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Lunch & Learn Recap: Buying Your First Home

Kim Fay / July 15, 2022

Lunch & Learn Recap / no comments

On June 15, Executive Board Director Paula Spence moderated a panel of experts from First Entertainment Credit Union and Wells Fargo on home mortgages geared toward first-time home buyers. Loan Officer Edward Chou led the First Entertainment team and Private Mortgage Banker Sheila Berger led the Wells Fargo team in offering information and professional insights on credit underwriting, down payments, interest rates, and more.

First Entertainment Credit Union Panelists

Wells Fargo Panelists

What are the top items a first-time home buyer should know?

Have a conversation with a loan officer.

  • Ask how the process works in general.
  • Go over each individual possible situation. i.e. Are you freelance versus full-time employed?
  • Tell the loan officer your goals so they can offer options based on that.
  • Decide when you want to purchase: immediately or at some point in the future?
    • Based on this timeline, discuss the steps you need to take to prepare for your purchase.

Know how much you can afford.

  • Do you have assets? What is your income?

Figure out the source of your down payment.

Don’t commit to big payments on other items right before purchasing a house.

  • For payments already ongoing, make sure to pay on time and do not have late payments.

Don’t think you can’t buy because you don’t have savings or because you owe on credit cards.

Ultimately, your purchasing power is the intersection of two things:

  • How much down payment do you have available?
  • What is your monthly budget?
    • Most people’s budgets are lower than what housing ends up costing with property tax, expenses, unexpected costs, etc. Having a conversation about your budget educates you.

It’s okay if you don’t know where to start. A loan officer can guide you through the process.

How much of your income should you spend on your mortgage?

Typically, most lenders want you to be in the mid-40s for debt to income. This means 40% of your income is used to pay your monthly obligations.

Lenders will look at your financial profile: income, assets, credit, debts.

Go through a credit underwrite to know how much you are qualified to borrow based on your income. This helps you get in writing what a lender is willing to lend you.

  • Having confirmation of this number in a Mortgage Credit Approval Letter will set you apart from other buyers.
  • A Mortgage Credit Approval Letter is different from a preapproval or pre-qualification letter; these letters are not a firm loan commitment to lend X dollar amount.
  • A Mortgage Credit Approval Letter shows the seller you are not a financial risk, and that you are ready to buy. This makes your offer more competitive.

When buying a house, what are the costs that you need to think about?

Down payment

  • Your down payment can come from savings or other sources:
    • Gift funds: i.e. money from a family member.
        • For most buyers, your entire down payment can come from gift funds.
        • From a lender’s point of view, these funds are gifts and can’t have the expectation of repayment.

Closings costs

  • Appraisal
  • Underwriting fee
  • Title and escrow.
    • When you get a commitment from a seller and the seller accepts the offer, they open escrow. You might have a 21-day escrow or a 30-day escrow. This means that from start to finish, you’re going to be done with the process in that amount of days. Bottom line: The length of time from start to finish for you to own the house.
      • This cost is determined by the seller’s escrow company (a disinterested third party that handles the money between the buyer and the seller).
      • Your lender will usually give a rough estimate this cost.

Monthly costs

  • Mortgage
  • Property tax
  • Homeowner’s insurance
  • HOA (where applicable)

What do you feel comfortable paying per month? Use the above items and work backward, figuring out how to reach that number.

Ask questions such as: What do you pay for rent? Do you want to pay less? Can you pay more?

Interest rate on your mortgage

  • Interest rates are fluid.
  • With most banks you cannot lock an interest rate until you’ve opened escrow and have verbal acceptance on your property.

Is it worth it to buy points to get a lower interest rate?

(Mortgage points are the fees a borrower pays a mortgage lender in order to trim the interest rate on the loan.)

  • If you sell your house early, you might not break even, and can even cost yourself money. You want to make sure you will at least break even in order for points to make sense.
  • Points can be a tax deduction; discuss this with your CPA.

What should you keep in mind regarding real estate agents?

  • You are not paying commission. The seller pays the commission.
  • Find an agent who will advocate for you. If you want to make sure your interests are taken care of, get referrals from people you trust.

What do loan officers look for in terms of safe income for freelancers?

  • Loan officers want to look two years backward so they can project three years forward.
  • They will look at how you get paid:
    • They will use 100% from your W2s
      • If you’re paid on W2s, you need to provide 2 years of W2s, one month pay stub, and bonuses.
    • They will use the net income from your 1099s
      • If you are paid on 1099s, you will need to provide your tax returns and Profit & Loss statements.

How do gaps (i.e. the pandemic) in your income affect your ability to get a loan?

  • A loan officer might ask to look backward three years, to see what you typically made before the pandemic.

How long is the mortgage approval process?

  • 90 days.
  • The process is the same for green card holders.

What are the financial benefits of homeowning?

  • When you rent, you are basically paying someone else’s mortgage. At the end of the day, they own the house. When they sell it and it has gone up in value, they retain the profit.
  • A house could be your retirement. If you pay it off, you have no mortgage (or rent) in your later years.

Union Plus

Chantal Camarillo, Wells Fargo Union Plus program consultant, also spoke about the benefits offered by Union Plus.

Union Plus offers mortgage assistance.

  • Your parents and children also have access to Union Plus Mortgage.
  • Union Plus Mortgage comes with disaster relief ($500 up to three times per lifetime)

In times of hardship, Union Plus has a unique program that can offer protections:

  • For lockouts and strikes
  • Disabilities
  • Unemployment
  • Hospital grants ($1,000 up to three times per lifetime)

Learn more about Union Plus here.

This information is for reference only. Consult a lender, mortgage broker, or other professional for official information.

 

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