Financing For First Time Home Buyers

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2:27Hey, what's up, everyone? Matt Garland here. NMLS number 58700, but I'm better known as MG, the Mortgage Guy, and welcome to Earn Your Leisure University. All right, so tonight I'm going to be your host. We're going to talk a little bit about for my first time homebuyers, and we're going to discuss the home buying process. But before we get to that, I'm going to share my screen for you guys, so that way you guys can see the presentation that I put forth together for you. So welcome to EYL University. Like I said, my name is Matt Garland and I'm a less number 58700, better known as MG the Mortgage Guy.

3:08Today, we're going to talk about first-time homebuyers. So let's get started. Most people always ask me, yo, Matt, what do I need to get started to be a first-time homebuyer or to buy a house? Everything starts with your mindset. I say this all the time, right? You have to be prepared for home ownership. So ask yourself these questions. Are you 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 and cash poor. I don't care if you're getting a hundred percent financing.

3:47I 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, when does that lease 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 most importantly, are your documents organized? This is key. Keep your documents organized. If you know you're going to buy a house, create a file, create a Dropbox, a Google Docs.

4:27Start putting your pay stubs there. Every time you get an updated bank statement, put your bank statements in a file. You got your W-2s, you're doing your taxes. Upload that into a file and call a file like home ownership file or something like that and just start putting together all your documentation so that way you guys are prepared. All right. Now, speaking of documentation, what do you need to start the pre-approval process? Well, you need your last two years of W-2s because we need to have a 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.

5:14if you file like a 1090, if you get paid 1099, maybe your Uber driver or a Lyft 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 1099 from. And if you file that on your taxes, I need to see your last two years of self-employed. 1099 non-independent contractor is considered self-employed. So please remember that. Last 30 days of pay stubs, very key. So we need 30 days for pay stubs. If you get paid weekly, we need four pay stubs. If you get paid bi-weekly, we need two pay stubs.

5:56All 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 401k, we need the last quarter statement. If you're using your checkings in 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 look at your bank statements, it may say page 1 to 10, right? And if that 10th page is intentionally left blank, underwriting will still need that 10th page, all right? So although it's blank, once underwriting sees 1 of 10 and we only provided 9, we need to see the 10, all right?

6:37Even 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 a close friend. We need a copy of the gift letter, all right? And we need a completed 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.

7:27I try to encourage my entire industry. But you want to make sure you don't pick a lender 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 10th deal.

8:03But 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 assistants, processors.

8:38These are questions you need to ask. You need to interview. And how many years of experience that they have? Now, this is not a knock to any of my newbies, right? But when you're dealing with an experienced professional, you have to make sure that they really understand your goals 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 experienced loan officer because they have a track history of closing deals because the name of the game is closing.

9:25ABC, always be closing. All right. So the pre-approval process, the next steps after you choose your lender, 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 lenders only want to give you one option. Make sure that you guys are asking the lender to provide you all the options that you qualify for, whether it's a conventional mortgage, FHA mortgage, whether it's 30-year fix, 20-year fix, whatever it is, that way you can see the full picture.

10:12And always, always, always, always remember, there's a big difference between eligibility and affordability. Just because a bank or lender or broker will approve you, it does not mean you can afford that mortgage. So choose wisely. Banks and loan officers 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.

10:53One of the scary things about low interest rates is that it is so much easier to over leverage 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 400 ,000 but now that rates are 2.753 percent you could probably get 550 ,000 you know what I'm saying because of that dip in interest rates. So the very scary thing about low interest rates is that people tend to over-leverage. Don't over-leverage, guys. Don't bite off more than you can chew. This is probably the most important thing that I can tell you, especially we got elections coming up.

11:43We 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 having consultations with clients. So, but it's your responsibility. You guys 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 rant, but I had to go there. All right.

12:22So now, after you discuss your terms for these programs, interest rates, closing costs, etc., now you're pre-approved and you're ready to shop. All right? So let's just give you, I'm going to give you a quick snapshot now of the loan programs and 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 FHA and FHA 203K, your minimum credit score is 580. Minimum down payment is 3.5 % of the purchase price. The max seller's concession allowed is 6%. Now, for those of you who don't know, a seller's concession is when a seller agrees to pay a portion of the closing cost.

13:16sorry had the text home is when a seller agrees to pay a portion of the closing cost so ultimately at the end of the day let's say if the sales price is 100k then six percent is six thousand that the seller will agree to pay for fha allows one to four family on properties fha 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 a commercial property when you have residential on the top and commercial on the bottom, right? FHA 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 51 % of the square footage of the building, All right.

14:07So 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, renting 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 amount is based on the FHA county loan limits. Now, only thing you have to do, if you want to know what your FHA county loan limits are, Google FHA county loan limits for whatever county you live in, and it'll tell you from one to four family what the max loan amount is.

14:56FHA offers fixed and adjustable mortgage rates, and FHA is only for primary residence. I wish I can zoom in on this camera right now. Primary residence only, okay? It's not for investment properties. You cannot use your LLC to purchase a FHA, purchase a house using an FHA loan. You can't put the mortgage, the FHA mortgage in your LLC. No, no, no, no, no. It is only for primary residence only. FHA does require a one-year occupancy, right? So that means you have to live in that property for at least 12 months. 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.

15:47Let's move on to another program. Conventional loans. This is the ideal programs for conventional loans where you can put down at least 3 % down payment. You have Fannie Mae Home Ready, Freddie Mac Home Possible. You need a minimum of a 620 credit score. The down payment can be between three and 25 % of the purchase price. Max 3 % sellers concession is allowed. One to four families and Fannie Mae approved condos are allowed. The max loan amounts is based on the Fannie Mae loan limits. So again, just Google Fannie Mae loan limits and it'll tell you the loan limits for your area, fixed or adjustable rates, interest rates.

16:25Primary residence, second homes, and investment properties are allowed with Fannie Mae conventional loans. Now, I'm going to do a little bit of deep dive into this one. So one to four family, they do allow. But Fannie Mae Home Ready, if you're buying a two to four family or duplex, triplex, or quad, like some folks call it, then you will have to put down 15%. even if it's owner-occupied. And if it's an investment property, you have to put down 25%. With Freddie Mac Home Possible, you can potentially put down 5 % on a duplex, triplex, or quad. But with any of these programs, they are income-based programs.

17:12So we will have to determine, and you can just probably Google it, right? Go to Google Freddie Mac home possible income limit, and then there'll be a map that will come up. And you punch in 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 80 % of the AMI. The AMI stands for Area Media Income. So let's just say, for example, The AMI is$100 ,000 of income. They only use$80 ,000 income to qualify. So if you make$85 ,000, you automatically don't qualify for this program. Another thing I want to tell you guys about this, if you're losing a conventional loan and you want to buy a multifamily, if you are a first-time home buyer, conventional loans will not allow you to use rental income to help you qualify.

18:14Let me repeat that. If you are a first-time homebuyer, conventional loans will not allow you to use potential... Earners, you know what separates a lot of companies today? Speed. Not just having a great idea, but how fast you can actually execute it. Because we've all seen it before. Marketing wants a new landing page, design already mocked it up, and engineering says we'll get to it next week. Meanwhile, opportunity is already gone. That's why so many businesses from startups to Fortune 500 companies are building with Framer. Framer is a website builder that turns your dot-com from just a digital business card into an actual growth engine.

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22:01Find technology built for the way you work at dell.com slash dellpcs. Built for you. to 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 a FHA loan. All right. FHA will use 75 % of the gross rental income from those apartments to help you qualify. So let's just say you're collecting$1 ,000 a month in rent. FHA will use$750 to help you qualify. Now, this is what I want to tell all you first-time homebuyers. These guidelines for conventional just changed at the end of 2019.

22:50I have a video on my YouTube page, MGTheMortgageGuy. You can go check that out too. But basically stating 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 what the other one is doing. And it's all based off of risk analysis. So right now, FHA allows this still, but conventional doesn't. Doesn't. So with that being said, that means you need to get on it and do not wait because everything about this industry, about the mortgage business is all about timing. All about timing. The market does not wait for you.

23:39Okay. It does not wait for you. Let's go on to VA loans. VA loans, minimum 580 credit score, 100 % financing with no PMI, up to 6 % sales concession allowed, one to four family, VA approved condos allowed, and it's for primary residence only with a one year requirement for primary residence. Again, VA does not allow first-time homebuyers 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 homebuyer, you're not going to have that type of experience. So, you're going to have to be able to qualify on your own.

24:25That's why for me, in all honesty, 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 your, um, the programs, you know, what it takes to get pre-approved, you know, what documents that you need now, congratulations. You went out shopping with your realtor. You saw 150 ,000 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 with your realtor the realtor puts an offer with the seller's realtor they accept the offer and then we do a home inspection after the home inspection is completed then the the contracts are sent to the attorneys then the buyer goes meets with the attorney, the attorney, they sign contract, they give their down payment check.

25:35Then the seller, the buyer's attorney sends the contract over to the seller to seller signs. And now 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 realtor state, I believe. I think Texas is also. So there's several states out there where there's no attorneys, there's not attorney states. So now when you make your offer, your offer is actually you signing a contract and it's handled by your realtor. And then once you make your offer, you have a due diligence period.

26:10Some places are different. I've seen due diligence periods be five days, two weeks, 10 days, whatever the 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's that process look like. But in any event, you're still going to get, you're going to need a home inspection. If you're an attorney estate, you're going to meet with an attorney to sign contract. And then once your contract is executed, your realtor, your attorney, or you, the buyer are going to now email that contract to your lender.

26:48The lender is now going to finish the loan application and they're going to disclose the loan to you. Meaning when they disclose the loan to you, they're going to provide you all the documentation, all that initial documentation. It's like a hundred pages and you're going to have to sign your life away basically. And within that documentation, you're going to have what's called the loan estimate and the loan estimate, the loan estimate or LE is going to break down all 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.

27:23I'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-sign 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 450 to 550. duplexes can be anywhere from 650 to 800. It just all depends on the sales price and your location. And then the settlement agent or the attorney will order the title report. Now the title report consists of so many documents.

28:00It's just basically given the report of the house. If it's a new construction home, then the title report is not going to contain too much information, but the settlement company or the attorney will order that title report. All right. So after you do all of this, you choose your loan program with the lender. You discuss the loan estimate, your ESOM, 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.

28:40You guys need to get serious with this because I have, and I've been doing this almost 18 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. All right. So kick it into gear and lock in. All right. You pay for your credit titles audit. Now your loan goes into underwriting for initial approval. Underwriting. Let's talk about underwriter. The role of the mortgage underwriter. They are responsible for analyzing your risk to determine if the terms of your loan are acceptable.