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

Appraisals for Home Ready Loans

In the last section we spoke a bit more about asset documentation and credit documentation needed by the first time home buyer for Home Ready 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 Appraisal Reports for the first home, and what additional documents may be needed because of an Appraisal Report review. 

Home Ready Appraisals can usually cost within the range of $400 to $700 dollars to perform. These appraisals ultimately determine the value of the home

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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. Unlike FHA and USDA loan programs, Home Ready loan program does not have as many guidelines and requirements, unless specifically stated in the purchase contract as being required. The home can be sold as is, with repairs being needed in Home Ready Appraisals, provided the buyer wishes to do so. Keep in mind that Home Ready Loans also has rules regarding recent flips like FHA loans and can’ be purchased less than 90 days after a recent sale, unless this property fulfills specific requirements.

What if There are Repairs Needed?

Additionally, unlike the USDA program, first time homes through the Home Ready Loan Program can have repairs that are needed, but the seller and buyer will only remedy these repairs if the purchase contract indicates so. Most of the time, these Appraisal Reports will be labeled “as is,” with any repairs being the responsibility of the first time home buyer. 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 needs to be sure that the home they are looking to purchase, along with any defects, is exactly what they wish to have.  

Remember that Appraisal Reports aren’t exactly home inspections. The appraiser will only make observations of a property and make recommendations based upon those observations.

The Appraisal Report for the first buyer can lead into additional expenses that may be rolled into the cost of the home, similar to the FHA Home Loan program. For example, for USDA and FHA, 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. This is may also still be the case for Home Ready Loan Programs. 

Other Possible Inspections Resulting From Appraisal Reports

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 Home Ready loan program. 

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

Bank Statements and Assets Required for the Home Ready Loan Program

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 Home Ready Loan Program. 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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Why Credit History and Credit Score is Important

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 Home Ready loan 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 Home Ready 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 Home Ready Loan program. 

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