This is based on my recent homebuying experience. Because of the credit crunch, financing is much harder to get, and so the homebuying process is now a bit different. The days of easy money are over, but money is still available for qualified borrowers.
1) Before you do a single thing, get a copy of your credit report. It may be too late to fix real bad marks on it, but it gives you a chance to prepare explanations (including collecting documentations to prove your case) and to fight erroneous entries. Nowadays, you need a FICO of 740+ to be considered a great borrower.
2) Get some mortgage pre-qualifications on paper. Those pre-quals need to state very precisely what the maximum amount they will lend you. You don't need to be concerned about the rates right now. Rate shopping is done after your offer is accepted by the seller.
a) If you try to get a loan for the same type of transaction, your credit only gets hit once if they all happen within a 45-day window (some say 30-day -- no one knows for certain). So you should contact several mortgage companies (both direct lenders such as those big banks and brokers or companies that immediately sell the mortgage to someone else) and get them to pre-qualify you. Some will say you qualify without doing a full credit check. These don't work because once you really apply, they'll run your credit and if it's outside the 45-day window, your credit gets hit again. Remember, if they didn't ask for you SSN, they didn't do a full pre-qualification. Force them to spend that money and pull your credit report.
b) If a lender sends you a big packet of loan documents (not the application, which you may have to do just to get them to run your credit), DON'T SIGN THEM. Some think that they can fool you into thinking that you already agreed to get a loan through them. Sign loan documents only after you have decided to go with them.
c) Try doing 20% down. Anything less makes the lender more worried about you walking away later on. Also you'll have to get Private Mortgage Insurance (PMI) which may cost over $1,000/year until you reach 20% equity. Those 3%-down FHA loans also require similar insurance.
d) Having those pre-qualification letters will help you stand out from among offers that don't. My brother won a bidding war despite a lower offer because he got a pre-qual and others didn't.
3) Nowadays, lenders want to make sure you actually have the money for the promised downpayment and it's your own money. They usually will go through your bank statement of the past three months and see if you have unexplained incoming money. And yes, my underwriter went through the statements line by line and asked me questions about incoming money transfers. So if you do need some help with downpayment, get the money and let it sit in your savings account for 2 to 3 months so you don't have to explain their sources.
4) If you have another house already, lenders will be curious about your intentions. They want to prevent people from buying a new house and walking away from their existing one. So you have to show that:
a) You have enough income (including rental income on one of the two houses) to afford both mortgages. If not, show that you are preparing to rent out your existing unit and you have some cash reserve to cover until someone actually rents it. If you have a lease agreement already, whether or not that person has moved in, it would help a lot.
b) You have enough equity in your existing unit so you won't walk away from it. This is an issue even if you have a renter lined up. If you intend to sell your first unit, they'll be very concerned that you may owe more than you own and therefore you abandon it instead of selling it.
5) At this time, you are ready to find an agent. If you don't have one already, using certain websites may get you some money back.
a) Owners (e.g., banks) of foreclosed properties don't want to talk to buyers directly -- they are too overwhelmed. These institutions have agents who handle these things for them, and those agents are overwhelmed with the number of properties they have and so they don't want to deal with prospective buyers directly. So having an agent nowadays is almost a necessity. They hope the buyers' agents will help buyers determine the proper amounts to offer and not waste their time with ridiculous offers.
b) One of the lenders from LendingTree said I could get some money back if I get an agent they refer, and I did. A few weeks after closing I got a check for $1,250.
6) Pick the areas you want to look for a house, and keep in mind that areas with good schools and job opportunities usually can hold their value better. You may not have kids, but schools will affect the value of your house regardless. School data are available at: http://www.cde.ca.gov/ta/ac/ar/ . Precise school boundaries are available from the school districts. Your school may not be the one closest to your house. Avoid houses adjacent to schools because of traffic issues, however.
7) Foreclosed properties tend to be in worse shape and some lenders sell them "as-is." So don't expect them to fix things for you. Instead, make sure you have enough cash reserve to fix the problems after you get the keys. If that means that you can only afford a smaller house, so be it. The reason is that getting an equity line of credit is much tougher nowadays. So estimate repair costs before you put in the offer.
8) The longer a property has been on the market (as indicated by "DOM" on the property information pages), the more likely the seller is willing to take a lower offer. My seller dropped the listing price by $20K per month, and I eventually offered and got the house for $9K below the final listing price that was already $60K below the original listing price.
a) A house that's off the market may come back on because the buyer fails to close escrow (generally due to inability to get a mortgage). So monitor the ones you like even after they're marked "Pending Sale."
9) Once you have found a house you like, ask one of your lenders to generate a pre-qual letter with the precise amount of the loan you'll need for that house. This helps convince seller that you may not be able to buy if he counteroffers with a higher price. Those pre-qual letters are not binding. What is binding is the maximum pre-approved amount of the loan.
10) Some sellers may require that you get mortgage pre-approval from their designated lenders. They do this to make sure you can actually get financing. You don't have to get your mortgage from them. These pre-approvals may not be as painful as those pre-qualifications because they are not formal applications. Some just have a mortgage broker ask a few questions to make sure you can afford the loan you need.
11)
Get
your agent to find out who (i.e. which bank) actually owns that
property.
Some banks are more desperate than others in terms of needing to raise
cash.
In San Bernardino County, the top REO holders are: Deutsche Bank
(from
Germany), US Bank, Wells Fargo (now includes Wachovia), HSBC, Bank of
New York,
Fannie Mae, Bank of America (which now includes Countrywide), Freddie
Mac, JP
Morgan Chase (now includes Washington Mutual), Citibank, Aurora Loan
Service,
IndyMac, and GMAC Mortgage (which also owns DiTech). Of these,
Fannie
Mae, Freddie Mac, and IndyMac are government-managed but it's unclear
whether
they are more willing to negotiate than others.
The top five account for nearly 60% of the REOs in
12) If the house has additions that may be out of permit, make sure the city is OK with it or else you may not be able to get a mortgage. Some additions cause drainage or other problems, and some are nearly impossible to reverse.
13) Houses in good areas are going fast, and so ask your agent to show you the properties in your search area as quickly as you can. Before you put in an offer, you can ask the agent to call the seller's agent to test an offer. You can even ask that seller pay closing cost up to 3% of the selling price. Try your luck. The worst that can happen is for them to say "no."
14) If you submit an offer and you are accepted, hire a professional house inspector (not an appraiser) to check out the house thoroughly before you open escrow. If they find any major problems (e.g., electrical wiring all messed up and the house is a fire hazard), you can quit the process without locking your deposit with escrow for a few days. The inspection report is yours and not sent to the lender.
15) Once your offer is accepted by the seller, it's time for the final rate shopping. You cannot lock a rate until an offer is accepted and you are ready to enter into escrow. Compare the fees lenders charge very carefully. The form that contains the quoted rate and fees is the Good Faith Estimate (GFE). Lenders use different names for different fees they charge. The key is to figure out which ones they actually charge (e.g., appraisal, processing, underwriting, etc.) and which ones are out of their control (e.g., escrow & title fees). Compare only the fees that lenders charge. Their estimates of fees that they don't charge are meaningless. Be suspicious of anyone who can't or refuse to provide the GFE.
a) Send your mortgage comparison spreadsheet to the lenders and ask them to verify their offers. This is really for them to see what offers you have, and some may drop their fees or rates if they feel they have a chance to be the lowest bidder. My best offer and the runner up differ by just $81.
b) Before you lock a rate, ask what your options are if rates drop by more than 0.25%. Some will allow you to re-lock for free or for a small fee. This is crucial nowadays because rates are so volatile.
16) During the escrow process, be very responsive to info requests from the lender and escrow/title company. The seller may have a deadline for escrow closure and will charge you late fees for each day of delay that's due to your inaction or inability to get financing done as promised.
17) During the escrow process, if it rains hard, you are in luck. Ask the agent to show you the house again about a day or two after the rain began and see if you can spot any leaks. This is crucial because some sellers cover up the damages of past leaks with a new coat of paint.
18)
Escrow
accounts that hold additional amounts for taxes and insurance are
mandatory
with some lenders (some charge you higher rates if you don't want one).
They
do this because their investors want to reduce as much risk as possible. Just do what they ask. After the
mortgage lands with the final mortgage servicing company, call to
cancel the
escrow account. In
Thank you for
trying to buy a house in our
County. Every house in