Is it Time to Buy?

Written by Bakersfield Magazine

We all love that old adage that home is where the heart is. But, let’s be honest...home is also where you invest a lot of your money. And in today’s market, that money has to stretch a lot farther. But that doesn’t mean you can’t move into a home of your own. In fact, it appears that now, more than ever, is the right time to begin the process of buying or building your dream home.

Even so, unless you happen to have over $100,000 in cash in your pocket right now, chances are, if you want to buy a house, you’ll need to apply for a home loan. But it’s not the complicated ordeal it can sometimes seem. The process can be quite straightforward as long as you know what to expect. That’s where home mortgage lenders can really help.

“I always tell people to come to us first,” said Margot Shinn, a home mortgage consultant with Wells Fargo Home Mortgage in Bakersfield. “The last thing we want is to find out you won’t qualify for a loan after you’ve found your dream house.”

So before you go home shopping, make sure your finances are in order. “Speak with your lender, have them run your credit, and make sure you’re in a position to get a home,” Shinn explained.

Shinn has potential buyers start keeping very close attention to their finances before they get too far into the process. Keep receipts for everything, she advised. At the end of one month, see how much money you’ve spent on extraneous things. Could that money be set aside and saved?

“It’s especially important for first-time buyers to come in and talk with a lender before they attempt to go looking for a home,” said Linda DuBose, Home Loan Center Manager for Kern Schools Federal Credit Union. “Many of them don’t know the questions they need to ask, so we can give them the information they need before a problem comes up.”

For DuBose, the biggest piece of advice she can give is to make sure you’re pre-qualified for a home loan before you start talking with a real estate agent.

“You have a better idea of what you can afford, and you won’t be looking at homes you shouldn’t be looking at,” she elaborated.

But surely the process is harder than it used to be, what with so many changes in the industry.

“The process has become more paper-intensive,” said Steven Hurd, a VP and Mortgage Loan Officer with Bank of America in Bakersfield, of getting a loan. “But it’s not more difficult...the restrictions aren’t tighter.”

As Shinn explained, FHA interest rates today are historically low. “In January of 1982, anything around 17 percent was a prime rate,” she added.

Today, interest rates hover around 4.75 percent. “And that’s with the FHA’s current rate of 3.5 percent down,” Shinn said. “So if you’re looking to buy a $100,000 house, you’ll only need $3,500 down.”

Still, just because you can afford a much larger down payment, does it mean you have to buy a larger, more expensive house? The answer is no.

“There are many other factors that go into getting a home loan...not just how much you can afford for a down payment,” DuBose explained.

“For starters, we ask that people bring in their most recent check stubs, two years of W-2s, and a bank statement showing you have the money in your savings to cover a down payment.” There is other paperwork that may be required, but these initial forms will help a lender get you started with a home loan application.

But there is one area that counts a bit more than others, right? Your credit score. The general consensus is that your FICO score needs to be above 600. Some lenders and underwriters require a higher score of 620 or 640, but, as DuBose further elaborated, “scores can get complicated because there are other factors a credit lender will look at.”

As Hurd explained, in addition to the other things lenders inspect, there are other things on your credit score and income statements that could hurt you.

“If you have expense accounts or get reimbursements through your work, it’s very important to have those records,” he explained. “If you don’t have record of getting that money back, we take it off of the gross income statement you have when you apply.”

It makes sense. A lender can’t just assume you’ve got the money or will be getting it back soon.

“So we [Bank of America] look very carefully at a bank statement. And in addition to your income, we’re looking at what transactions take place with that account. Like if you are depositing and withdrawing large amounts of cash and can’t source where the money came from or went to, we consider that an invalid account.”

It could be harmless enough, Hurd said. He gave an example of a man who was loaning thousands of dollars to family, which was paid back shortly after, but there wasn’t a statement or written explanation of those withdrawals and deposits. So when the bank was looking at his account, they weren’t able to confirm his regular monthly expenses.

“I recommend, if a person does have a lot of discrepancies on their account statements, to come with letters of explanation,” he added.

Still, DuBose added, “even if your credit score is fine for buying a home at the moment you apply, you can affect your score between the time you put in an application and when the sale closes by applying for lines of credit elsewhere.” A person might be so excited that they’re buying their dream home, that they’ll want to decorate with all new furniture and apply to open credit cards with furniture and department stores. But the more lines of credit you try and open at one time, the more your bank or credit union starts to worry. So if it’s your first house you’re looking to buy and don’t have a stellar credit score, hold tight on the new purchases.

“Right now, I’m working with a large percentage of first-time buyers,” Shinn said. “ So the excitement is high. These are people who thought they never would have been able to afford a house

in the past. They thought they couldn’t put enough down, or afford the mortgage payments. Some of them assumed that because they were denied a car loan in the past, that they’d never be able to get a home loan, and that’s simply not the case.”

For one thing, it’s harder to qualify for a car loan, according to Shinn. It’s because cars are mobile—they can hide. They are a movable asset; there’s more liability there.

Hurd said there are still a large number of FHA loans going out.

“We’ll look at other factors besides the FICO score. Even if they have a credit score below 600, we’ll work with someone looking to get a home loan. There are compensating factors. For example, if they’ve got 12 months of good credit history with PG & E, we’ll consider that alternate credit.”

Still, Hurd recommends that if someone has had credit problems in the past, they should try and come to a lender with 12 months of good credit history. Even if that means waiting on buying your dream home. But it never hurts to start planning now.

“If someone is looking to buy a home in the next year, they should start talking with someone now,” DuBose explained. “The rates are at their lowest.”

Shinn and Hurd agree. It’s a good time to be looking into moving into your dream home.

Article appeared in our 27-3 Issue - August 2010