KAREN: Thank you for joining me for another episode of House Talk. I’m so fortunate to have this show where I get to interview the best people in the real estate business, and they help simplify the complex world of real estate transactions and home ownership. This helps you come to every transaction informed and prepared. I love this.
I’m your host, Karen Malanga, a licensed real estate broker with the Hasson Company with years of experience helping people get into their dream home, sell a property, and I’m always there to navigate the process.
Today’s show is about the benefits of buying a home versus renting, and I am so excited to have Dan Williams, Vice President of Directors Mortgage, here. Hi, Dan.
DAN: Hey, Karen. Thanks for having me.
KAREN: You are so welcome. I was thinking with the current rumble on interest rates out on the streets and everything that’s going on, the rising in home values, what do you see when it comes to value in a home purchase?
DAN: Man, there’s a lot of value. As you mentioned, the rental prices are going through the roof in Bend, and there’s very low inventory. That in and of itself drives those prices up just by demand. With that demand and that increased cost, it makes more and more sense to be looking at a way to buy your own home. Take advantage of the increase in value that’s happening in this market and put that value back in your own pocket.
KAREN: I’ve noticed so many changes in lending programs lately. I even saw a sign that said “no money down,” which kind of scared me. Maybe you could speak to what programs are out there right now and what seems to be super popular.
DAN: Yeah, there are a lot. Especially when we’re talking about first-time home buyers, there’s a big emphasis on it. I saw a statistic that said that 56% of every purchase done last year was a first-time home buyer.
KAREN: Wow. That’s huge.
DAN: It’s ridiculously huge, and that’s indicative of there’s a lot of opportunity, and there’s also a lot of misnomers. I’ll start with that people think they can’t buy a home because they need to have 20% down saved, and that’s just not true. There’s a lot of programs.
As an example, if you’re a veteran, you can do 100% financed and go with one of the best programs in the industry, which is a VA loan.
KAREN: When we write those contracts, too, the seller contributes towards part of the veteran’s closing costs.
DAN: A lot of times that’s true. That’s an option that you can write in to the offer to have the seller help kick back towards closing costs and prepaids to lower the out-of-pocket to the extent where a buyer, especially on a 100% loan, springs zero money out-of-pocket.
KAREN: I have a question. If I’m a listener and I’ve never purchased a home before, what’s a prepaid as part of your closing costs?
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DAN: Prepaids are usually referencing things like interest and the number of days of interest that you pay based on the day of the month that you close the home, based on annual taxes. The seller is obligated to the taxes up to the day that they owned the home as opposed to the day that you took over ownership; you’re responsible for the rest. Normally you have to pre-pay your taxes, so that becomes part of your closing costs. It’s called an escrow account, and you establish this account by pre-paying into it.
KAREN: So the taxes we’re talking about are property taxes.
KAREN: The contribution on the VA loan from the seller can many times really, really be a great value for the buyer.
DAN: Huge. That’s actually the case on all of our products. Obviously on a VA where they’re getting the 100% plus seller concessions, that’s super aggressive. That also exists with USDA, rural financing, where you’re outside of the city limits basically. That opens up an opportunity to buy a home also at 100%.
You asked about programs – there’s a ton. There’s FHA that only has 3.5% down. There’s 3% down unconventional. There’s a lot of different options out there for people that don’t have to save 20% to qualify.
KAREN: That would really equal a lot more home buyers if they all realized that.
DAN: Oh yeah, absolutely. Again, another one I read that really alarmed me was over 60% of renters interviewed, the number one reason they did not buy a home was because they thought they needed 20% saved.
KAREN: Well Dan, it’s about time to take a break. When we come back we’re going to touch on maybe the definition of what is a first-time home buyer, and maybe some other popular buying programs that are out there. Please stick around. We’ve got some great information coming up on House Talk.
Hi, we’re back with House Talk. This is Karen Malanga, Hasson Company Realtors. Again, we’ve got Dan Williams, Vice President of Directors Mortgage. Dan’s going to help us learn what is a first-time home buyer, and I think you’re going to be surprised.
DAN: A first-time home buyer obviously is simply defined as someone who’s never bought a home before. Obviously.
But at the same time, it also includes a group of people who have owned homes before, for whatever reason they sold, they rented, they moved to another area – but if you have not owned a home in the last 3 years, then you also qualify for almost every first-time home buyer product I can think of.
KAREN: It can also be people that have gone through maybe a short sale or a foreclosure prior as well, correct?
DAN: Absolutely. That does not eliminate them. Those create other timelines that you’d have to deal with depending on the program that you want to use, but if you’ve gone through a bankruptcy before or you’ve had a home foreclosed, there are timelines that you meet in order to requalify.
But again, these first-time home buyer products, a lot of them are way more aggressive on their timelines to allow someone to come back into the market. Generally speaking, first-time home buyers have never owned or they haven’t owned for 3 years. On a separate note, it would be if you’ve had a derogatory credit situation come up, then there’s other timelines depending on the product.
KAREN: I’ve been noticing lately as well that we have a lot of buyers coming to the plate now as first-time home buyers that did lose their homes to short sales or foreclosures during our recession, because it’s been a while. We’ve had some seasoning and some years behind us.
DAN: Absolutely. There’s a lot. I see it all the time. It’s very common. Back in the start of ’07 all the way through 2010 and even ’11, there were a lot of foreclosures, a lot of short sales, a lot of people upside down. The economy was hurting and people just did not have the ability to continue forward. They ended up having to short sell their homes or give it back to the bank.
But they’ve reestablished themselves, the economy is obviously booming – and that’s why you’re seeing a lot of rises in interest rates. They kind of go hand-in-glove. But those people are right back now in a position to buy a home again. Even as short as 2 years out of a bankruptcy, with FHA you can look at buying a home again.
KAREN: Two years only?
DAN: Yeah. A lot of people think it’s at least 4 years. They think it’s at least 7 years if their home was foreclosed. It is on a regular conventional loan, but not for some of the other products that are available. I could get into a lot of detail, but it’s not necessary. Let’s put it that way.
KAREN: I have another question, then: what about a bridge loan? I think you sent me an email the other day about a bridge loan.
DAN: Bridge loans are interesting. We’ve got a great bridge loan that allows somebody who is considering buying another home – a lot of times, they start looking at a market, and surprisingly almost to themselves, they find a home that they just fall in love with, and they want to put an offer on it before it gets gobbled up in a hot market like this. But the only way they can do it is if they sell their existing home.
So we offer a bridge loan which allows them to take equity from their existing home, and they only make an interest-only payment on that while they’re in the process of buying the home that they want to move into. They make an interest-only payment on the existing equity that they pull from their home that they have today and they use that money as down payment on the new home. It allows them to put that existing home on the market, get it sold, but in the interim they’ve tied up the home that they want and they can buy it and move in.
KAREN: It also helps them write a much stronger offer than having an offer contingent upon the sale of the home.
KAREN: Because we are in central Oregon and we have smaller city limits, we have a lot of rural area out there. You had mentioned briefly about the loans that are available for rural areas, and I’d like our listeners to learn, what is rural? Is that La Pine, is it south of Sunriver, is it east of town?
DAN: Great question. Truthfully, it’s a lot more forgiving than you think. The city limits of Bend pretty much are going to eliminate this opportunity, but anything outside of that – even including sections of Deschutes River Woods at this point – are still included in these rural products that I’m talking about.
But yeah, as soon as you’re out of town, if you get down anywhere towards Sunriver, La Pine, into Redmond – almost all of Redmond, if not all of it, qualifies. Anything east of town – get out a little bit past Costco and you’re getting out of town. You’re going to get into what’s considered rural markets. That opens up 100% financing.
There are income limits. There’s a few things that go with these programs. They’re designed to help medium to lower income families buy homes and build into areas that they want to see home ownership grow. But if you’re out in Redmond, Prineville, south down towards La Pine, these are great products.
KAREN: Oh, I’m excited to learn more about those.
DAN: Let me throw another subject at you. We also have a hobby farm product for people in the outlying areas that allows you to buy a home from 5 acres all the way up to 160 acres that would never qualify for a regular conventional loan. Generally once you start getting past 10 acres, you start getting a lot of scrutiny; 20 acres, you’re really hitting a wall for a lot of products.
Let’s say you want to buy a home that’s got some pasture, a few barns on it, and they’ve got a few head of cattle. There’s products out there that allow you to buy this that are really almost identical to a conventional loan.
KAREN: How can you call 160 acres a hobby farm? That seems like a huge piece of land to me.
DAN: That’s for sure. Yeah, 160 acres would definitely be the upper edge. But it does allow for it. Even up to 50 head of cattle as a general rule.
KAREN: That’s a hobby? So not a hobby.
DAN: Yeah. If you go past that, you’re talking a whole lot of business going on. But even to that point, I just want people to know that those things exist without having to go into a commercial loan.
KAREN: Oh, that’s great. A lot of good knowledge here. We’re going to take another break, and then we’ll be back with Dan Williams from Directors Mortgage again on House Talk. What we’re going to find out is what not to do while you’re in escrow.
Hi, this is Karen Malanga with House Talk, and we’re back with Dan Williams, Vice President of Directors Mortgage. Before our break we were discussing different loan programs, rural loan programs for the first-time home buyer. Now we’re going to learn about what not to do while you’re in escrow on buying that home.
DAN: Yeah, that is a great subject.
KAREN: We’ve had some bumps about that recently, right, Dan?
DAN: Absolutely. We can sure help save you a lot of headache if you are aware of what you do and don’t want to do once you’re in that process of buying a home. Let’s start with some do’s.
Definitely do avoid any changes in your employment situation or your source of income, whatever that may be. You don’t want to be in a job where you’ve had it for many years and you know that you could do it better self-employed, so you start your own business. Do not do that if you’re wanting to buy a home, because the general rule is you have to have a minimum 2 years in your own business before you can qualify for a home loan using that income.
If you have changes in your pay schedule – raises, bonuses, different things like that – definitely let your loan officer know these things. There’s ones that you can use and some that you cannot, so it’s good to know these things.
KAREN: This is to give you underwriting guidelines, right?
KAREN: I also want to remind our listeners, it’s only 45 days. That’s the length of an escrow.
DAN: Yes, it’s a short window. Exactly. Avoid big changes in your lifestyle, your residence, location, marital status. Different things like that, those are not things that you want to be dong in the process of buying a home. Again, it’s a short window, 30 to 45 days generally, so normally you can work around it if you’re aware.
Be careful with your credit. If you’ve got old problem things that are showing up on your credit report, talk to your loan officer before you deal with them. Sometimes even paying off something can hurt you.
Don’t move your money around in your banks. If you’ve got a couple of different accounts, one thing that can hurt you is moving money here and there, because the underwriter, the person that’s actually trying to track your life on paper, is going to ask, “Why are you doing these things? Where is this money coming from?” There’s a lot of rules that the government put in place a few years ago that require them to ask. It’s not even a choice.
Those are some of the things to think about. A few other major don’ts: do not go buy major items.
KAREN: Like a car, on the day before closing.
DAN: Don’t do that. Wait till after you own that home, please.
Don’t cosign for somebody else. Maybe your children are needing a car or something and they need your help to qualify. Don’t cosign in the middle of buying a home because it creates new debt, it changes your credit score, and all of those things are looked at right up until the last moment. There’s refreshes on credit report that are looked at. There’s new checks to make sure that no new debt was created. Those things can hurt you.
KAREN: Some people also want to go out and buy furniture to move into their new home, and they buy it on time, like from M Jacobs or somewhere like that. That’s not a good thing to do as well.
DAN: Yeah, don’t buy your new washer and dryer or your refrigerator or furniture, as you say. Those things generally are big purchases, and most people do put them on a credit card or they finance them, and it changes their debts. They might open a new card at a Home Depot or something like that. Don’t do that. Not in the process.
Never feel like you need to hide anything. If you’re working with a loan officer, they’re seeing your world anyway. Be exposed. Be open about what you’re doing, what you’re thinking, and talk with them. They can help save you a ton of headaches if you just communicate with them and be open about what you’re thinking and what your plans are.
They can help guide you and make this a really smooth and fun, exciting process versus one where you’re stressed out at the last second on how we’re going to put it together.
KAREN: I also think, Dan, it’s important for everyone to know that when we have a buyer and we send them to you, what you learn about that buyer is never revealed to us. That’s not our business. It’s your responsibility to keep their information under wraps.
DAN: That is exactly right. Your information is very private, and it’s kept that way. It’s not exposed to anybody, including your realtor. Obviously you can talk to your realtor all you want, be exposed and do everything. But what we get from you is very private, and we keep it that way.
KAREN: Yeah, I like it that way as well. Really, communication is probably the most important part about purchasing a home.
DAN: You bet.
KAREN: Just being upfront with everything. Because there’s really no problem that’s insurmountable. As long as everyone knows what we’re dealing with, we can all move forward.
DAN: That’s right. You’d be amazed what we can get through as long as we know and we’re not surprised at the last second. That’s generally the biggest issue. It’s not that things aren’t fixable at the last minute; it’s just that it affects time, and generally that costs you money.
Normally you can run up against what they call “the lock.” A lock on your loan is where you’ve locked in an interest rate, and there’s only a certain amount of time you have. If you’re not communicating well, as you put it, we can get surprised, and now you’re paying to extend your lock for a certain amount of time that you need to fix a problem or something like that. We want to avoid that.
Possibly you can run into issues when it comes to time – as you, the realtor, know.
KAREN: Yes, all the time.
DAN: With getting a seller to extend. They might have backup offers, or somebody came in after the fact with cash. You don’t want to lose that home.
KAREN: Or they could be closing simultaneously from the funds on this sale on a different purchase.
DAN: Yeah. So communication is key. Be open.
KAREN: Dan, I want to thank you so much for being here today. Dan Williams, Vice President of Directors Mortgage here in Bend. It’s been a pleasure having you here today on House Talk.
DAN: I’ve enjoyed it. Thanks for having me.
KAREN: I also wanted to say, for those of you that are thinking about buying your very first home, the best place to start is with a mortgage broker. That way you can learn what you can afford, what homes are going to fit your scenario, and how best to be prepared before you go shopping. I learned a lot today, and I hope our listeners did as well.
Today we’re also going to do something a little different; we’re going to have a trivia question. I’d like to do this every week. Our trivia question today is, who qualifies for a VA loan? If you know the answer, go to nestbend.com, and we’re going to be giving away two tickets to the movies.
We’re really excited about next week. We have Allison Glasier from Country Financial with the ins and outs of home insurance. I think you’re going to be surprised at some of the information she’s going to reveal.
If you like House Talk and want to know more, check out our website at nestbend.com, where you can listen to past shows or read through show notes. Thanks for listening. We’ll see you next week.