I pride myself in having expertise in dealing with a lot of first-time homebuyers. After meeting them and striking up a working relationship, they often ask:

“I want to start looking at homes right away. How do we get started?”

Most new homebuyers want to immediately jump into looking at homes, which can be done early on by visiting open houses and using internet home searches to get a feel for what the current market holds. However, probably the single most important first step is to determine how much of a mortgage payment you can afford each month and how much of a down payment a lender will require. This can be accomplished through what is called a pre-approval.

The pre-approval process is typically a free service where a lender evaluates the borrower’s financial situation and credit rating and determines the loan type, down payment requirement, interest rates, monthly payments, closing costs, and other terms that the lender is prepared to offer. The lending broker business is a competitive one, so you should meet with at least three lenders to determine the best rates and who you feel works the best with you.

There are several reasons why most housing experts recommend that you get pre-approved before starting your search:

  1. Before spending time and effort, you should know if you are qualified with the right down payment and credit scores to look for a home;
  2. By getting pre-approved, you know what you can afford and won’t spend time looking for homes that are not in your price range;
  3. And probably the most important reason in my mind is this: Say you have found your dream home and you are ready to write an offer. Unfortunately, in today’s market, I have not come across a single listing agent that will even accept an offer without a pre-approval letter because the sellers don’t want to get involved with unqualified buyers who can’t afford the home or get a loan. Once buyers have found the home of their dreams, it can be very devastating to them to find out that they can’t even make an offer.

Regarding down payments, it is important to know that many lenders require at least a 20% down payment or more these days. One benefit of a larger down payment is that the borrower can offer much better terms on the mortgage loan. If the down payment is less than 20%, most lenders will require the borrower to purchase private mortgage insurance (PMI), depending on the nature of the loan. The best thing that happened in the last two years because of the economic recovery is that the government changed its limits on how much you can borrow on a government backed FHA loan. In Marin County, you can now get an FHA loan for loan amounts of up to $729,750 (for a single-family home), which is almost double what it was a couple of years ago!

With this loan you can qualify for the “conforming jumbo loan,” which is a much better rate than the Jumbo. And the best news yet is that your down payment can be as little as 3.5%!

This is great news for the first-time homebuyer in Marin. With home prices down roughly 35% from where they were two years ago, interest rates at the lowest that they have been in 60 years, and a down payment at only 3.5%, it is probably one of the largest single opportunities a new homebuyer will have in many, many years. Don’t let the opportunity slip away from you!

Posted by:  Rick Smith