......This is chapter 5, just scroll down a little beyond the intro and you'll pick up where you left off......

Hey guys, I spent a lot of time writing this book, and I had this subreddit in mind as I was writing it, so I thought I would post it here for you for free. If you want the physical book you can always go on Amazon, but here's my gift to you 😄

I'll include links so you can jump between chapters easily.

I hope you find it helpful.

The Strategic First-Time Homebuyer

Start to finish, with strategies to get approved and save thousands in interest, costs, and the down payment.

Contents

Introduction 1

Chapter 1 How Much Can I Afford? 3

Chapter 2 How Much Cash Do I Need? 16

Chapter 3 How To Find The Down Payment 30

Chapter 4 Your Debt To Income Ratio 41

Chapter 5 Choose Your Lender 69

Chapter 6 You’ve Been Denied (Your Credit) 80

Chapter 7 Selecting a Real Estate Agent 90

Chapter 8 Shopping For a House108

Chapter 9 Under Contract: Inspections and Appraisals 121

Chapter 10 Under Contract: Rate Lock and Underwriting 129

Chapter 11 How To Lower Your Rate 144

Chapter 12 Closing 163

Chapter 13 Post Closing 171

About the Author 190

Glossary 191

Chapter 5

Loan sharks, finance bros, false prophets, and call center babies.

I’m not trying to exaggerate when I say this, but choosing the wrong lender can have consequences severe enough to push you to never buy a home. Ever.

I’ll give a few stories to help make my point.

2020 was a competitive year for first-time homebuyers. Houses would be listed one day and under contract the next. Sometimes those contracts were all-cash deals. A lot of them were all-cash deals and five figures above the asking price.

There was a particular homebuyer who was deciding between multiple lenders and decided to go with the lender that responded promptly and offered two guarantees: a close-on-time guarantee and a pre-approval guarantee.

These guarantees had financial penalties for the lender if the loan couldn’t close or if the loan couldn’t close on time. The lender was putting his money where his mouth was.

Too many lenders don’t feel the weight of a pre-approval letter. Everyone is taking the lender’s word for it. If the lender cannot deliver, the financial damages to the buyer could be thousands of dollars lost in earnest money.

A lender providing a guarantee shows confidence in the buyer, and this in turn gives the home seller confidence when deciding between multiple offers.

This buyer was competing for this house against multiple offers, and one of them was a cash offer. To compete, she made an offer above the asking price, sent the seller the guarantees provided by the lender, and offered to close in two weeks.

The lender called the seller’s real estate agent and confirmed they could close in two weeks, and they won. The seller picked them, rejecting the cash deal.

She closed in two weeks and got the keys.

Had this buyer gone with a less responsive and less proactive lender, it’s possible that she could have made offer after offer without success. The emotions of going through rejection after rejection can dishearten buyers into waiting.

If you remember what happened in 2020, home prices surged, and it’s very possible that had this buyer not purchased when she did, she might have decided against buying altogether after prices continued to spike through 2021.

In a seller’s market, your lender is key to keeping you competitive.

Here’s one more story of what kind of damage a bad lender can do.

A couple wanted to use a VA loan to buy a home. When they were deciding between one lender and another, they chose the lender with the lowest rate, who also happened to be a call center baby: a fresh loan officer, just given his license and thrown onto the sales floor.

I can imagine this scene playing out:

“Now go get me some loans!” the manager yelled at his pimple-faced finance bro in training.

So when this fresh loan officer spoke with this young couple, he promised them the best rate and the quickest loan closing.

The other, more experienced loan officer warned the couple, “To qualify for the mortgage, you’d both have to be on the loan. For the VA to allow you to use the benefits and have both of you on the loan, you have to be married.” (This couple wasn’t married.)

“No you don’t,” the call-center baby lied, with the sales manager breathing down his neck.

So the couple went with the fresh loan officer. Several weeks later, the couple couldn’t reach the loan officer. He stopped taking their calls. He stopped responding to their emails.

After several days of attempts to get answers on how their loan was doing, he finally responded, saying, “You can’t qualify.”

Their settlement deadline was in two days.

Don’t worry, this story ends well.

Fuming, they went to the more experienced loan officer, asked him to take them back, and he did.

They got the seller to approve an extension on the settlement deadline. They got married, the loan officer attended their wedding, slid the mortgage documents under the wedding certificate for signatures, and they bought their first home.

(I’m kidding about the loan officer at the wedding.)

A good loan officer knows the guidelines. A bad loan officer is ignorant and wings it.

Before giving you guidance on how to choose your loan officer or lender, let me tell you about the false prophets.

These are the lenders that will sell you on future promises.

“Marry the house, date the rate” is a common phrase these false prophets spout.

While I agree you shouldn’t be loyal to a much higher interest rate, it’s the attitude behind the words. It’s the promise that you’ll be able to refinance when rates come back down.

We saw a wave of that attitude prior to 2008. Mortgage brokers sold high-rate adjustable mortgages to people who shouldn’t have qualified, promising the ability to refinance before the rates adjusted too high. What happened instead was their home values tanked, making them ineligible to refinance, their rates adjusted to higher monthly payments, and the foreclosures began to roll in.

The newest manifestation of this attitude is the “temporary buydown.” It’s a product where the seller or builder puts money in escrow to subsidize your interest rate for the first year or two. After that, the rate jumps to the full amount. The pitch is, “Don’t worry, you’ll refinance before the rate gets that high.”

These false prophets will talk you into buying a home at a payment you cannot afford, with assurances of a cheaper future payment.

This is why Chapter 1 is so important. Set your budget, plan your future, or someone else will plan it for you.

Let’s pick a good lender that can help you win.

Here’s how to do it.

There are three types of lenders to choose from:

● The bank or credit union

● The online lender

● The mortgage broker

The Bank or Credit Union Loan Officer

Here’s your local 9–5 guy. He may not have his work phone in his pocket, but you know where to find him if it comes down to it.

This is probably your idea of what a mortgage guy at a bank would look like. But a lot of banks and credit unions have centralized lending, meaning they’re probably working from home or at a call center. They probably aren’t local to the area you live in. You still have to apply online. You can only meet with this person over the phone, and their main communication is email.

Let me give you some benefits of working with a mortgage guy from your bank.

● They already have your financials. If they need to verify bank statements, well, they already have them. You don’t need to dig them up.

● Credit unions are known to have great interest rates. I’m not saying the other lenders can’t have great rates, but credit unions are not-for-profit entities. They don’t need to charge high rates and fees to please shareholders.

● As a local institution, it is more likely that they’ll have access to local down payment assistance programs.

● They may have a good portfolio loan for you.

○ Credit unions are known to have portfolio loans specific to first-time homebuyers. This type of loan may not require a down payment or mortgage insurance.

○ Investment banks, for high-net-worth buyers, may offer extremely aggressive interest rates in an effort to retain you as a customer.

Here are some detractors:

● Banks and credit unions have centralized their mortgage lending. The loan officer isn’t as local as you might think.

● They have access to your financial statements. That means they can be nitpicky over your checking account transactions. “What’s this charge? Is it a recurring bill? What about this charge?”

● They’re typically available 9–5 and easier to reach by email, though email is the slowest method of direct digital communication. On the bright side, at least it isn’t by postage.

I’m generalizing a lot of these. You could end up with a very responsive credit union loan officer that answers your calls at 7 p.m. but also charges a high-interest rate.

That being said, the items I mentioned are just observations I’ve made while in the field.

The Online Lender

This is your call center loan officer. You saw a commercial on TV or an online ad about this lender, and it was the first that came to mind. It was the Geico of mortgages. So you called them. A random guy answered and took your application.

You have trust in the system and the process, but not so much in the individual loan officer.

This is a very general take on online lenders, but I will say that there are lenders that fit this category that are also doing a good job of placing a representative in a local office to serve the community.

Here are some benefits to working with an online lender:

● Easy online process. They invest a lot in digital technology to make it simpler for you. This is to compensate for the fact that you’ll never see them in person.

● A streamlined process can lead to quick results. Money likes speed.

Here are some detractors:

● You could end up working with an inexperienced loan officer. When you go with an online lender, you aren’t choosing the loan officer; you’re choosing the system. If you feel like your scenario or profile could be complicated or unique, an online lender might not be the best fit.

● To reach the “Geico of mortgages” status, you probably saw a lot of advertising for this company. Advertising costs money. That money is made from mortgages. Higher interest rates make more money. What I’m trying to say, if you’re connecting the dots, is I don’t think they have great interest rates.

I’ll repeat this: these are just my observations. You could end up with a local, experienced loan officer who has a killer interest rate and happens to work for an online lender. But in general, I believe you’ll end up with something that resembles my list above.

The Mortgage Broker

This one is the independent, self-employed guy. He doesn’t represent a single lender but several. You could probably get a hold of him at 9 p.m. if you have questions. He also might have come as a recommendation from your real estate agent.

He might be local, but that’s not always the case. Mortgage brokers can be licensed and operate in several states.

Here are some benefits to working with a mortgage broker:

● If you have a tricky situation, a mortgage broker has more options than a single lender. This is because the broker represents several lenders, and each lender has its own set of products.

● If you want to shop different lenders for the best rate, a mortgage broker can do that for you.

● A mortgage broker may be more available. This is beneficial in a competitive market. If you’d like him to call a seller or the agent to vouch for you as a buyer, he’ll likely do it.

Here are some detractors:

● Just because a mortgage broker can shop rates, it doesn’t mean he’ll give you the absolute lowest rate. The rates are affected by his origination fee, which is paid by the lender. If he charges the lender a high fee, the lender will charge a higher rate.

● He may have access to his own down payment assistance program, but he might not have access to all of the local down payment assistance programs.

● He could be using a lender that he’s less familiar with. Because they represent so many lenders, it’s harder for them to keep track of all of the lenders’ rules. There’s a slight disconnect between him and underwriting.

Where to find a mortgage broker?

I’ve been a mortgage broker for about five years, so I have a big list of great mortgage brokers in each state. Go to newbhomebuyer.com/broker if you’d like me to connect you with a good one.

Getting Pre-Approved

You’ll want to pick one of these lenders to help you get pre-approved. The lender you start with does not have to be the lender you close with, so don’t feel like you’re trapped with a decision right now. But you’ll need to start with someone to get a pre-approval letter.

The pre-approval letter allows you to make offers on a home and proves that you are good for the loan. It gives confidence to the seller.

Here’s what to expect when getting pre-approved:

1. Fill out an application
2. Have them pull your credit report
3. Provide 2 months of bank statements showing what you have available for a down payment and closing costs.
4. Provide 2 months of pay stubs to prove your income
5. Provide 2 years of W-2s to further prove your income and your job history

This list applies to the large majority of people.

Depending on the type of pay you receive, you may need different documents or more documents than what I listed. For example, someone who receives a lot of overtime might be asked to also provide the year-end pay stub, which breaks down all of the overtime income earned throughout the year.

Different Mortgage Types

The lender will review your profile and see which program is the best fit for you. Here’s what he’ll review:

● Your credit score

○ Credit above 740 will likely lead you to a conventional loan

○ Credit below 740 (and a minimum down payment) might have the loan officer consider an FHA loan for you.

○ Credit above 680 and buying in a rural area will have the loan officer check out if USDA is a good fit.

● Your debt-to-income ratio

○ If your debt-to-income ratio is higher than 50%, the loan officer will check if FHA will work.

● Your down payment

○ If you have at least 3% down, the loan officer will be able to look at conventional and FHA loans.

○ If you have less than 3% down, the loan officer will check if USDA or down payment assistance options are available.

Once the lender reviews that, he’ll issue you a pre-approval letter, which you can take to your real estate agent.

Contents

Introduction 1

Chapter 1 How Much Can I Afford? 3

Chapter 2 How Much Cash Do I Need? 16

Chapter 3 How To Find The Down Payment 30

Chapter 4 Your Debt To Income Ratio 41

Chapter 5 Choose Your Lender 69

Chapter 6 You’ve Been Denied (Your Credit) 80

Chapter 7 Selecting a Real Estate Agent 90

Chapter 8 Shopping For a House108

Chapter 9 Under Contract: Inspections and Appraisals 121

Chapter 10 Under Contract: Rate Lock and Underwriting 129

Chapter 11 How To Lower Your Rate 144

Chapter 12 Closing 163

Chapter 13 Post Closing 171

About the Author 190

Glossary 191

Originally shared by u/SamTMortgageBroker in r/NewbHomebuyer — view the original thread.