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How First-Time Home Buyers Can Protect Themselves During The Loan Process

  1. Personal recommendations from the Realtor and from friends are the best way for the first time home buyer to locate a loan officer who is honest, competent, and responsive.
  2. Educate yourself in advance about the loan process and about loans. Lack of knowledge is the main avenue that can allow a dishonest loan officer to take advantage of you, the first time home buyer.
  3. Know how long you expect to live in a property. If you decide for an adjustable rate mortgage, make sure that the fixed period exceeds your expected occupancy period by several years. Typically the first time home buyer should only purchase a property that the expect to live in for at least five years/
  4. Choose a loan officer that works at a mortgage brokerage, not a mortgage banker or direct lender. If something unexpected happens during the loan process, a mortgage broker can easily switch the loan to another lender. A loan officer working for a direct lender, such as Countrywide, would have nowhere to go if the loan were unexpectedly rejected in underwriting late in escrow.
  5. Another reason to use a mortgage broker is that a mortgage broker and his or her loan officers must be licensed by the DRE. Direct lenders and mortgage bankers do not have that requirement. The possibility of DRE discipline is a big threat with the mortgage broker but not with direct lenders, who are licensed by the DRE.
  6. Check your credit well in advance of making your home purchase. By doing this, you give yourself a lot of time to clean up mistakes or derogatory credit items that are true. A lot of first time home buyers get bad surprises during escrow because they did not check their credit before-hand.
  7. Don’t do anything regarding credit without consulting the loan officer first. Most loan officers are very knowledgeable about credit.
  8. The one thing that you can do regarding your credit is to pay off large credit card balances. Each $100 of monthly debt that shows up on your credit report reduces that amount that you can borrower by about $15,000. Large monthly debt, such as a new car payment, is usually the most common reason that first time home buyers do not qualify for loans or first time home buyer assistance programs in San Diego County.
  9. If possible, get a full lender approval before making an offer. You and the Realtor can rest easy knowing that you have a complete approval in advance. You’ll also close quicker after getting an accepted offer because the initial underwriting has already been done. Further, your offer will be much stronger if your Realtor can produce a full loan approval on your behalf before the offer is submitted. Having a strong offer is very important for the first time home buyer/
  10. Save some money in the bank in advance. Many loan programs require a certain amount of funds to have been sitting the borrowers’ bank account for at least two months prior to the date of close. If a buyer does not have these funds in the bank, he or she may not be eligible for the most optimal loan programs. Many first time home buyers do not realize that they usually need to have at least several thousand dollars in the bank to complete a real estate transaction.
  11. DO NOT buy an expensive car. In fact, sell your expensive car and pay cash for a car. Sorry about that but a $500 car payment reduces the amount that you can borrower by about $75,000. You just went from a $300,000 condo to a $225,000 condo – a world of difference! Once again, first time home buyers should always buy the new car after the new home - not the other way around.
  12. Get a copy of the Good Faith Estimate right away from the loan officer. Tell the loan officer to put ALL fees into the GFE. This includes all non-recurring costs and all recurring costs. Have someone knowledgeable look at the GFE to make sure that there are no junk fees and also that the loan officers did not conveniently forget to include some essential fees in order to make the GFE show lower total closing costs. First time home buyers will be more susceptible to this because they haven't gone through the process before.
  13. If loan shopping, compare Good Faith Estimates next to each other. Compare line item by line item. This is the only way to compare closing costs.
  14. Get the loan officer to agree in writing that the total closing costs in the Good Faith Estimate will be with several hundred dollars of the actual total loan costs. Get the loan officer to agree in writing that any amount of closing costs that exceed a certain amount will be paid for by the loan officer from his or her commission. I would suggest having the loan officer’s broker sign this agreement.
  15. Request that the loan officer gets a rate lock for no shorter of a time than 45 days. First time home buyer assistance programs will often take this long to close.,
  16. Request that the Realtor who is representing you negotiates into the purchase contract that the close of escrow will occur no earlier than 40 days after the date of acceptance. This is especially important for the first time home buyer if any first time home buyer assistance programs are being used.
  17. Get the loan officer to agree in writing to immediately provide the rate lock confirmation sheet and the initial conditional approval from the lender as soon as they are received. A rate lock confirmation sheet should be sent to the loan officer no later than a day after the loan officer locks a rate. The initial loan approval should be sent to the loan officer no later than a week after the loan officer submits the loan.
  18. If the rate lock confirmation and initial approval are not delivered to you shortly after the above deadlines, you need an explanation. If a few more days pass and the loan officer has not delivered one of these items, you need to find another loan officer quickly.
  19. Request that the loan officer provide you with a copy of the estimated closing statement that escrow prepares at least two days prior to loan signing.
  20. Deliver all requested to the loan officer immediately. Never delay when it comes to gathering and delivering documents that the loan officers requests.
  21. Keep close track of the loan process. Stay in constant contact with the loan officer.

 Any first time home buyer that does all of the above will be almost guaranteed to get a good mortgage and have a good experience during the loan process.


































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Mark Harmon, Realtor
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USA Realty and Loans

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San Diego, CA 92117