Published on March 14, 2014
How to Finance Your Home Kathi Kelly-Billings On Redfin’s Mill Creek - Woodinville Team Julie Elli On Redfin’s North Sound Team Shelly Uehara Redfin Associate Agent Shane Kidwell Cobalt Mortgage @Redfin www.facebook.com/Redfin March 13, 2014, Kirkland, WA
Kathi Kelly-Billings: Redfin Agent ● Agent for 7 years, Closed 73 deals ● Specializes in: Woodinville-Snohomish-Mill Creek-Bothell ● Services: Buyer’s Agent, area, school and neighborhood expert ● Lives in Woodinville, married with 2 children, Seattle/Eastside native Enough about me! Meet my team… Jayson Haile Trina Torkelson
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
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When you ready to tour a home See all deals & reviews
Partners in the Process ASSOCIATE AGENT Takes you to see homes Sees 50+ homes a week AGENT Responsible for your success Writes your offer Handles negotiations
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 Neighborhoods Real Estate Agents Mortgage Options Preapproval Consider your needs Search Define Preferences Saved Search Home Tours Open Houses Offer Comparables Draft Offer Docs Negotiate Mutual Acceptance Closing Earnest Money Inspection Loan application Title Review Appraisal Financing Approval Closing
Local Recommended Lenders *In no way does Redfin benefit financially from recommending lenders – we just think they’re great lenders!
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
Pre-qualification vs. Pre-approval Loan pre-qualification is a BEST GUESS at your housing affordability. Pre- qualification 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 underwriting of a borrower’s loan request. Loan pre- approval is achieved with a complete mortgage loan application. Documentation, such as pay stubs, bank statements, and/or IRS tax returns, are typically required to support the loan request.
Get Pre-Approved • Factors of Pre-Approval • Gross Income • Income before taxes and any other deductions • Net income if self-employed borrower • 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 (if needed) • 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 (many lenders do not charge for this up front) ● 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 ● Credit reports are good for 90 days ● The application does not bind you to a lender, loan or rate ● Being pre-approved is required by sellers to consider offers ● If you aren’t asked to provide income documentation (paystubs, W2’s, Tax Returns, Bank Statements) beware.
Calculating what you can afford… Maximum debt to income ratio (percentage) - Up to 45% on Conventional Loans - Up to 57% on FHA Loans 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 620 (lenders vary) • “Best” credit score for most loan programs is 740 to 760 • Factors of credit scoring • Past delinquencies • Revolving debt ratio • Age of credit file • Debt diversity • Inquiries Credit Rating 35% 30% 15% 10% 10% Past Delinquencies Revolving Debt Ratio Age of Credit File Debt Diversity Inquiries
Cash to close: Your Good Faith Estimate Down payment Non-recurring costs Prepaid Items 3.5-5.0% minimum down Title insurance Escrow Appraisal Credit Report Flood Certification Tax Service Fee Underwriting Fee Discount Points Per diem interest Insurance Property Taxes HOA/Condo DuesImportant! A Good Faith Estimate is a breakdown of your total cash-to- close. The estimate will include downpayment, non-recurring costs, and prepaid items. Make sure you understand the total cash required of you to close!
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, anything over 5% can be gifted Stricter credit standards (620+) 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 620, most lender 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
Basic Loan Choices ● Types of Loans: ► Fixed Rate: 15,20,30 year terms ► Adjustable Rate Mortgage (ARM): 3/1;5/1;7/1;10/1. ► 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)? APR = Interest Rate + Bank/Escrow Fees Annualized 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!
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) Conforming: Up to $417,000 b) Expanded Conforming: $417,001 - $506,000 (King, Snohomish, Pierce)** c) 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?
Sellers Market: Lending Insight As inventory remains low and new buyers enter the market it is important to increase your negotiating power. Introducing Advanced Approvals - Shorter Closing Period (as little as 10-15 days) - Shorter Interest Rate Lock (better pricing) - Stronger Approval Letter for seller - No upfront cost - Fully approved and underwritten at your max pre- approved loan amount.
Wrap up with Kathi! Multiple offer situations are happening on almost every new listing on the Eastside… How important is the “lender piece” when making an offer in a multiple offer situation? How can your choice of lender help you win one? What else can you do to put your best foot forward? Sign up for our free one hour Multiple Offer Class at our downtown office on March 20th with Redfin Agent, Winston McClanahan. A great class to attend!
After Class… Please fill out the survey that was handed out at the beginning of class. We so appreciate the feedback! Questions? Get in touch: Kathi Kelly-Billings (206) 919-8849 email@example.com Julie Elli (206) 612-2262 firstname.lastname@example.org Shane Kidwell (206) 200-4409 email@example.com www.TheKidwellGroup.com Check out our upcoming classes and events at: www.redfin.com/events
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The Commercial Brokers Association (CBA) is a member owned cooperative providing commercial real estate multiple listing services to its members since 1977.