that are covered, like an owner’s policy and lender’s policy, and the coverages and exemptions that are covered under each. Additionally, the chain of title may be on the Title Commitment as well. The chain of title shows the the previous deeds transfers, up to a twenty four month period. The Title Commitment may also, in their title search, find judgments for either the seller and buyer. Sometimes, a title company will not go through with a loan until these judgments are addressed and satisfied. The Closing Protection Letter is a letter that forms an insurance contract between the title company and the lender. This contract will basically compensate the lender for any misconduct carried out by a closing agent, and will not hold the lender accountable for damages.

The seller’s and buyer’s agents will be responsible for any purchase contract extensions as well as any inconsistencies that may arise from the submitted purchase contract. For example, if there are any addendums, the underwriter will need these to be signed and dated by all parties to insure that the transaction is legally bound. 

The Loan Processor and first time home buyer will be responsible for procuring homeowner’s insurance for this first home. Buying a home for the first time can cause stress when it comes to searching for homeowner’s insurance, but a good Loan Officer will provide the first time home buyer with a specific number to keep the yearly premium under. The homeowner’s insurance has to be within the required debt-to-income ratio so that it will be affordable. 

Hopefully, this series of blog posts has helped a borrower with their first mortgage using the USDA Loan Program. Our aim was to hopefully prepare a first time buyer with their first home, and not be intimidated by the process. Next, we will be discussing the FHA program, and outline what the process would be for obtaining a first time home buyer’s first home. 

 

 

 

 

 

 

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First Time Home Buyer Guide: What You Can Expect: USDA Loans Part 4

In the last section we briefly spoke about the Appraisal Report and additional documents that may be needed by the first time home buyer to receive a clear to close. This section will be about the documents needed for the general application. 

The general application for a loan is called the Uniform Residential Loan Application, or the 1003. First time home buyers will hear more mortgage-savvy individuals will refer to this as the “Ten-Oh-Three” form. This form is the form that the first time home buyer will submit along with all of their income, assets and legal documentation to a lender. This information needs to be filled out as completely as possibly by the first time home buyer. The first time home buyer will be assisted by the loan officer when filling this form out for their first home loan. The first time home buyer’s responsibility is disclosing all of the information for the Loan Officer on this form, and being as accurate as possible. The purchase contract will be there to provide the information in regards to the loan type, amortization period, and the property information. The property information basically indicates what kind of property this will be, whether it’s a regular loan, new build, or refinance. Each section has specific information that will be need to be filled out together with the first time home buyer’s loan officer.

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The next couple sections of the Uniform Residential Loan Application have to deal with borrower information. This information is absolutely crucial and will need to be as accurate as possible. This will be personal information such as date of birth, social security number, and current address. This will also include if there’s a co-borrower on the loan as well. The first time home buyer will also input their work information, including employer and work history. For USDA and FHA guidelines, the underwriter will need the last 2 years of employment, so if there are multiple employers this section has a place for this additional information. The underwriter will require a verification of employment from all of a first time home buyer’s  employers within the last two years of employment.

 

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The next section will be detailing assets and liabilities. This section will be asking about all of your bank accounts, IRAs and/or 401Ks or any other retirement accounts. The first time home buyer will also notice there’s a “liabilities” section. This section will also be requiring any current bills and monthly payments, such as a personal or car loan. These must all be documented so the loan officer and the underwriter can get an accurate representation of a first time borrower’s debt-to-income ratio, as well as assets that are available for the loan. For any legal related debts, such as child support or spousal support, there is also a section for this information to be added. The loan officer and underwriter will be looking for proof of all of these documents as well.

The other sections are for demographic information and disclosures and instructions about the document itself. The information added here should be as accurate as possible as well.

For the next section, we will be talking about the Conditional Approval and Closing. Take care!

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First Time Home Buyer Guide: What You Can Expect: USDA Loans Part 3

In the last section we spoke a bit more about asset documentation and credit documentation needed by the first time home buyer for USDA Loans. We also gave a few tips in regards to what the underwriter for lenders will need for these items. For this section, we will be talking about more documents that are required for the first time home buyer’s loan process while also attempting to provide some tips in regards to these documents.

The first time home buyer can always expect to have to purchase an Appraisal Report. The Appraisal Report gives the underwriter a lot of information in regards to the home being purchased, including the layout, the year the home was last sold or purchased, and value information in comparison to homes in the immediate area. In fact, the Appraisal Report itself can have a first time home buyer’s loan application result in a denial if the home does not meet the USDA guidelines. The appraisal report can cost anywhere between $300 and $600 depending on the Appraisal Management Company used, or AMC. The appraiser that is then tasked to go to a home strictly makes observations. In other words, this should not be confused with a home inspection. The first time home buyer should rest assured that the home will meet guidelines and address all safety concerns, because the appraiser (and underwriter if the Appraiser misses some issues) will request the seller remedy these concerns before the appraisal can be accepted. The first time home buyer should not have to worry about the repair of these items requested by the underwriter or appraiser, unless specifically mentioned in the purchase contract that the first time home buyer assumes responsibility for these items in question. This typically will not happen for USDA loans, however.

The Appraisal Report for the first buyer can lead into additional expenses that may be rolled into the cost of the home. For example, if the first time home buyer has a home that is on private well water, the underwriter will require a water inspection to insure that the water is safe to drink. There are rules for who may obtain the water sample collected for the water test as well. Most companies will send one of their own to procure a sample. However, if the company does not have someone that will do it, the first time home buyer, the seller, or agents can not collect the sample. They can only order the water test. The sample must be collected by a third party who will not benefit in the purchase of the home.  Other inspections that can result from a first time home buyer’s Appraisal Report can be roof inspections, septic inspections, mold inspections, and termite inspections. These inspections will need proof that the home does or does not need repairs and must also provide the copy of the invoice. If the first time home buyer purchases these inspections, these may be rolled into the cost of the loan if the purchase contract indicates that this will be the arrangement.

For the next section, we will be talking about loan application documents for the USDA loan. 

 

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First Time Home Buyer Guide: What You Can Expect: USDA Loans Part 2

For this section, we’ll be talking about more of a few tips for the first time home buyer that is purchasing a first time loan through the USDA loan program. Last time we discussed asset and income documentation, and how those are important and also an intimidating part of the process, due to the amount of documents that will be needed for submission. Additionally, any sources of income for USDA will need to be documented, and any deposits that seem like income will also need to be sourced for that exact same reason. In this update, we’ll be talking more additional asset documentation, and credit documentation.

For acceptable asset documentation, the first time home buyer can bring in 401K, retirement and/or IRA funds for closing to show reserves. The underwriter for the lender will require the first time home buyer to provide the official most recent statement for these accounts, which shows any withdrawals/contributions as well as the vested balance. The other requirement for the first time home buyer will be the terms and conditions. This document, which is usually labeled “Plan Summary,” will outline all of the information in regards to taking a loan or withdrawing from the 401K account. Most first time borrowers may not even use the 401K to show funds for closing, but for reserves. In other words, the first time borrower just wants to show the underwriter that in case of hardship they will have a few months of reserves for paying the mortgage. By having these documents ready beforehand, the first time borrower can send in a complete package with the assets mentioned in the previous update. Just as a reminder, the first time home buyer needs to provide the most recent statement available. 

This may not surprise the first time home buyer at all, but the lender will need to see the borrower’s credit score and credit history. The credit of the first time home buyer is pulled for many reasons. For USDA, as well as other loan programs, the credit score must be above a certain requirement and all debt-to-income must be documented. If a borrower has inquiries within the last 120 days, these inquiries must be explained, and documentation is required if any of the inquiries resulted in a new credit account or line being opened. If the first time home buyer has to open a new line of a credit, it’s highly recommended to talk with the Loan Officer first. It is a possibility that opening a new line of credit, especially taking out a loan for personal purposes, can actually result in being denied for the home loan. More specifically, if the first time home buyer opens a new account that puts them over the debt-to-income ratio limit, they will no longer be eligible for that loan.  It’s very important that any actions from the first time home buyer that may affect debt to income and also the credit score be discussed with the Loan Officer in charge of the file first.

For the next section, we’ll be discussing a few more tips for the USDA loan process. 

 

 

 

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First Time Home Buyer Guide: What You Can Expect: USDA Loans Part 1

Welcome to our new little series within the First Time Home Buyer Guide. We will be adventuring into what the first time home buyer can expect with doing certain loan types. We’ll also be offering suggestions and tips for how to get the loan process completed with as few headaches as possible! The aim with this new series is to show the first time home buyer that the first home buying process is not as intimidating as one might think, and can be smooth sailing if the first time home buyer knows exactly what they’ll be getting into when applying through any of these programs. 

 

The first loan program we will discuss will be the USDA Loan Program. As mentioned previously, this Loan Program targets buyers who are looking for homes in rural areas that would be eligible for this program. Additionally, there are income restrictions to make this a perfect loan program for first time home buyers who may qualify as median to low income. 

The first time home buyer can expect a few things from this program, including asset and income documentation. The first time home buyer can expect to submit all asset documentation for everyone living in the home that is over 18, and all income information for all household members as well. Because the USDA Loan program is a government program, the underwriter and rural development both need to make sure both income and assets make sense and specifically check to make sure the first time buyer is reporting all sources of income. Bank statements are the prime way for a first time home buyer to give an idea of income as well as show money-spending practices to the underwriter, who will then grant an approval based on that and other factors.

For the first time home buyer, the underwriter will require 30 days of the most recent pay stubs for submission. Pay stubs are used for determining the baseline for income, and can also see if there any deductions for other things, such as child or spousal support. In order to get an accurate reading on debt-to-income, if there are any other additional deductions besides taxes, social security, etc., then there will need to documentation provided to the underwriter to show how long the additional deductions will be affecting the income. If the first time borrower pays or receives child support, a child support order is needed, and if a first time borrower pays or receives spousal support, a divorce decree and separation agreement will be required. Both of these items are required because the first time borrower will need to have debt-to-income recalculated if these items weren’t previously shown.

 

The first time borrower must also send in bank statements for all household members over 18 that will be living in the new home. The underwriter will specifically be looking at spending habits as well as identifying any other sources of income. For USDA specifically, any deposits that seem to come in repeatedly will need to be explained by the first time borrower, whether that deposit is $20 or $200. Acceptable sources for large deposits can be invoices, pay stubs, loan or promissory notes, or other bank statements. By knowing exactly what will need to be explained and sourced beforehand, a first time borrower can submit all of these items with each bank statement to insure any questions the underwriter may have after submission will already be answered and sourced.

USDA Part II for next time, as we talk about more tips and experiences the first time home buyer will go through when applying for a USDA home loan.

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