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1. If You Can’t Borrow – A First Time Cali Home Buyer usually Can’t Buy (for most of us!)

For a First Time Cali Home Buyer, if you can’t borrow, you can’t buy.  Before you start looking for a home, the goal is to get pre-qualified for a loan.  Do not  allow yourself to victimized by unscrupulous bad actors in the mortgage industry.  Educating yourself is the best defense. Both lenders and mortgage brokers will take an application, process the loan documents, and see the loan through to the funding stage. Banks, credit unions and mortgage bankers make home loans but, they only “sell” a few loan products.   Mortgage brokers are flexible free agents.  They arrange loans for a portfolio of wholesale lenders for a commission to tip the ranges from 1 to 3%.  Therefore, finding a trustworthy mortgage loan originator is equally important to finding a trustworthy realtor.

2. A First Time Cali Home Buyer Can Borrow to Buy a Home with Marginal Credit

Qualifying for a mortgage requires a First Time Cali Home Buyer to fit into the best available financial box as created by lenders or the federal government standards.  If you have marginal or bad credit, don’t assume you can’t borrow to buy a house.  Rather, immediately consult a mortgage attorney. Mortgages are considered to be “products” that are “priced” based upon a calculated risk that you may not pay back the money.  The “riskier” you are as a First Time Cali Home Buyer, the more expensive will be the loan product, measured by interest rate and mortgage insurance.  You may still qualify for a loan depending on how long ago and what reason(s) caused the bad credit.  Additionally, you and your mortgage attorney can TAKE ACTION to improve lenders perception of you as a “risky” borrower.

3.  A First Time Cali Home Buyer Can Buy a Home with a Down payment as Low as 1%

A First Time Cali Home Buyer will almost always need a down payment. Down payment requirements vary depending on the type of loan. The higher the down payment, the lower the “cost of money” (measured in interest rate and mortgage insurance) and the easier the qualification criteria.  It’s all about the “risk” of you in the eyes of the lender.  If you put down a big down payment, the chance of the lender getting all its money back is higher.  Many down payment assistance programs exist. FHA down payment can be as low as 3.5%; some lenders are offering a one percent down program. Rarer programs may loan or grant you the funds necessary for the down payment. Before you can go shopping for a loan, you need to thoroughly understand your “buying power”.  Therefore, finding a trustworthy mortgage loan originator is important if you have credit challenges.

4. Don’t Forget about Closing Cost When Calculating Buying Power

In addition to a down payment, a First Time Cali Home Buyer will need funds for closing costs. Closing costs are charges for services related to the closing of your real estate transaction. They include, but are not limited to: Escrow fees charged by the company handling the transaction.

    • Title policy issuance fees charged by the title insurance company
    • Mortgage insurance fees
    • Fire and homeowners insurance
    • County Recorder fees for recording your deed
    • Loan origination fees

An accurate estimate of these costs, as well as information about loan programs which can assist in financing your closing costs, vary widely. In some cases, these costs may be absorbed by the seller of the property. However, as competition for homes in California increases, sellers become reluctant to absorb your closing costs.  However, the more difficult your financial situation, the less flexibility you may have in securing the home that you desire. Buyer competition for quality homes in California can be fierce.

5. The True “Cost of the Money” of Borrowing to Buy a Home is Not Just the Interest Rate

Some mortgage loans have “points” and some do not. A loan point is a loan origination fee equivalent to 1% of the loan amount (one point on a $500,000.00 mortgage is $5,000) paid by you in advance. Together with the interest rate, these finance charges constitute the “yield” on your loan for the lender. Some lenders or mortgage brokers charge a higher interest rate to compensate for charging no points. The true measure of the “cost of money” for a mortgage is not the interest rate; it’s the annual percentage rate or “APR” which includes “points” and other finance charges like mortgage insurance.  Therefore, it is important that a First Time Cali Home Buyer shop lenders to make sure the loan is at a competitive yield measured by APR.

6. Pros, Cons and Costs of Variable versus Fixed Interest Rate Mortgages

Should a First Time Cali Home Buyer select a mortgage with a fixed rate or an adjustable rate? Generally, monthly interest payments on variable rate mortgages are lower than fixed rate mortgages TO START. While variable-rate mortgages provide borrowers with more buying power initially, they are riskier and even potentially dangerous down the road if market interest rates increase.

The answer to this question depends on your aversion to risk. With a fixed rate mortgage, the only potential increases over the next 30 years would be property taxes and insurance. Whether mortgage rates are at a high or a low point when you purchase, and on how long you plan to live in the home are also considerations. If rates are high, an adjustable rate might be attractive since subsequent rate drops could reduce your monthly payments.  Additionally, lenders may offer a low rate during the first few years of an adjustable mortgage to make it appealing to you and to help you qualify to buy a house you otherwise couldn’t afford.

In conclusion, given today’s low rate environment, try to stay away from variable rate loans to protect your family against the possibility of rising interest rates. A low rate mortgage can be very valuable in the long run, especially if you ever want to convert the property into a rental.  There is no shortage of examples of California families that recently lost their homes to foreclosure due to variable-rate mortgages.

7. Government and Conventional Mortgages and the new “Sub-Prime”

Be aware of the three main types of loan categories.

    • Conventional Loans. Conventional mortgage loans are available with fixed or adjustable interest rates. Some loans may require mortgage insurance.
    • Government Loans. These include Federal Housing Administration (FHA) fixed and adjustable rate mortgage loans, and Veterans Administration (VA) fixed rate mortgage loan
    • Non-Qualified Mortgage Loans may be fixed or adjustable and typically include other riskier terms such as balloon payments. These loans are more expensive and carry higher interest rates. Non-Qualified Mortgage Loans have replaced “subprime” mortgages.  Because these loans are riskier, they generally carry higher interest rates and are not “securitized ” (i.e. bundled up and sold off to government sponsored entities such as Fannie Mae or Freddie Mae).

8. Special Programs for Low or Moderate Income the First Time Cali Home Buyer

First Time Cali Home Buyer with low or moderate income can apply under special programs designed to help. These loans are available through private lenders, as well as local and state housing agencies, like the California Housing Finance Agency (CalHFA). Non-bank lenders have introduced a one percent down program sponsored by Freddie Mac; however income and geographical limitations exist. Low down loan programs often limit the properties available.  Sellers may be unwilling to accept an offer from a buyers with a difficult loan scenarios. The competition for California real estate is getting back to pre-crisis levels. Therefore, the more difficult your loan scenario, the less likely a seller will choose you over another more qualified buyer.

9. Mortgage Insurance Protects Lenders and is Just Another Finance Charge

Why might I have to pay mortgage insurance? A loan with a down payment of less than 20% is relatively riskier.  If you default on your loan payments, Mortgage insurance protects the lender from potential loss. Generally, conventional loans that require larger down payments do not require mortgage insurance.  FHA requires some mortgage insurance on all of its loans.

10. Esquire Realty Helps the First Time Cali Home Buyer Maximize Buying Power

A First Time Cali Home Buyer should use a broker\attorney, not just a realtor.  You will incur no extra cost to retain a broker\attorney!  Esquire Realty Company’s Associate Broker Joseph Arthur Roberts is a licensed attorney. He offers home loan counseling to prospective home buyers.  Roberts provides one-on-one consultations to any First Time Cali Home Buyer. Broker Joseph Arthur Roberts will counsel you on all steps to home ownership: home selection, realtor services, lenders, loan programs, home ownership responsibilities, saving for a down payment, and other important pieces of information.  While realtors are a dime a dozen, attorney brokers are rare and offer more value to  the First Time Cali Home Buyer.  Contact Esquire Realty Company for assistance.