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Getting Your Ducks in a Row

Your guide to successfully beginning the home buying process
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At this point, you are absolutely fed up with the rental market in Truckee/Tahoe. You have attended the housing workshops, the first-time home buyer seminars, and ultimately, you have decided you are ready to purchase your first house. A big congratulations is certainly in order!

When a first-time home buyer approaches me with the question, “Where do I start?” my first response is, “Begin the process of becoming prequalified for a mortgage.” This encompasses much more than a letter stating you’re eligible to start home shopping. It is time for you to truly evaluate your finances, with the help of a professional, in an effort to determine what you can realistically afford.

Juggling credit scores, interest rates, PMI, FHA, and countless other terms related to your first purchase can be daunting. This is where the mortgage broker or lender comes in. If you are now asking yourself what the difference is between the two, allow me to explain. A mortgage broker is basically a middleman between the lender and the buyer. Mortgage brokers work with many different lenders to find the best loan program for their clients, but most of the time, the broker does not lend out money directly. There are exceptions to this rule; for example, Katie Rice with Guild Mortgage is a mortgage broker. However, Katie works for Guild Mortgage, who is also a lender, meaning Katie has the ability to fund her own loans — assuming that Guild offers the best program and rates for her client. The role of the mortgage lender is to fund the loan at the close of escrow. However, lending institutions (think big banks: Wells Fargo, Bank of America, etc.) have the capability to act in place of a mortgage broker and eliminate the need for the middleman.

Similar to choosing a real estate agent (remember, there are more than 700 active agents in the Truckee/Tahoe area), your options for a mortgage broker or lender are essentially endless. It is best to practice due diligence on your end and do the research. Ask friends about their experiences, check out online reviews, and interview different companies before committing.

Getting prequalified for a mortgage may seem overwhelming and oftentimes can feel intrusive. You might anticipate the lender requiring the standard items, such as tax returns, pay stubs, and employment verification. However, you don’t necessarily expect them to need a copy of your high school transcript — kidding, lenders don’t require this, but you will certainly find yourself scratching your head at some of their requests.

Their job is not solely to pry into your personal finances, but instead, to ensure they have all required information to set you up for success. One of the biggest hang-ups we realtors see in transactions are the borrowers refusing to provide the lender with the requested and required documents.

Personally, the most common fear I hear referenced in the beginning stages of the prequalification process is a borrower’s credit score. Ah, the scary credit score conversation.

If your credit is less than stellar and not quite where it needs to be to qualify for a mortgage, most brokers or lenders will put you in contact with a credit repair specialist. Usually, a specialist can complete a rapid re-score and you’ll see a significant improvement in just a few short months.

Now, let’s fast forward a few months and assume you are successfully prequalified for a mortgage. Congratulations are once again in order! I find it is always important to celebrate even the smallest of milestones throughout the home buying process.

Your mortgage broker or lender has preapproved you for up to $550,000. However, the monthly payments at $550,000 are not something you feel comfortable with, so you are now striving to land at a lower purchase price. Unless you can find a way to supplement the monthly mortgage payment.

You know where this conversation is leading …

The buyer is now faced with a decision, and in my eyes, there are three possible viable routes:

1) Stick with a lower purchase price and restrict your search parameters.

2) Find a property at the top of your budget and rent a room to a full-time tenant to assist with the increase in mortgage payments.

3) Find a property at the top of your budget, rent out one of the rooms a few times a month via Airbnb (gasp, there is that word again), and enjoy roughly 20 days of living alone.

In a strange turn of events, I am telling you that Airbnb can be used to locals’ advantage. I bet you didn’t think you would hear that sentence in this article. But in the quest to get more locals into homes, creative solutions and doggedness is warranted.

 
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September 14, 2017