Jim Merrill founded Axel Mortgage in Phoenix, Arizona in 2001 to bring a new level of transparency and integrity to the mortgage lending business. We asked Jim for his insight into purchasing a first home.
Jim, what do you feel is the biggest misconception or misunderstanding a first time home buyer has?
Jim Merrill: I think the biggest misconception is that they cannot get approved or that the process is too hard. They may look at the process involved in getting a mortgage loan and think it looks larger than life. The process is not difficult. They simply need to hire the right person to do the job. The pre-approval process is very simple and the loan approval process hasn’t been any easier since 2008. Underwriting standards have loosened up quite a bit over the last few years. It is now easier for everyone, including first time home buyers to get approved for a mortgage loan.
I think a lot of first time home buyers are also looking at the market and thinking timing is not right, or values are too high and they should just hold off on buying. This is a big misconception as well. Rates are still incredibly low. Thirty year fixed rates are still in the low four’s. That’s a far cry from the fifteen percent people were paying back in the mid-eighties. Also, the “liar loans” and “negative amortization loans” that created the real estate implosion of 2008-2010 have thankfully been taken off the market so property values have stabilized.
How important is it to get prequalified before you shop for a house?
Jim Merrill: It’s very important. In my opinion a potential buyer shouldn’t be spinning their wheels looking at homes if they have not been pre-qualified. They would not know what their purchasing power is. One quick phone call to me or another experienced broker and you can find out before you get off the phone what price range you should be looking in. Buyers need to understand that the first thing a realtor is looking for before they start showing any homes is a copy of a legitimate pre-qualification from a reputable company. This way they know they are not wasting their time with an unqualified client.
There are basically two types of pre-qualifications. The first is a credit pre-qualification. This type of pre-qualification only looks at the borrower’s credit and credit score. The broker/lender takes your word for how much you earn and how much you have in savings to determine how much you can qualify for. This doesn’t carry as much weight as a full pre-qualification.
A full pre-qualification essentially means that the broker/lender has received copies of your income and asset documentation for analysis and also looked at your credit documentation. This full pre-qualification gives the borrower more clout in a competitive bid scenario because the seller will more than likely accept a full pre-qualification at the same bid than a credit pre-qualification.
Tell us about some of the things a first time home buyer should do and should not do.
Jim Merrill: Let’s start with some of the things they should do. First, make sure you get pre-qualified. Second, maintain all the payments on your current debt. Please don’t stop making your car payment around the time you are shopping for a mortgage and home. Third, maintain your employment and don’t quit your job. Forth, hire a reputable realtor to show you homes. This will save you a ton of time. Fifth, keep your money liquid and preferably keep it in one account. Don’t transfer money between accounts if you can avoid it and don’t make any deposits into any account that cannot be paper trailed.
Here are a few things a borrower should not do. First, once you’ve been pre-qualified, please don’t make any major purchases. Please don’t go out and buy that Mercedes Benz you’ve been wanting. Second, don’t co-sign on a loan for anyone since this debt will be used against you in underwriting. Third, don’t lend money to anyone if you need it for your closing costs or your down payment. Forth, don’t store cash in your piggy bank for the down payment. Cash can’t be accounted for and can’t be used for the closing on most loans. Money for the closing has to be in a verifiable account to be validated.
What are some of the most popular programs for first time home buyers?
Jim Merrill: My most popular products are currently conventional products. If a borrower has a 720 or greater credit score, I’ve got a phenomenal product that will allow the borrower to receive a conventional rate with no money out of their pocket with as little as 5% down. The down payment and closing costs can come as a gift from a direct relative.
I can also approve a conventional loan without any monthly mortgage insurance premiums with as little as 5% percent down. This program drops the monthly mortgage payment substantially. This is a very popular program with borrowers looking for the lowest possible monthly payment.
Conventional Loans can be approved with only 5% down and credit scores as low as 640, so you don’t need squeaky clean credit for approval. I have closed several conventional loans this year for borrowers two years out of a short sale.
FHA is also a very popular program with first time home buyers. FHA loans can be approved with as little as 3.5% down and the entire down payment and closing costs can come as a gift. FHA is a popular program for those who don’t have the best of credit or have very little resources for the down payment. FHA loans have much higher costs of upfront and monthly mortgage insurance premiums, so I prefer to place borrowers in Conventional loans whenever possible.
Jim, what in your opinion, is the biggest consideration a first time home buyer should make?
Jim Merrill: In my opinion, the biggest consideration they need to look at is how much they want to spend per month on the mortgage payments. Many first time borrowers call me and ask what is the maximum they can qualify for and my response is how much do you want to qualify for? What do you think is affordable and within your monthly budget? Quite honestly, there are times I can get a borrower approved for a monthly payment that’s well beyond their comfort level so it is important for them to be honest with themselves about what they can afford.
Uncovering the borrower’s monthly mortgage budget will give me the information necessary to design a loan program around that budget. This helps the borrower determine their own purchasing power. My goal is to assure no client ever has remorse with the financing. I lend as responsibly as possible and always put the client’s best interest first.
Axel Mortgage in Phoenix, Arizona has used a formula that has kept it thriving since 2001: provide the most competitive rates and fees in the industry coupled with exceptional service and integrity.
Jim can be reached directly by phoning 602-795-3541. His business website is http://www.axelmortgage.com.