There are things people should be doing before making the decision “I want a new home.” There are things that will make the process easier for them, to help them overall in finding the right home, and equally as important, the right Mortgage product. It is important before you even begin to look to:

1. Know what you credit report says
2. Know what you can or want to afford in a home
3. Know what your down payment will be

Transcript

Matthew O’Brien:  Welcome back to another segment of “Arizona Mortgage News.” We’re here with our expert in the field of mortgages, Mike Goblet, of United Mortgage Financial Group. Today we have a listener‑inspired topic, which is the three most important things a new home buyer should be doing before they even look.

Hey, good to see you, Mike.

Mike Goblet:  Good morning, Matt. Good to see you again.

Matt:  What’s up with this? This is stuff to do even before you start talking to anybody, I understand?

Mike:  There are things people should be doing before making a decision “I want a new home.” There are things that will make the process easier for them, to help them overall in finding the right home, and equally as important, the right mortgage product.

Matt:  Makes sense.

Mike:  What I think the Number one thing somebody who wants to buy a new home, whether they’re a first time home buyer, or just simply buying a new home even though they own one, is know what your Credit report says.

Matt:  Got you.

Mike:  Particularly with all the breaches that have been happening with the Targets, the Home Depot, and other companies online, it’s really important for you to pull a copy of your own Credit Report to see if there’s any unusual activity that’s been happening on it. Or maybe something that’s happened in the past, and you aren’t aware it was there.

Matt:  That’s good. Or maybe even subscribe to a service that gives you quarterly updates, so that you aren’t surprised.

Mike:  You can do that. They give it to you online. Those cost you money, but there are actually things you can actually do for free.

The credit bureaus actually allow you…Each bureau will allow you to pull your credit one time a year for free. If you space it out between each credit bureau, you can do it three times during the year.

Matt:  Ah‑ha! Good little trick.

Mike:  Yes. Get it free. That tells you what they’re reporting. You can go to annualcreditreport.com to get a free copy of your credit report.

Matt:  Very nice.

Mike:  Keep in mind this won’t give you a credit score, but it will tell you what’s being reported by each bureau on that credit report. It’s also a little misleading.

A lot of people subscribe to companies like you said, or even the credit bureaus themselves. They give you credit scores.

The interesting thing about that is, that may actually reflect the score you’re going to get on your credit report when a mortgage company pulls it, or it may not. In fact, usually it’ll be lower. Because what happens is, when you want to know your own credit, and they pull it, it’s what’s called the softer pull.

The algorithms that are set into the system to indicate what you’re trying to sign up for, in this case a mortgage, are much more stringent than say, the algorithms if you just want to know what it is in general. You’re buying insurance, a car, they all have different guides that give them the report.

That’s what makes the numbers different.

Matt:  Ah‑ha. OK.

Mike:  Just to be aware that if you have the services, the score may or may not turn out to be the same for the reason I just mentioned.

What’s the most important thing number two? That is, know what you can or want to afford in a home. That isn’t as simple as what’s the price or what’s my Payment. There are a number of factors that tie into that that you should understand.

The first is probably what is called debt‑to‑income ratio. The debt‑to‑income ratio breaks out into two standards.

The first number, which tells you what is your mortgage payment, including PITI or mortgage insurance if you need it. What is your total payment versus your net income.

If you’re self‑employed, it’s just versus your W‑2 income, if you’re a W‑2 employee. The first number needs to be no greater than 38 percent, so that if you’re making, I’m just going to put $1,000 a month, your total payment can’t be greater than $380.

Matt:  Makes sense.

Mike:  Yes, so just do the multiples to get where you want. The second number is equally as important in your debt‑to‑income, and that second number is 43 percent. What that represents is your total debt that shows on your credit report, like your credit cards, your car payments, any mortgages or student loans.

Anything you would have, added together with your mortgage payment, should not exceed 43 percent. That gives you another guideline. Also be aware that Fanny and Freddy give you a little bit of leeway in there.

If you run through what’s called the automated services of Fanny or Freddy, they may allow you to go up to 45 percent, depending upon, for instance, how much assets you have in reserves. What your debt looks like, based upon other things.

You can, in some cases, go higher than 43 percent, up to 45 percent.

Matt:  Very good. What’s our final point?

Mike:  There’s actually one more point to what you can afford. That’s the down payment.

This is equally as important. Because a down payment, how much you have to bring to the table, can vary from zero money down, if you choose to, on a VA, to 3.5 percent down on an FHA, or a minimum 5 percent on a conventional.

A really good change that’s happened with the loans recently is, gift money is allowed even up to 100 percent of the down payment value. In the past, you had to have a certain amount of your own.

If you’re in a situation where a family member can provide you gift money, to help you get into a better home, the entire down payment can be provided if necessary or desired. That’s an important part.

Matt:  Interesting.

Mike:  The final piece that you wanted to know is, learn what your options are. Learn that from a professional.

Go online and do some studying. But come to somebody like myself or a mortgage broker that can get you, number one, a pre‑qual and tell you how much technically you’re qualified for.

There are different programs out there that, many times, a bank and other places won’t even tell you about. Like whether an ARM can work for you, or a lender‑paid MI, which can actually save you money by choosing even a higher rate, as I indicated in a prior blog. Talk with a professional that’s interested in your best interests, in getting you into the best program, rather than just quoting you a loan program.

Matt:  Very good. There’s a lot of pre‑work to do if you really want to do things right.

Mike:  Start early. You should start two to three months before you begin to actually look. That would be the best suggestion I can make.

Get pre‑qualified. Again, there’s no obligation with a pre‑qualification. You can get it from anybody. Usually, they’re free. Like I said, there’s not even an obligation.

Matt:  Makes sense. Mike, what’s the best way for our listeners here to get in touch with you?

Mike:  Obviously, reach me at the office. The phone number for United Mortgage Financial Group is 480‑503‑3533. You can call me on my cell, 480‑220‑2329. Or email me at [email protected].

Matt:  Excellent. Thanks for sharing your wisdom once again, Mike. We’ll look forward to the next segment.

Mike:  OK, Matt. You have a great day. I look forward to talking with you again.

Matt:  You, too. Thanks.

Mike:  Bye now.