1st time buyer, 3% down FHA, Pre-qual questions...

Asked by Homeowner :), Tracy, CA Sun Jun 29, 2008

I am first time home buyer in east bay area. I am currently renting
(currently paying $1500/mth in rent, looking to buy townhome/condo in $200K range) and my lease expires in November of 08. My question is, how far in advance do I need to get my pre-approval/pre-qual for a mortgage loan? I would like to take advantage of one of the first time home buyer programs as the funds available for down payment will be limited. (although by debt to income ratio is good with solid employment history).
Will my loan options be limited to products from the lender who provides me with the pre-qual? Are there any good 1st time home buyer programs that are specific to east bay (Livermore, Dublin, Hayward, San Leandro areas?).
Thanks in advance!

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Steven Ornel…, Agent, Fremont, CA
Sun Jun 29, 2008
Hi “1st Time Buyer”,

A Pre-Approval is really only valid on the day it is provided because it is based on an assumed interest rate, which can certainly change the very next day based on the ebb and flow of Mortgage Backed Securities trading on Wall St. At best, it is a ballpark figure, not a guarantee. The only way to get a guarantee is to lock a loan program and rate.

In my opinion it not worth going down the trail of making your purchase decision based on any of the city programs. Most have an “equity share” component that leaves you owing them when you sell.

FHA is the best deal in town right now. The 3% minimum down payment provides you many options not available with other programs out there. FHA also allows you an extra $8K in loan (that does not affect you debt-to-income ratio), provided it’s used for energy efficient upgrades on the house you buy. Also, FHA also allows that minimum required 3% down payment to be paid by the seller as gift, allowing you to use your 3% for whatever might make your new home more attractive and livable.

The very first step is to obtain a financing pre-approval now, which I can perform for you. If you have not been pre-approved to determine exactly what you can afford you may be basing your search on less-than-perfect information about your buying power and the loan products available to you. This can mean the difference between a "so-so" or strong neighborhood, which ultimately affects your choice concerning schools, appreciation, resale value, etc. Another reason to do your pre-approval now is to start monitoring the market, of course the supply that’s out there, but also the Mortgage Backed Securities trading on Wall St. The trend direction of rates is important to know.

I understand your lease expires in November, but what if waiting to buy cost you more in the long-run? Say you decided to buy tomorrow. You would be on the hook for $7,500 of lease payments provided the landlord couldn’t rent the property for all of those 5 months. Seems like a lot of money, and it is. However, waiting might net you an even more costly purchase deriving from accumulated interest expense due to mortgage interest rate increases over the next 5 months. For example, say we have a 500K loan on a 10Y interest-only product. A 1% difference in rate would add an additional interest expense cost of $50,000 over the 10 years. Looking for the right house now reduces that interest rate risk.

Something else to consider: There's plenty of supply out there right now, and you should start looking because your decision to buy is based on quantitative considerations (like price and square footage) as well as qualitative considerations (such as the feeling you get when you walk through the door). I've seen qualitative take a backseat to qualitative many times. Right now, the diamonds in the rough are getting picked up, I know first hand because I have gone to preview some that went Pending the next day!

There’s a lot to cover. I suggest we meet over a coffee. Bring your questions; I’ll bring the answers!

Best Regards,

Steven A. Ornellas, GRI, ABR, e-PRO, CMPS, RE Masters, MBA
REALTOR® / Mortgage Banker-Broker / Certified Mortgage Planning Specialist

Steven Anthony Real Estate & Financial Services
Expect Excellence. Get What You Expect.â„¢
Cell: 510.461.6011
http://www.Steven-Anthony.com SteveO@Steven-Anthony.com
1 vote
Steven Ornel…, Agent, Fremont, CA
Wed Jul 30, 2008
Today's passage of the Housing and Economic Recovery Act of 2008 will terminate the seller-paid down payment for FHA loans effective October 1, 2008.

0 votes
, ,
Mon Jul 21, 2008
You may be interesting in visiting my website. I wrote a series of articles highlighting all of the city financing programs. All in which can be combined with FHA loans. Should you have any additional questions I am a loan consultant and an FHA approved lender. I would be happy to meet with you and discuss your options.

0 votes
The Hagley G…, Agent, Pleasanton, CA
Sun Jul 13, 2008
Steve is right on.. Some of the city based incentive programs are more trouble than they are worth...especially with classes, equity share, and other obstacles they may put yu through. A great local lender, if you do not have one already, is Linda Grassi. Her direct line is 925-824-4848.
Web Reference:  http://www.cindihagley.com
0 votes
Mon Jun 30, 2008
Yes, there are first time homebuyer programs available to your in the Communities that you mentioned. Please email me to explain further...Tino.Muratore@gmail.com

Thank you,

Tino Muratore
0 votes
The Harper T…, Agent, Danville, CA
Mon Jun 30, 2008
I think Steve has covered it well. I would only add that the Congress is considering removing the 3% assistance in FHA loans. If you wait until November, this option may be gone. With the housing market the way it is and the upcoming election, there will be other options available.

Here's a link to - Your First Home by Gary Keller
0 votes
Barbara Wils…, Agent, Danville, CA
Mon Jun 30, 2008
Another factor to cosider about buying now or waiting til September is that most of the lenders I use are expecting intererest rates to rise, which will mean higher payments for you. They can do the calculations for you to let you know how much that means. As steve said, it may be worthwhile to get out early.

One final thought - most homes take 3-4 weeks to close, and in my experience, we are negoitating for most of a week to get price and terms arranged. So that is one month. Then, you need to find the neighborhoods you want, the property, which can take another 2-4 weeks. So, if you started looking now, you could move in September 1 and only miss out on 2 months at your current place! The better thing to do is to get started now, so you aren't under pressure to buy later, and take the hit if you find the perfect property quickly, knowing that you are probably getting a lower interest rate now anyway.
0 votes
Eric Bryant, , Long Beach, CA
Sun Jun 29, 2008
That was one of the finest answers I have seen on Trulia. If I were buying a property in the East Bay, I would use Steve! Well done sir! 1st Time Buyer, Best of Luck! The Coach
Web Reference:  http://askPCR.com
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