Crystal Schip

If you are planning to buy a home in most parts of the Bay Area, odds are you’ll need some type of mortgage.  In fact, for the majority of homebuyers, the mortgage is one of the most important and time-consuming pieces of the puzzle when buying a new home, if not THE most important.  Hence, it’s crucial to your success to do it right.

In today’s post, I summarize my talk with First Republic Bank Relationship Manager Tony Dinh about the home loan process and his best advice for new home buyers.

What are the most important things a homebuyer should consider when looking for a home loan? 

First, get preapproved.  Understand how much you can afford. The preapproval is vital.  Not only does it show the seller’s side and your agent that you’re serious, it provides you with confidence knowing that your lender is behind you.

Not just any preapproval will do.  You want an underwritten preapproval.  Work with a lender that does their homework on you upfront: credit check, debt-to-income analysis, and liquidity analysis.  They will ask for your income and asset verification, including paystubs, tax returns, W2s, and asset statements.

Second, do your own research and understand all your loan options (i.e., Fixed Term vs Adjustable Rate Mortgage).  There isn’t a “one size fits all” when it comes to loan programs.  If you plan to stay in your home a while, you’ll want a longer fixed term product.  Inversely, if this is not your forever home, stick with a shorter fixed term program.  Most homeowners typically refinance within 5-8 years of their original mortgage, for various life reasons, but typically due to family, new jobs, or simply change.  Choosing a program that best meets your needs will save you a significant amount of money.

What should a homebuyer do to prepare for the loan application process?

Gather your personal financial documents:  paystubs, 2 years of tax returns, W2s, and bank/asset statements.  Additionally, stay on top of your finances and pay your bills on time.  Avoid any other indebtedness (car loans, credit, or personal loans) during the application period.  Taking on more debt will negatively impact your ability to borrow.

What is the #1 issue most homebuyers overlook in the loan process?

A lot of homebuyers fail to respond to disclosures in time and/or don’t provide the lender with the exact documents requested.  Respond to your lender and/or all related parties ASAP.  Assuming you get into contract, the escrow period is a sensitive time.  Also, if you have travel plans, notify your agent and lender upfront, or you may consider rescheduling your travel.

Why should a homebuyer put at least 20% or more down?

Larger down payments will mean lower monthly payments on the backend.

What is your #1 tip for getting a good interest rate?

Ask what options and requirements are available to lower the rate. At times, a larger down payment or relationship-based discounts are available to borrowers, so find out what they are!

What are points?

A point is an origination fee charged for processing your loan.  Lenders may charge anywhere from zero to one point.  One point equals one percent of the total loan amount. This is added to any other closing costs you may incur.

Other closing costs include, but are not limited to appraisal, title/escrow fees, prepaid interest and homeowner’s insurance.  Ask your lender for an estimate of your closing costs.

When is it a good idea for a homeowner to refinance?

Refinancing means paying off of an existing mortgage and replacing it with a new one. Homeowners will go through the full financing cycle again, including getting a new lender appraisal and submitting updated financials.  So, stay in touch with the market, and if rates drop by .75% of what you’re paying, it may be a good time to consider refinancing.  A rate and term refinance helps lower your monthly payment.

However, you want to ensure that the long term savings outweigh the upfront costs.  Your lender can help make this determination.

Also, for those that have built enough equity in their homes, a cash out refinance allows a homeowner to tap into the equity for home improvements, debt consolidation, and general expenses.

Who are all of the people involved in the loan process?

It really takes a village but at the forefront is the loan officer, credit officer, escrow officer, and funding and closing administrator.

A huge thanks to Tony for taking the time to answer my questions.

If you have any questions or want further information, contact me for a no-obligation consultation.