Geoff Sweeney is a Mortgage Advisor for Pinnacle Capital Mortgage in Prescott. Geoff chose Prescott as his home 22 years ago after a lifetime supply of Vermont winters. His profession as a woodworker, cabinetmaker and homebuilder laid the foundation for him to embark on a career as a residential home appraiser in Prescott. Geoff and his business partner, Dave Koch, formed an appraisal firm well known for its customer service, quality and reliability. They have now taken these same business commitments to another platform in order to assist homeowners, home buyers and investors with their mortgage needs.
We asked Geoff, given his knowledge and experience, what a first time homebuyer can expect when trying to obtain a loan for the first time.
Geoff, what do you feel is the biggest misconception a first time home buyer might have given today’s market conditions?
Geoff: The most common misconception for a first time home buyer would be believing that having been turned down by a big bank or other lender means that they will be turned down by all lenders. The reality is often quite different as most all lenders have their own set of guidelines and loan programs available. After the “housing crash” of 2008, the lending arena became very restrictive as the pendulum swung to the ultra-conservative approach to qualifying borrowers. As we move further away from that position, and investors in the housing market get more comfortable with the economic outlook, the guidelines in place for lenders are loosening up and the lending programs available are becoming less restrictive. With that in mind, someone who did not qualify for a home loan two months or two years ago might very well qualify today.
The other common misconception is that special rates apply for first time home buyers. The lending world has evolved into a position where all borrowers must be treated equally. The concept that someone without any proven history of responsible homeownership would receive a more advantageous interest rate than someone with a solid history of timely payments is simply unfounded.
Tell us about the kinds of loans available for the first time homebuyer.
Geoff: The most common loan programs available to first time home buyers are FHA, VA, USDA and Conventional loans.
FHA or Federal Housing Administration loan allows for a down payment of as little as 3.5%. The payment of a one-time Up Front Mortgage Insurance Premium of 1.75% applies, but can be “rolled into” the loan. The Annual Mortgage Insurance Premium of 1.35% is paid on a monthly basis along with the Principal, Interest, Taxes and Insurance known as PITI. Gift funds from qualified entities are allowed for the down payment.
VA or Veterans Administration loans for qualified veterans of our armed forces will allow for 100% financing, or zero down payment for purchases. A one-time Up Front Funding Fee of 1.25% to 3.3% based on the percentage of down payment applies. Veterans with properly documented service related disabilities are exempt from this Funding Fee. Interested parties can contribute up to 4% towards the borrower’s down payment or closing costs.
USDA or United States Department of Agriculture loans, also known as Rural Housing loans, also allow for 100% financing in certain USDA approved areas. These loans include a 2% Guarantee Fee (upfront funding fee) and a 0.4% annual fee that is impounded. Borrowers must not have the resources that would allow for them to qualify for a conventional loan with an 80% LTV (loan to value) ratio. The borrower’s household income must be equal to or less than 115% of the area median income level. Interested parties can contribute up to 6% towards closing costs.
Conventional loans, Fannie Mae or Freddie Mac loans, are also available to the first time home buyer. With a minimum of 5% down payment, Private Mortgage Insurance (PMI) applies, however, if the buyer has the ability to make a 20% down payment then there is no PMI. Fannie Mae borrowers may also receive gift funds.
Another option currently available is Homepath, which includes certain properties owned by Fannie Mae. An LTV of 95% is allowed, no Mortgage Insurance applies and no appraisal is needed. There are currently about 10 to 12 Homepath properties available in the Prescott / Prescott Valley area.
Is there any difference in obtaining a loan from a local lender as opposed to a bigger bank?
Geoff: I believe the greatest differences between obtaining a loan from a local lender as opposed to a larger lending institution are the personalized service you receive, the flexibility in exploring all other possibilities if the first, most obvious option fails, and the fact that a local lender is far less constricted by the corporate structure and better connected with the community. The knowledge that you can come in to a local office, sit down with individuals who have made this area their home for decades and get honest answers and sound advice regarding your home loan needs, can be a huge positive factor in assisting the first time home buyer through the loan process.
What is the biggest mistake you see a first time buyer make?
Geoff: The biggest mistakes made by first time home buyers are looking at properties for sale without first becoming pre-qualified with your lender. The next would be not reporting income. If it’s not on your tax returns, it doesn’t exist for lending purposes. Using credit poorly. Don’t be late on payments. Keep credit card balances below the limits. A balance below 50% of the limit is good – 30% is better – 10% is best.
Also making large purchases during the loan process. Cars, furniture, etc. Changing jobs or careers prior to seeking a loan. Believing that “cash on hand” is good. Funds need to be “sourced” typically by providing two months’ worth of bank statements. Getting rid of all credit cards. Bad credit scores can be improved by demonstrating responsible use of credit, not eliminating it.
What is the most important thing a first time buyer should know to make the most informed buying decision possible?
Geoff: First time home buyers should be aware that it is important to ensure that your credit reports are accurate. According to a report in CNN Money, “as many as 25% have seriously damaging errors.” Early detection and correction of errors is a very important step in ensuring a smooth loan process. Individuals are entitled to one annual free credit report and can be obtained by accessing the website annualcreditreport.com. If there is an error, contact the specific agency in writing and provide supporting documentation to prove your claim. The agency has 30 days to respond.
To summarize, the best advice I would have for a first time home buyer is to choose a lender that you can trust to keep your best interests in mind and that will take the time to explain the intricacies of the loan process and help you find the loan program that best fits your needs. With your lender’s help, you can become pre-qualified for a home loan that works for you and begin looking for that perfect home.
Geoff Sweeney can be contacted at his offices in Prescott at 928-778-7720. Their business website is: http://pincapmortgage.com/prescott.