In San Diego's competitive home buying market, buyers need every possible advantage when it comes to competing with others in purchasing their dream home! As long as inventory is low combined with growth in population, the demand will continue to increase prices making it more difficult to buy your first home! Therefore, we've created an easy to follow "Home Buying Guide" that will prepare you for the process of buying a home. Let's get started!

Know The Difference Between Pre-Qualified or Pre-Approved!

Pre-qualified means that you have verbally spoken with a lender and have provided estimated information regarding your credit and income. As a result the lender has said you qualify for a certain price range. Be aware that surprises could come about when the information is actually verified.

Pre-approval means that you have given your lender your tax returns(W2's), pay stubs, bank statements and your credit has been checked. At this point your lender will run your file through an electronic underwriting program and you will receive a full loan approval subject to the appraisal of your property. This pre-approval puts you in the best possible position when making an offer.

What Lender's Are Looking For

Helping Home Buyers
Your credit history is the ultimate factor in determining what programs you qualify for. The better your credit history, the higher your FICO score will be, hence the more loan options you will have. 

Current Debt Load-the amount of debt you presently carry will directly affect the maximum loan amount you can qualify for. When applying for a home loan it is imperative not to incur any new debt such as personal loans or auto loans.

Job History-once your credit is verified lenders then look at your job history and the likelihood of continued income. Multiple job changes, declining income and new fields of work are all areas of concern to lenders.

Qualifying Ratios-in most cases lenders will use a calculation in determining how much of a loan you can qualify for.

HOME BUYING TIP! A good rule of thumb is for your housing expense to be no more than 1/3 of your gross income. 

How Interest Rates Can Effect The Process

Funds To Close-at the time of loan approval lenders need to verify enough money for your down payment and/or closing costs. Keep in mind that unsecured sources of funds (ie-credit cards) are not an acceptable source.

Interest Rates- can be viewed as the cost of money at any given time and there are a number of factors that can cause the cost to fluctuate. 

Inflation Rate-the measure on the decrease of the dollar's value and an accompanying increase in the price of goods and services. If inflation is rising then generally rates will rise. If inflation is low then there is a good chance that rates will drop or remain steady with no upward pressure.

 Economic Strength-traditionally speaking if the economy is strong and growing there is usually upward pressure on rates. Whereas, if the economy is in a recession rates tend to drop or remain low. 

Federal Reserve-the Federal Reserve is the "nation's bank" so to speak and controls certain short term rates and the money growth of the country. If the Fed feels inflation is on the rise then they tend to raise rates to slow the economy. If the economy is slowing and inflation is under control, then the Fed may attempt to lower rates in attempt to jump start the economy.

What Does It Cost To Obtain a Home Loan?

Points are usually associated with the cost of obtaining a new loan. One point equals 1% of the loan amount and is generally broken down into two categories; "origination" and "discount". The origination point or fee is what the lender charges to process and close a loan. The discount point(s) are directly related to the interest rate chosen. At any given time there are many rates and points to chose from for each loan program. When you consider "buying down" an interest rate, the cost of that lower rate goes up. i.e-a 5% loan costs more to obtain (having higher points) than a 6% loan.

Credit Scoring

Credit scoring or FICO scoring is a mathematical model of grading a person's risk potential relative to that person's ability to repay a loan. The score is a single number ranging from 300 to 850 depending on which bureau is used.

700 & Above                    Excellent
660-699                           Good
620-659                           Average
600-619                           Below Average
500-519                           Poor 

Keep in mind that the mathematical profile behind a FICO score is impossible to know considering all of the variables. The five main categories of a person's score are:
  • Previous credit history and payment record.
  • Current debt load and account balances.
  • Amount of time credit has been in use.
  • Borrower's recent pursuit of new credit.
  • Types and amount of unused credit a person has available.

Lending Terms & Definitions
  • Annual Percentage Rates(APR)-this represents the cost of the loan when taking into account the finance charges associated with obtaining a loan. If you secure a $100,000 loan but pay $1500 in finance charges to get the loan, the "effective cost" of borrowing that money goes up. Although your interest rate doesn't change, your APR is higher because of the finance charges.
  • Private Mortgage Insurance(PMI)-mortgage insurance is normally required on conventional loans when there is less than 20% equity or downpayment. Mortgage insurance protects the lender in case of a default by the borrower. In the event of a default the PMI company will pay a claim to the lender to cover the costs of taking back and reselling the home.
  • Rate Lock-generally a borrower can lock in an interest rate on a loan program for up to 60 days. A rate lock protects a borrower from rising interest rates by establishing a set rate and points for a specific period of time.
  • Recurring & Non-Recurring Closing Costs-recurring closing costs are costs that will continue on a property even after a loan has closed. (ie-property taxes, homeowner's insurance, pre-paid interest and PMI). Non-recurring closing costs are one time costs associated with purchasing a home. (ie-title, escrow, appraisal, points, recording fees and credit report fees).
  • Tax & Insurance Impounds-if you impound your taxes and insurance then your monthly mortgage payment will include a portion of your annual tax and homeowners insurance bills. When these bills come due your lender will pay them from your impound account that you have been paying into on a monthly basis.
  • Prepaid Expenses or Pre-paids-these are expenses collected at the close of escrow to start up your impound account. In order to insure there is enough money in your account when the initial tax or insurance bill comes due, lenders will collect a few extra months of taxes and insurance at the close of escrow to initially fund your account.

10 Things You Need To Know Before Buying!

  1. Hire a Realtor-the complexities of a real estate transaction these days can best be handled by a qualified, licensed Realtor.
  2. Cash To Close-a qualified loan consultant can help you establish how much cash you will need for a down payment and closing costs.
  3. No New Debt-once you have decide to purchase a home, do not incur any new debt such as a personal loan or auto loan.
  4. Establish Loan Program-based on your price range and amount of down payment, a loan consultant can help you establish a program that is best fits your budget.
  5. Get Pre-Approved-getting fully pre-approved for a loan prior to finding a property allows you to shop with confidence and notifies the seller that you are a bona fide buyer.
  6. Schools-a neighborhood school system can greatly affect the value of a home in that particular neighborhood. State and local sources can provide you with reports on whatever schools you desire.
  7. Crime-statistics are usually available from local law enforcement agencies or the chamber of commerce.
  8. Future Growth-if you are purchasing in a neighborhood that isn't established then you will need to research how future growth may affect that neighborhood.
  9. Commute-when determining what areas you would like to live in, be sure to consider commute times to your job or other frequently visited areas during peak traffic hours.
  10. Inspection-once you have an accepted offer on a home, you will need to have the property inspected by a licensed home inspection company.

Now let's sit and talk about a plan to get you that home you've been dreaming of..

Set an appointment with Team SchuCo!

Call/Text: 619-995-2132