Study Hall: FINANCING FOR FIRST TIME HOME BUYERS

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or your first time home buyers. Are you ready for home ownership? What are your real estate goals? Okay? Do you have the capital? Meaning do you have money? Right? Most people want to be house rich and cash poor. Never be house rich in cash for cash poor. I don't care if you're getting one hundred percent financing. I don't care if you're getting any home buyer grants. It doesn't matter to me. You need to have some money saved. How soon do you want to close? Have realistic expectations

on your time frame? Check out if you have a current lease one does that least expire? If you're living at home, how's that situation working out? Whatever the case may be, have a realistic expectation for when you want to close on your home. And number most importantly, are your documents organized? This is key? Okay, keep your documents

organized every time. If you know you're going to buy a house, you know, create a file, create a drop box, a Google docs you know, start putting your pay stubs there. Every time you get an updated bank statement, put your

bank statements in a file. You're doing, you get your W tools, you're doing your taxes, you know, upload that into a file and call a file like home ownership file or something like that, and just start putting together all your documentations so that way you guys are prepared all right now, speaking of documentation, what do you need

to start the pre approval process? While you need your last two years of W tools because we need to show two year work history, last two years tax returns, and really you want to provide tax returns if you're self employed, if you have any rental income that you're collecting, if you file like a ten ninety if you get paid ten ninety nine, maybe you an uber driver or a lift driver, a hairstylist, a barber, you know, anything that you get like maybe you sell affiliate links, you

got digital marketing, online marketing sales, whatever you do right that you get a ten ninety nine from and if you file on your taxes, I need to see your last two years of self employed ten ninety nine independent contractor is considered self employed, So please remember that last thirty days of pay stubs. Very key. So we need thirty days full pay stubs. If you get paid weekly, we need four pay stubs. If you get paid by weekly,

we need two pay stubs, all right. Last two months are your bank statements or any assets that you are using for the transaction. So if you're borrowing money from a four to one K, we need the last quarter statement they if you using your checkings and your savings account, we need your last two months of your bank statements. Now,

those bank statements we need all pages. So now if you know, if you look at your bank statements, it may say page one to ten, right, and if that tenth page is intentionally left blank, underwriting will still need that tenth page, all right. So although it's blank, once underwriting seas one of ten and we only provided none, we need to see the ten all right, even if it's blank. I know it's stupid, but that's just the rules, all right. Copy of valid ID. If you are getting

any gifts. You can get gifts from a family member or close friend, we need a copy of the gift letter, all right, and we need to a complete it. Loan application. Now, if I'm your lender, then Obviously, I'll send you that online loan application, but any bank you go to, you're going to have to complete an online loan application, the pre approval process, let's go through it. So choosing a

lender very important, guys. And I want to say this not trying to bash any of my fellow lenders, mortgage brokers, bankers, because that's not the purpose of my content. For at least, I try to encourage my entire industry. But you want to make sure you don't pick a linda just because you have a quote unquote banking relationship with that lender, meaning you have your checking account there, you have your

savings account. You really need to be interviewing the loan officer someone like myself because you're not doing business with the bank per se. You're doing business with the person that's in my chair, right, So you have to make sure that that loan officer him or her understands your real estate goals completely because your first deal can set

you up for your tenth deal. But it's very important on how you execute your first deal, on how this is all going to play out, all right, So make sure your loan officer understands your real estate goals is number one. Number two, does your loan officer have a support team? Very important, especially in times right now where

you have interest rates at all time lows. You want to make sure that loan officer is not a one man band, so to speak, because you still don't want your service levels to drop off just because they're busy. You still want communication, So make sure they have some support, whether they have assistance processes. These are questions you need to you need to ask, you need to interview, and

how many years of experience that they have. Now this is not a not to any of my new beasts, right but when you're dealing with experience professional, you can make sure. You have to make sure that they really understand it goes in and they have a track history of helping people accomplish their goals. So most of the time, obviously, if you're dealing with someone who's new, they may not have that experience, but they may be able to give you all the time in the world that you need

versus someone like myself who may be experienced. All right, but I always recommend work with experience loan officer because they have a track history of closing deals. Because the name of the game is closing. ABC always be closing, all right. So the pre approval process the next steps after you choose your linda, after you discuss your goals, you got to run your credit and review your income documents. That's what I do, right, determine what mortgage programs you

qualify for. Now, I'm going to keep it right there for a second. Determine which mortgage programs you qualify for is very important. There's a ton of programs out there, but sometimes linders only want to give you one option. Make sure that you guys are asking the lenda to provide you all the options that you qualify for for whether it's a conventional mortgage faha mortgage, whether it's thirty year fixed, twenty year fix, whatever it is. That way

you can see the full picture. And always always always remember there's a big difference between eligibility and affordability. Just because of bank or lender or broker will approve you, it does not mean you can afford that mortgage, So choose wisely. Banks and loan offices like myself, we are in the business to make loans and to sell money. We will tell you your goals. We will tell you what you have to do to accomplish your goals. We'll tell you what you qualify for, we will close your loan.

But guess what, at the end of the day, you are responsible for that mortgage payment. So please, please, guys, it is very difficult. One of the scary things about low interest rates is that it is so much easier to overleverage because money is cheap, and now you might

bite off more than you can chew. Because let's just say, for example, when the rates are higher, you may like four percent, right, you may only be able to be pre approved for four hundred thousand, But now at rates are two point seventy five three percent, you can probably get five hundred and fifty thousand, you know what I'm saying, because of that dipping interest rates. So the very scary thing about low interest rates is that people tend to overleverage.

Don't over leverage, guys, don't bite off more than control. This is probably the most important thing that I can tell you, especially we got elections coming up, We have so many we got the Corona disease, we have so many things. Stock market going crazy right now, we have so many different things that are happening that no one

knows if and when a recession will come. So over leveraging is a very scary thing, and that's something that I'm paying attention to when I'm when I'm having consultations with clients. So but it's your responsibility. You guys are are adults at the end of the day. So you got a man and woman up and make sure you know, just because the bank can approve you for a mortgage doesn't mean you can afford it. So sorry for the rent,

but I had to go there, all right. So now after you discuss your terms for these programs, interest rates, closing course, et cetera. Now you're pre approved and you're ready to shot, all right, So let's just give you. I'm gonna give you a quick snapshot now of the blown programs and what's what you need to qualify for them. Now, mind you, this is not a commitment for me to lend to you, all right, I'm just giving you a

snapshot of the programs. For FAHA and FAHA two or three K, your minimum credit scores a five eighty minimum down payment is three point five percent of the purchase price. The max seller's concession allowed is six percent. Now for those of you who don't know. A seller's concession is when a seller pays agrees to pay a portion of the closing course. Sorry had the text home, is when a seller agrees to pay a portion of a closing course.

So ultimately, at the end of the day, let's say say if the sales price is one hundred K, then six percent is six thousand that the seller will agree to pay for. FAHA allows one to four family properties, FAHA approved condos and mixed use properties. Now, for those of you who don't know what mixed use properties are, a mixed use property is typically when a commercial property when you have residential on the top and commercial on

the bottom. Right, FAHA will allow you to purchase this property as long as the total units don't total more than four total units and the residential square footage is at least fifty one percent of the square footage of the building. All right, So for those of you who are running your own business, maybe you have a restaurant, a bar, you know, you have some sort of sales business and you need a brick and mortar location. This can be ideal for you if someone if someone doesn't

have that business, remember written out to commercial clients. The rent is probably going to be more expensive than a residential so that can be a good opportunity for you to look for, all right, and they will allow you to do it with three and a half percent down. Your max loan amounts is based on the FAHA county

loan limits. Now, only thing you have to do if you want to know what your FAHA county loan limits are, google FAHA county loan limits for whatever county you live in and they'll tell you from one to four family what the max loan amount is. FAHA office fixed and adjustable and adjustable mortgage rates, and f is only for primary residents. I wish I could zoom in on this camera right now. Primary residence only. Okay, it's not for investment properties. You cannot use your LLC to purchase the

FAHA purchase the house using the FAHA loan. You can't put the mortgage, the FAHA mortgage in your LLC. No, no, no, no no. It is only for primary residents only. FAHA does require a one year occupacy right, so that means you have to live in that property for at least twelve months, all right, and then if you want to rent out you can. I just wanted to make that clear because I get a lot of questions about that. Let's move on to another program, conventional loans. You have.

This is the ideal programs for conventional loans where you can put down at least three percent down payment. You have Fanny Made Home Ready, Freddie Mac Home Possible. You need a minimum of a twenty credit score. The down payment could be between three and twenty five percent of the purchase price max three percent selless concession is allowed. One to four families and Fanny May Approve condos are allowed.

The max loan amounts is based on the Fandy May loan limits or again, just google Faning May Loan limits and they will tell you the loan limits for your area. Fixed or adjustable rates, interest rates, primary residents, second homes, and investment properties are allowed with Fanny May with conventional loans. Now, let's I'm gonna do a little bit of deep dive into this one. So one to fourth family they do allow,

but Fanny May Home Ready. If you're buying a two to four family or duplex, triplex aquad like some folks call it, then you will have to put down fifteen percent even if it's on the occupied and if it's an investment property, you have to put down twenty five percent.

With Freddie mac Home Possible, you can potentially put down five percent on a duplex, triplex quad But with any of these programs, they are income based programs, so we would have to determine basically, and you can just probably google it right go to Google freddiemac Home Possible income limit and then there'll be a map that will come up and you punching your address or the zip code of where you're looking to buy, and then the system will tell you the maximum income you can make to

be qualified for this loan. So they use eighty percent of the AMI. The AMI stands for Area Media income. So let's just say, for example, the AMI is one hundred thousand dollars of income. They only use eighty thousand income to qualify, So if you make eighty five thousand dollars,

you automatically don't qualify for this program. Another thing I want to tell you guys about this if you're using a if you're losing a conventional loan you want to buy a multi family, if you are a first time home buyer, conventional loans will not allow you to use rental income to help you qualify. Let me repeat that, if you are a first time home buyer, conventional loans will not allow you to use potential rental income from

those units to help you qualify for the mortgage. The only program right now that will allow a first time home buyer to use rental income to help you qualify is an FAHA loan. All right. FAHA will lose seventy five of the gross rental income from those apartments to help you qualify. So let's just say you're collecting one thousand dollars a month in rent. FHA will use seven hundred and fifty dollars to help you qualify. Now, this is what I want to tell all your first time

home buyers. These guidelines for conventional just changed at the end of twenty nineteen. I have a video on my YouTube page mg DE Mortgage God. You can go check that out too, but basically stayed in these new guidelines. When you see programs starting to change guidelines like this, that means at some point everyone changes their guidelines to kind of match with the other.

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up to six percent sales concession allowed. One to four family VA approved condos allowed, and it's for primary residents only. With a one year requirement for primary residence. Again, VA does not allow first time home buyers to use rental income to help you qualify unless you can prove that you have prior rental property management. Okay. So and in most cases, if you're a first time home buyer, you're

not going to have that type of experience. So you're going to have to be able to qualify on your own That's why for me in all honestly, if someone's looking to buy a multifamily and if they can't qualify on their own income, then FHA is the ideal program for that multifamily buyer. All right, So now we got a little bit of information about the programs. You know what it takes to get pre approved, you know with documents that you need. Now, congratulations, you went out shopping

with your real to. You saw one hundred and fifty thousand houses, you hated them all except for the one you fell in love with it. Now, congratulations, you put in the offer, and now you have you're in contracts. Now, So in some states, every state operates differently. I'm based here in New York. So in New York, the process is you put in the offer, what's real to. The realtor puts in the offer what the seller's real to. They accept the offer, and then we do a home inspection.

After the home inspection is completed, then the contracts are sent to the attorneys. Then the bi goes meets with the attorney. The attorney they signed contract, they give their down payment check. Then the seller, the buyer's attorneys sends the contract over to the seller to seller signs and now your congratulations, you have a fully executed contract. In states like Georgia, there's no attorneys, there's the realtors take care of this. And in a lot of states, you know,

Florida is a real to state, I believe. I think Texas is also the sort of several states out there where they there's no attorneys. Is not attorney states. So now when you make your offer, your offer is actually you signing a contract and it's handled by your real too. And then once you make your offer, you have a due diligence period. Some places are different, you know, I've seen due diligence periods be five days, two weeks, ten days, whatever case may be. All of that is negotiated between

you and the real estate agents. But that's the typical process, So check with your local realtor to determine what in your state, what that process look like. But if in any event, you're still going to get you're going to need a home inspection. If you're an attorney of state, you're going to meet with an attorney to sign contract. They're going to and then once your contract is executed, your real to your attorney or you the buyer, are

going to now email that contract to your lender. The lender is now going to finish the loan application, and they're going to disclose the loan to you, meaning when they disclosed a loan to you, they're going to provide you all the documentation, all that initial documentation, it's like one hundred pages, and you're gonna have to sign your life await basically, and within that documentation, you're gonna have

what's called the loan estimate, and the loan estimate. The loan estimate or l E is going to break down or your costs, your terms, what type of loan you have, your mortgage payment, et cetera, et cetera. Right, and I'm going to break down more towards the end, I'm going to break down the CD, which is the closing disclosure, and that's one of the most that's the most important

thing you need to see, all right. So after we disclose to you, you e signed all of the documents, then you have to pay for your appraisal so that the lender can order the appraisal. Appraisal fees varies from different states. Single families can be anywhere from four to fifty to five to fifty. Duplexus can be anywhere from six fifty to eight hundred. It just all depends on the sales price in your location. And then the settlement

agent or the attorney will order the tider report. Now, the tile report consists of so many documents, is just basically given the report of the house. If it's a new construction home, then the tider report is not going to contain too much information. But the settlement company or the attorney will order that tile report, all right. So after you do all of this, you choose your loan program with the lender. You just discuss the loan estimate

you e sign. Like I just said, you discuss your rate locks now right now, guys, like I said earlier, interest rates are right now at the lowest that I've ever seen it in my career. If you are looking to purchase a home, you need to step on it right now. Tax money is about to start coming in. You guys need to get serious with this. Because I have, and I've been doing this almost eighteen years, I have never seen interest rates this low. The money is the

cheapest that has ever been. Take advantage. Do not waste time. You don't have time. Don't be waiting for the bottom to come. No one has a crystal ball. No one knows when the bottom is going to come. Right, So kick it into gear and lock in. All right, you pay for your pre titles ordered. Now your loan goes into underwriting for initial approval. Underwriting, let's talk about the underwriter.

The role of the mortgage underwriter. They are responsible for analyzing your risk to determine if the terms of your loan are acceptable. This required mortgage underwriters to look closely out of applicants employment and financial history before approving alone. Now the role of the underwriter, right, They're looking at your income documentation and verifying everything to make a decision.

Underwriting decisions that they can make us either approve with conditions denied, suspended or fine or approve equal CTC, which we love, all right. They review appraisals to make sure the appraisals are clean. They're reviewing the titles to make sure the tidle reports are clean, that there's no issues, there's no permits, there's nothing that can hinder their investment. So I want to really, I really want to dig deep into this right now, right when you're talking about

the underwriter. Your underwriter can make or break you, all right, if if, and it's all based off how you put in the loan. See the underwriters, they don't know you, guys. A loan officer's job is to get you approved. And I tell people this all the time. My job is to get you approved. An underwriter's job is to decline you, so to speak. They have to sign off on your loan. If you guys follow me, you've probably heard me say

pre approval letters are garbage. And the reason why I say it is because a loan officer is actually giving you a pre approval, not the underwriter. Up front, that pre approval letter doesn't mean anything, right, it's really honestly not worth the paper that is printing on all right, because that loan officer can't make an underwriting decision. Okay, So when your file goes just because you are preapproved, it does not mean that the underwriter, the underwriter cannot

decline you. Right, And y'all see, this is live. I'm in my office, I got my man Manny Bac can't throwing out the garbage right now as we speak. So this is how we do it at a university. Is live? All right? Money distracting me? All right? I had to get a laugh out of that. I'm too serious. I can't hold it no more. All right, let me get out the business. So the underwriter, right, they don't have to approve that loan. Just because your loan officer gave

you that letter doesn't mean anything. So very important. That's why I scroll from the beginning of the process. I said, don't pick a Linda just because you bank with them, that doesn't mean anything. That loan office is the person that you are working with. And that person is the one who's telling you, yes, you can go by this home.

But if they're not experienced, if they don't know what they're doing, they can mess things up, like calculate your income wrong, hold store of things that I'm not going to get into and that's what can cause the underwriter to decline you. Another thing is that underwriters pretty much do a background check. And I tell people this all the time, was done in the dark, will come out in a light, right, don't hide nothing from your loan officer.

Your loan officer, we don't have the technology up front on a sales capacity to do that background check or that that that forendsic diagnosis of you like the underwriting apartment does. So they're going to know if you had pre if you don't disclose your loan application that you own the property and it's been you had a foreclosure or a short sell or a bankruptcy, or you have

the faulted student loans. We're going to find that out once it gets the underwriter, and the only thing you're going to do is kind of delay your own process here, all right, So very important if you had any derogatory credit events in the past, any of the things I just named, make sure you're very clear and upfront with upfront about it with your loan officer so that way they can tell you what to do, because ultimately it's going to come out anyway, and it could honestly put

you behind the eight ball and get your loan decline. So that's really the role of the underwriter is to make sure that if they're issuing issuing what's called a loan commitment, that that commitment is valid and the bank won't suffer any losses behind improving your loan. I hope that makes sense, all right, So what does the underwriter look for. They're looking at your credit score, They're looking

at your credit history. Large deposits, So your credit score again, we went through the minimum credit score for faha VA five to eighty six, twenty four conventional. Your credit history very important. Do you have collections accounts? Do you have charge offs? Do you have repossessions? Do you have the fault of student loans? Are you paying your student loans on time? Are your student loans deferred or not? You know, we're looking at all of that information. All right. Large

deposits into your bank account, this is a big thing. People. You can't be moving mattress money into your account day after you go. You try to sign a contract. That doesn't work. If you have mattress money, it needs to be seasoned in your bank account for at least two months. All right, You can't just be making large deposits, large withdraws. Underwriters going connect that. If you have a lot of what they call it overdrafts, right, underwriting will look at

that and they will say, why you negative? I got to remember, if you can't manage your personal finances, if you can't manage like a cell phone bill, a cable bill, a car note, what makes you think an underwriter wants to approve you for two hundred three hundred four hundred thousand. You know what I'm saying. An underwriter uses discretion just because you meet the guidelines. If they're not comfortable with your loan, if they feel like you're a risk because

of your history, they will decline you period. Just want to be clear about that, all right. Another thing I wish I knew how to highlight on this. For those who know me know I'm not good with this PowerPoint stuff, but I highlight it there. I hope you guys see that occupacy fraud. They looking for this stuff. Guys don't call me and tell me, Hey, I want to buy this fah loan. I want to buy this house use

an fah loan. But I live in New York and I'm buying it in Kansas, Like, what are you talking about? That's an investment property. You can't do that, right, I can see fraud they are looking for that. Trust me, you don't want the FAHA police knocking at your door. Appraisal meeting, meeting the program guidelines. Every program has different guidelines of what they see they want to see in

their appraisals. Underwriters looking for child support very important. If you are have child support on your credit report, and I've seen it so many times where folks are behind eight ball and child support now showing up as a collection. They're not going to lend to you until that child support is either in good standing or paid off. So very important, folks. If you have also IRS debt, that's

not the indoor be all. As long as you are in the payment arrangement and you can document your payment arrangement with the payment arrangement from the I R S and you can show on time payment, then no worries. It's just that money. It's just going to be included nt your debt to income racial. The same with child support. If you pay child support alimony, that will be included into your debt to income racial ratio. All right, here's

a big thing. Verification of employment. Man, this should be so self explanatory, but I gotta keep always saying this. Don't quit your job the day before closing. We meaning lenders, will do a verification of employment three within ten days of closing. I have had verifications of employments done the day of closing. And guess what, mister Jones doesn't no longer works here. They quit a week ago. You call mister Jones, why you quit? Because I hate my job.

I just wanted to use it for the house. Well, guess what, you can't get a house now you have no job. Don't quit your job. It just doesn't make any sense. Discrepancy is an address again, that goes to occupacy fraud. You're using all these different addresses. They're gonna look up these addresses and see who owns these homes. Right, I've seen it happen when people don't disclose on a loan application. But we see you on a credit report.

Come to find out you own six properties. They're gonna look for that stuff was done in the dark, will come on a light, all right. So now, once you pass the underwriting stage, you got your loan commitment, all right? You know what conditions you need. Conditions are just basically you know the underwriting mate wants I want to let an explanation. Maybe because you got a lot of different addresses. If you got large deposits, they're gonna want you to

source those deposits. Another common condition is if you're getting gift funds, you need to show the gift money coming in coming from your don coming to you. So once you meet all the conditions that the underwriter needs on that long commitment, then we go into my favorite thing, which is clear to close. Hallelujah. We are cleared to close. We are through the underwriting process. Life is good, all right.

Now you sign the next steps. After you get that clar to close, you sign a closing disclosure the CD, you set the closing date in time, and then you do your final walkthrough of the house. Right.

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