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 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 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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