You wanna buy a house...but what can you afford?

Unless you have enough cash to plunk down and buy a house outright, you will need a home loan. A home loan is commonly referred to as a "mortgage," but as you can see in our "What is a Mortgage" post, this is not accurate. For clarity's sake, when we refer to a mortgage, we mean the legal document, not a loan.

So, you need a home loan to buy a house, but you have no idea where to begin. Well, we're here to help you out with that. Lenders generally look at the following when they pre-qualify you for a home loan:

- Credit
- Income
- Assets

That's it. Not too difficult, right? The hard part comes in trying to understand what the information means to the lender, and how your particular situation may or may not fit into the loan program options available.

When a lender says, "Have you been pre-qualified?" what he/she means is, "Has someone analyzed your credit, income, and asset situation to see if we can qualify you for the home loan you want or need?" A pre-qualification is a cursory glance at your total financial picture by an experienced loan officer. This will allow him/her to give you a preliminary, "Yes, we can help you," or a "We're going to need to adjust some things before we can move forward with a purchase."

Most pre-qualifications are free. If the loan officer you are talking to wants to charge you for the pre-qualification, take your business elsewhere. Any decent loan officer will not charge for the initial consultation, or the initial legwork, except for maybe a credit report fee.

When you get pre-qualified, ask for a good faith estimate, which provides you with an itemized breakdown of all the fees that will be included in your loan. In addition to the GFE, you should ask for a TIL - truth in lending disclosure - as this will provide you with your APR, (more about this later).

You wanna buy a house...but where do you start?

Most people who want to buy a house want to start looking right away. After all, shopping is the fun part! But if your Realtor® is worth his/her weight, he/she will most likely steer you toward a trustworthy lender. The reason for this is to mitigate dissappointment and wasted time.

If you begin to shop, and fall in love with a house that you cannot afford, you will have wasted not only your time, but your Realtor's® time, as well. On the other hand, if you start off your home search on the correct foot, and understand the costs involved, the chances that you will stretch yourself to a point of financial suicide will be greatly reduced.

So, you can begin by speaking to a Realtor®. But it is in your best interest to find a reputable lender as soon as possible. If you don't know where to begin to find a competent lender that you can trust and work well with, then find a Realtor® that you trust, first, and see if his/her recommendations for a lender work for you.

New First Time Home-Buyer Program: Costa Mesa, CA

First off:
To be eligible for aid, you must attend one of two information sessions.
1) Thursday, November 3 @ 11am Costa Mesa City Hall, Council Chambers

-OR-

2) Monday, November 7 @ 6:30pm Costa Mesa City Hall, Council Chambers

The Costa Mesa City Hall Council Chambers are located at 77 Fair Drive. (Link takes you to Mapquest.)

We attended the lender training for Costa Mesa's first time home-buyer program on Friday. A fascinating program, it opens up a lot of opportunities to new buyers. The funding is limited this year, but this is also the first year they have had a program offering this much aid. They are offering up to $240,000 in assistance on home purchases up to $655,000 through a 0% interest 45 year silent second loan/equity share.

Program Information is located here.

Not everyone will be able to qualify, but the program is a huge boon to those who will qualify. I encourage anyone who is remotely curious to please attend the information sessions.

Some key things to keep in mind:

A silent second. This is a loan that you do not have to make payments on until a specific date, or until you disturb your first loan by refinancing or paying it off. Some programs offer zero or limited interest until the second is paid off. These sorts of programs are typically government aid programs that allow new buyers to qualify for a higher purchase price. (because the monthly payment required is greatly reduced)

Equity Share. In a typical loan, the bank owns a specific dollar amount of the home until it is paid off. In an equity share, the bank owns a percentage of your home. Example: You buy a home for $500,000, using $200,000 in city aid. If you sell your home before the end of the term, in addition to paying back the city the $200,000, you must pay them their percentage of the growth in value.

So, $200,000 on a $500,000 home purchase is 40%. Let's say the home doubles in value to $1,000,000. When you sell the home, you owe the city their 40%, not just $200,000. Thus you'll pay them $400,000. The benefit to the city is that it encourages people to stay and build their lives in the city. Or, if you sell early, the extra funds help to provide assistance to new buyers.

Feel free to email us your questions, or post them in the comments. If we can't answer your question, we'll direct you to the best source for more information.

What is a Mortgage?

Whenever you borrow money to purchase a home, the bank legally has ownership of the home until the loan is paid-off. A mortgage or trust deed is the document that defines the terms of your possession of the home while the bank has ownership of it. The difference between a mortgage and a trust deed lies in how the bank is allowed to foreclose, or take back the property, if you fail to make your loan payments.

A mortgage requires what is called a judicial foreclosure. A judicial foreclosure requires the bank to make a public statement of its intent to foreclose, followed by a court order granting them authority to sell the property at a sheriff’s sale. There is no minimum amount of time that must elapse between the public notice and the sheriff’s sale, however, this whole procedure usually takes from several weeks to several months.

A trust deed does not require any court involvement in its foreclosure, and therefore authorizes a non-judicial foreclosure. A non-judicial foreclosure requires the bank to make a public statement of its intent to foreclose followed by a trustee sale, no less than 20-days after the public statement. Because the courts are not involved, the trustee sales typically do occur within one month of the public statement.

Are you in a state that generally uses a mortgage or a deed of trust? See below for a list:

Mortgage States Alabama Connecticut Delaware Florida Georgia Hawaii Illinois Indiana Iowa Kansas Kentucky Maine Massachusetts Michigan Minnesota New Hampshire New Jersey New Mexico New York North Dakota Ohio Oklahoma Pennsylvania Rhode Island South Carolina South Dakota Vermont Wisconsin Wyoming

Deed of Trust States Alaska Arizona Arkansas California Colorado Idaho Maryland Mississippi Missouri Montana Nebraska Nevada North Carolina Oregon Tennessee Texas Utah Virginia Washington Washington, D.C. West Virginia

Update: corrected the verbage re: non-judicial foreclosures.