new home buyers podcast

Welcome, everybody. This is your host, Connor, from the podcast, The Home Buyer Educator. We have an excited episode ahead of us today. We have some very special, informative guests who have great information to give you on getting a mortgage for your first-time home buying experience and the terms you'll need to know when processing the idea and taking sanction on buying your first dream home. Get ready, listeners. Grab a pen and paper because we're about to share information that will help you for life. Joining us now is Tom Drassler, an expert mortgage broker who has been in the industry for almost 20 years. I wish we can keep you all day because we have a ton of questions, but now that you are here and there is not too much time, let's start, Tom. To start off the podcast, Tom, can you explain to the listeners what a mortgage is? First off, Connor, thank you for inviting me as a guest. This is an important topic that I think everybody that's a first-time buyer should know. The simple answer or definition of a mortgage is an agreement between you and a lender that gives the lender the right to take your property if you fail to repay the money you borrowed plus interest. Mortgage loans are used to buy a home or borrow money against the value of a home you already own. There's various types of mortgages. There's fixed-rate mortgages, adjustable-rate mortgages, but the most common mortgage is a 30-year fixed mortgage. So that's a 30-year term. Well, speaking of mortgages, rates have been insane lately. They were once as low as 2.5%, but are now getting to as high as 7%. Can you shed some light onto what's causing rates to rise at such alarming rates? Sure. There's a few factors that are causing rates to rise. Probably the most significant is inflation, economic growth, and the Fed's monetary policy, and the state of the bond market and housing markets all come into play. A borrower's financial health would also affect interest rates. So you want to do the best you can to keep your credit profile healthy. But mortgage rates and mortgages are largely due because the Federal Reserve's long-term campaign to try to tame prices by lifting the benchmark rate to bring inflation close to what their target is, is 2%. So they've had about 8 to 10 rate hikes over the last year and a half. So that's translating into higher mortgage rates. So another question listeners might want to ask in response to what you just talked about is why the real estate values continue to rise. Could you help us understand the factors causing this trend? A few factors. Certainly, population increases, less available land throughout the country. Although we have a lot of land, but it's expensive to buy and develop it. You've got to put infrastructure in. Land costs are high. The cost of building materials and labor. But most importantly, I think the values are going up because there's low inventory levels and very high demand. So it's really basic economics. People sitting on a 3% interest rate or less, it's keeping them from selling. Therefore, they're nesting in place. And with rates high, if they had to sell, where are they going to buy? They lose their buying power to replace their home. And as well as migration of homebuyers to other states that are lower cost of living, maybe Utah, California to Utah. So more people coming from out of state is going to raise the values of that location because they're coming from a higher priced area and they're willing to pay more. Well, that makes sense. Now let's discuss the qualification process for a home mortgage. What are the crucial requirements that one may need to meet in order to qualify for a loan? Well, first off, there's no one formula for qualifying for a personal loan. Every applicant's financial situation is different and unique, but there are some rules of thumb and recommendations I can make to get a loan. The most important, well, one of the factors is credit. Maintaining a credit score of at least 670 will improve your chances to qualify. The other piece that's real important is consistent and steady monthly income. Minimum loan income requirements can vary drastically between lenders, but they do have requirements you've got to stay within. Like you have to have a two-year history and income. If you're a first-time buyer, they'll accept out of college, they'll accept one pay stub and a continuance offer letter. The other factor is debt ratio. So lenders approve qualified applicants with a ratio of up to 50%, which that means 50% of your overall expenses, including your mortgage and housing expenses and revolving credit, car loans, et cetera, et cetera, should not exceed 50% of your gross income. That's what that 50% debt ratio means. You have not exceeded 50% of your gross income to pay for all your debts. The lower it is, the higher your chances are of qualifying. Lenders, like I said, all have different requirements. Some are more aggressive than others. But to pre-qualify for a loan, I would suggest if anybody is looking to buy, they talk to their local broker or lender and find out what their buying power is and go through what's called a pre-qualification or pre-approval process, where the lender will run your credit, look at your financial documents, your assets, your income, tax returns, and look at your credit score and see if there's anything that needs to be done to improve it. And then find out what your buying power is. And if you can't do it now, if you're not in a position to buy now, at least you have a plan to get there. Adding on top of the question we just talked about, there are many young families who struggle to meet requirements for a mortgage. What would you say is the primary cause of this challenge? Well, what I'm finding is values are certainly high. Affordability is a big issue. Another big issue is having a down payment. So there are various programs to help first-time homebuyers with low down payment programs as low as 0%. For example, there are grant programs at the state and local level that will provide $10,000 to $20,000 in grant money, which you don't have to repay if you qualify to buy a home. VA mortgages have 0% down, so if you're an active or retired military person or a family member of a military person, you can obtain a VA loan. But it's really the surviving spouses that are eligible to qualify that. It's not just any family member. And then there's USDA mortgages, which are really designed for, and backed by the Department of Agriculture, for homes in non-urban communities. And they will provide up to 100% financing for buyers with a minimum of 580 credit scores. So that's a point of entry as well. And then FHA is a government-insured loan with 3.5% down, and it requires a low credit score of 580. So these programs help first-time buyers or buyers that may have some problems in the past with their credit. They have lower requirements. But there are several programs that are intended for first-time buyers to help them with down payment as well. Well, thank you, Tom, for sharing all your knowledge with us. You gave us some fantastic information. I want to acknowledge, too, that our listeners can use for buying their first home. We hope to have you back for another episode soon. Appreciate it. Thanks, Scott. All right. Welcome, Jacob. Thank you for coming in today. Since we are on a time crunch, I wanted to jump right in with the questions. You're welcome, David. I'm glad to be here. Let's get these questions rolling. All right. Well, tell us about your experience with finding a suitable mortgage. What factors did you prioritize, and what steps did you take to ensure you secured the best possible financing option for your needs? Well, during my mortgage search, I prioritized factors such as interest rates, loan terms, and fees. I thoroughly researched different lenders, comparing their offers, and seeking recommendations. I also assessed my financial situation, including income, credit score, and affordability. By obtaining pre-approval and negotiation terms, I aimed to secure the best financing option that aligned with my homeownership goals. Overall, I took a diligent and informed approach to ensure I secured a suitable mortgage for my needs. All right. What part of getting your first house was the most satisfying? Were there any specific occurrences or achievements that particularly stood out to you? Yeah. The most satisfying part of getting my first house was the sense of accomplishment and fulfillment that came with achieving such a significant life milestone. Throughout the process, there were several occurrences and achievements that stood out to me. Firstly, successfully saving for the down payment was a notable accomplishment. It required discipline and diligent financial planning, and reaching that milestone felt incredibly rewarding. Additionally, finding the perfect home was an exciting and memorable experience. When I discovered a house that met my needs, preferences, and budget, it was a moment of clarity and realization that I had found my future home. The excitement and anticipation of knowing I had found the right place were truly satisfying. Navigating the mortgage process was another significant achievement. With overcoming the challenges, meeting the lender's requirements, and securing favorable terms brought a sense of relief and accomplishment. It was a testament to my ability to navigate complex processes and make informed decisions. All right, Jacob. I got one more question for you. If you could go back and change anything about the home buying process, what would it be? Would you like to provide any words of wisdom to the fellow first-time home buyers as well? Yeah. Looking back on my home buying experience, if I could change anything, I would have focused more on thoroughly researching the local housing market. It would have allowed me to make more informed decisions regarding the timing of my purchase and the potential property value appreciation. For fellow first-time home buyers, my advice would be to conduct thorough research on the local market, assess your financial situation, and get pre-approved for a mortgage. Working with a trusted real estate agent can also be beneficial. Lastly, take your time, be patient, and don't rush into a decision. By being well-informed and strategic, you can navigate the process more competently and find a home that meets your needs and long-term goals. All right, Jacob. Well, I appreciate you coming out today. Thank you guys for listening and have a good day.