Published on March 7, 2014
How to Finance Your Home Jeffrey Withey Redfin’s Redmond – Kirkland Team March 6, 2014, Bellevue, WA @Redfin www.facebook.com/Redfin
Jeffrey Withey: Redfin Agent WELCOME Enough about me! Meet my team…
Working with Redfin
A Little Bit About Redfin Redfin is a real estate brokerage has helped over 20,000 people buy or sell a home; 97% would refer us to a friend. ● Customers, not commissions ● Informed decisions ● Right home for the right price No obligation Commission credit
Save $4,000 on Average
When you ready to tour a home We’re a Team! See all deals & reviews
Partners in the Process AGENT Responsible for your success Writes your offer Handles negotiations TRANSACTION COORDINATOR Prepares paperwork Works with escrow TOUR COORDINATOR Schedules tours Prepares paperwork ASSOCIATE AGENT Takes you to see homes Sees 50+ homes a week
Understanding the Buying Process
Are You Ready to Buy? ● ● ● ● Do you have a family and need room to grow? Do you expect to own the home for 5 or more years? Have you saved up a down payment? Can you rent for less?
Overview of a Purchase Research Search Offer Closing Neighborhoods Define Preferences Comparables Earnest Money Real Estate Agents Saved Search Draft Offer Docs Inspection Mortgage Options Home Tours Negotiate Loan application Preapproval Open Houses Mutual Acceptance Title Review Consider your needs Appraisal Financing Approval Closing
Local Recommended Lender Christopher Butaud NMLS# 13157 Company NMLS# 3274 206-999-6941 *In no way does Redfin benefit financially from recommending lenders – we just think they’re great lenders and we have seen the problems non-local lenders can create
The Chris Butaud Team Chris Butaud, Loan Officer Christine Wentworth Production Manager Chery Reid, Processor
Pre-qualification vs. Pre-approval Loan pre-qualification is a BEST GUESS at your housing affordability. Prequalification is typically based upon a verbal conversation with potential borrowers and a lender and does not include formal underwriting or proof of documentation to support the borrower’s loan request. A loan pre-qualification is not a commitment to lend. Loan pre-approval is a COMMITMENT TO LEND. It comes after a formal electronic underwriting of a borrower’s loan request. Documentation, such as pay stubs, bank statements, and/or IRS tax returns, are typically required to support the loan request.
Win the deal with Hombuyer Express
Review Your Financial Situation ● Pull credit report, look for errors ● Establish comfort level for monthly payment ● Figure out how much monthly income goes towards debt typically 28 – 40% healthy ● Pay down credit balances to 1/3rd of high limit ● Don’t open any new lines of credit ● Don’t buy any big ticket items ● Determine source of funds ● Current employment status
Get Pre-Approved • Factors of Pre-Approval • Gross Income • • Net income if self-employed borrower • • Income before taxes and any other deductions 2 year employment history in similar field, may include education Debt • • • Loans listed on your credit report Child support or alimony Credit • • • Minimum of 12-24 months “clean” credit with no new adverse activity Minimum of 3-4 tradelines maintained for at least 12-24 months Cash • Total funds available for the purchase (downpayment, closing costs, etc) • Reserves • Final Loan Approval • Collateral (review and approval of appraisal)
Facts on Getting Pre-Approved ● Applications are usually free and credit checks should not cost more than $20 (Will cost you nothing with Chris Butaud at Guild) ● You will get a better idea of any other action items you need to complete before you can buy ● Gives you a chance to discuss different financing options ● Your pre-approval stays valid as long as your income, debts, credit history, and assets remain the same or better ● The application does not bind you to a lender, loan or rate ● Being pre-approved is required by sellers to consider offers
Calculating what you can afford… Monthly income (gross): $4500/month Maximum debt to income ratio (percentage) = 40-43% Calculation Example: $6500 x 43% = $2795 maximum debts allowed - $450 auto loan - $100 minimum payment on credit card(s) = $2245 is the most you may spend on a monthly mortgage payment PITI: Your Monthly House Payment P= Principal (amount of payment going toward original balance of loan) I= Interest (amount of payment going toward interest on the loan) T= Property Taxes I= Insurance Hazard/Homeowner’s Insurance: Replacement value, liability, possessions Mortgage Insurance: Covers lender against loss unless 20% equity/down NOTE: Homeowner’s Dues must be added for a condo or townhome.
Credit History and Credit Scores • 3 credit bureaus: Equifax, Experian, TransUnion • Credit score range: 350- 850 • Most lenders use the middle score numerically: • Primary wage earner’s mid score or lowest of both/all mid scores • Minimum credit score for most loan programs is 660 • “Best” credit score for most loan programs is 740 • Factors of credit scoring • Credit Rating Past delinquencies 15% 10% 10% Past Delinquencies • Revolving debt ratio Revolving Debt Ratio • Age of credit file Age of Credit File Debt Diversity 30% • Debt diversity • Inquiries Inquiries 35%
Cash to close: Your Good Faith Estimate Non-recurring costs Prepaid Items Title insurance Per diem interest Escrow Insurance Appraisal Property Taxes Important! Credit Report HOA/Condo Dues A Good Faith Estimate is not a reliable indicator of your total cashto-close (ironically) due to regulatory requirements. Most lenders have a fee worksheet that is more complete. Make sure you understand the total cash required of you to close! Flood Certification Down payment 3.5-5.0% minimum down Tax Service Fee Underwriting Fee Discount Points
Using Seller Contributions to Leverage Cash Description Without Seller Contribution With Seller Contribution Purchase price $450,000 $460,000 Seller contribution - ($10,000) Prepaids and reserves $3,100 $3,200 Closing costs $3,700 $3,800 Loan amount ($360,000) ($368,000) Cash needed to Close $96,800 $89,000
Organize Your Assets ● ● ● ● ● Get ready for the down payment Cash accounts (liquid funds) 401 (k), stocks, other investment Gift funds? (Max. allow caries) Move funds around before you start shopping
Choose a Loan Program • Conventional: As low as 5% down, can be gifted Higher credit standards Mortgage insurance can be paid up front, monthly or a combination Up to $417,000 loan amount ** ** Up to $506,000 in Seattle SMSA • Federal Housing Administration Loan (FHA): Min 3.5% down, can be gifted Minimum credit score 640, most lenders Up front and monthly mortgage insurance required If condo, must be FHA approved. Verify at www.hud.gov Up to $417,000 loan amount ** Up to $506,000 in King and Snohomish
Choose a Loan Program cont… • VA: Active duty or reserves only No monthly mortgage insurance Can be 0 down up maximum guarantee • Jumbo: Loans over $506,001 Minimum credit of 700+ Minimum of 20% down with most investors ** ** Can do 10% down with a combined loan scenario
Key Loan Choices ● Types of Loans: ► Fixed Rate: 15,20,30 year terms ► Adjustable Rate Mortgage (ARM): 3/1;5/1;7/1;10/1. “Hybrid” Fixed Details of ARM: Index; Margin; First, Annual & Lifetime Caps i.e. Index: 1 YR LIBOR; Margin: 2.75%; Caps: 2/2/6 ● Interest Rates ► Points are the price of interest rates, 1 point = 1% of the loan amount ► Points paid buy down an interest rate ► Locking a rate occurs after you have a signed and accepted offer on a home ► What is the Annual Percentage Rate (APR)? Rate Price (points) 4.50% 0.0 (closing costs only, no points) 4.25% 1.0 (closing costs + 1 point) A good lender helps borrowers calculate their break-even to determine if paying points is right for them– doesn’t just focus solely on the interest rate!
Simple Breakeven vs. APR Analysis Description Lower Rate, Higher Fees Higher Rate, Lower Fees Purchase price $450,000 $450,000 Interest rate 4.5% 4.75% Closing costs $3,750 $150 Annual Interest $16,200 costs $17,100 Breakeven (years) APR Difference .25% $3,600 $900 4 4.567% 4.75% .183%
Interest Rates and Pricing ► Investors use “risk-based” pricing ► Factors include, but are not limited to: Middle credit score of borrowers (lowest of all borrowers) Loan to Value (LTV) & Combined Loan to Value (CLTV) Loan amount and Loan Program (FHA, VA, Conventional, Jumbo) a) b) c) Conforming: Up to $417,000 Expanded Conforming: $417,001 - $506,000 (King, Snohomish, Pierce)** Jumbo: $506,001 and higher Loan type: Fixed vs. Adjustable Rate Mortgage (ARM) Loan term: 15, 20, 30 year amortization Type of property: Single family home, townhome, Condo Number of units: 1-4 units Occupancy: Owner occupied, vacation home, investment ** Loan limits set for 2014.
Where Are Rates Headed?
After Class… Please fill out the survey that was handed out at the beginning of class. We appreciate the feedback! Questions? Get in touch: Jeffrey Withey 206.406.6308 firstname.lastname@example.org Chris Butaud Guild Mortgage 206-999-6941 NMLS# 13157 Check out our upcoming classes and events at: www.redfin.com/events
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