ASK THE EXPERT:

Top 5 First-Time Home Buyer Questions Answered

By: Mike Tavani, SVP of Mortgage Lending at Guaranteed Rate & Venture Philly Group


Do I need 20% down?

Screaming from the mountain top, you absolutely do not need a 20% down payment to purchase a home!   The conventional loan program requires as low as a 3% down payment, FHA allows for a 3.5% down payment, and if you’re a military veteran, you need no down payment at all!   It’s important to note that needing a 20% down payment is one of the most common misconceptions when purchasing a home. Why? Because you need to put 20% down to avoid paying mortgage insurance on the loan, yet many folks believe this is the only option.   It’s equally important to mention that the cost of mortgage insurance has seen dramatic decreases over the past 5 years, allowing purchases with low down payments to become even more affordable.

 

Is there a benefit to an FHA loan over conventional?

I always tell buyers who are getting pre-approved that your specific loan application will define the best loan program for you, and more times than not, the best loan program offered is tied to your credit score.   FHA is an amazing program because you can still lock in at a historically low interest rate even if you don’t have a great score.  FHA will also permit a higher debt-to-income ratio meaning you can be approved for a higher mortgage payment while it simultaneous allows the sellers to pay for most (if not all) of your closing costs.  Having the ability to secure a higher seller assist significantly decreases your cash needed for closing and could be the difference in you being able to afford your new home!  When you combine these 3 characteristics together, you arrive at the ultimate first-time home buyer’s program.  That said, if your credit score is in the top or perfect levels, the conventional loan program will likely be the better option. Conventional mortgage insurance will be immediately cheaper out of the gate and it can be removed from the payment altogether down the road.  One of the biggest caveats of FHA is that you are signing up for mortgage insurance for the entire life of the loan, regardless of the equity level in your home.

 
 

Best advice for someone looking to buy in 3-6 months?

There is no better time to get pre-approved or start your search than when you’re 3-6 months out from actually pulling the trigger on your first home.   Getting a head start allows you to get a personal understanding and hands-on experience of looking at the homes in your sales price range without any pressure of having to make a rushed decision because your lease is running out. 

 

Specific to the mortgage pre-approval, we use this time to help you identify your preferred sales price range based on your comfort level with the monthly payment and the total funds you intend to spend out of pocket to acquire the home.  This time allows us to confirm that you will be approved for the sales price range of your preference and if not, we can adjust that range or advise on what you need to do in order to be approved for the homes you desire to purchase.

 

Specific to the home search, you will have the time and opportunity to view as many homes as you’d like, both online and in person through realtor showings.  The beauty of having this time is that you will be become confident in your own decisions.  You will have researched enough homes in your price range, that by the time the perfect property comes on the market, you’ll recognize a great deal and know when it’s time to jump!

 

Will student debt hurt my chances of getting a loan?

Believe it or not, we approve you for a mortgage based on your total monthly payment debts and not the total balances…. It’s all about the cash flow.   If you have a lot of student loans but your payments are manageable, you may be more pre-approved than you think!

 
 

Top three things I can do TODAY to prepare for applying for a home loan?

1) Do not miss any credit payments by any means necessary; this includes credit cards, student loans, car payments, mortgages, anything, and everything!

2) Speaking from my own personal experience, it’s amazing how much money you can save when you truly want to.  Go look at your credit card and bank account statements over the last 60 days and identify all the purchases you really didn’t need. More often than not, your down payment is sitting right there!

3) Keep your credit utilization ratio under 50%, and if possible, try for under 30% if possible.  Credit utilization is defined as your credit card balances vs the high credit limits you have available (also known as “amounts owed”) and makes up 30% of your credit score. Easy points to boost the score!

Mike Tavani

SVP of Mortgage Lending, Guaranteed Rate

mike.tavani@rate.com

rate.com/MikeTavani

o: 484.802.4583 | c. 484.802.4583

1500 Walnut Street, Suite 803, Philadelphia, PA

NMLS: 327918

NMLS ID: 327918, LO#: FL - LO54028 , NJ - Licensed - Licensed, PA - 33174 - 20371 NMLS ID #2611 (Nationwide Mortgage Licensing System www.nmlsconsumeraccess.org) FL - Lic# MLD1102 NJ - Licensed in NJ: Licensed Mortgage Banker - NJ Department of Banking & Insurance PA - Licensed by the Pennsylvania Department of Banking and Securities Lic #20371 FL - Lic# MLD1102 NJ - Licensed in NJ: Licensed Mortgage Banker - NJ Department of Banking & Insurance PA - Licensed by the Pennsylvania Department of Banking and Securities Lic #20371


Venture Philly Group

Buy. Sell. Invest.

info@venturephilly.com

o. 215.592.9522

1619 Walnut Street, Suite 500, Philadelphia, PA

venturephilly.com


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