How to Qualify
In order to qualify for a home loan, you must be over 18-years-old, with stable and consistent income and good credit. Each lender will have slightly different requirements, and many will make exceptions if a borrower is strong in other areas. All lenders generally want the following:
Employment History – A minimum of two years of work history in the same field. This demonstrates a stable and consistent income stream.
Credit History – A minimum of two years of credit history to show that the borrower can manage debt over a period of time.
Credit Score – A 620 or higher credit score (although some government financing programs allow for credit scores as low as 580).
Down Payment – In order to get the best rate and terms, lenders prefer 20% of the purchase price as a down payment. However, there are loans available for as low as 0% down, and sometimes gifts from relatives are allowed for some or all of the down payment. Here at KeyPoint, we offer first-time homebuyer programs with as little as 5% down payment for conforming loan amounts (maximum $453,100) and 15% down payments for high-balance and jumbo loan amounts.
Advantages of Homeownership
Buying a house can build your credit, provide tax savings, and help you build equity for your future. It can free you from the ups and downs of the rental market, and make your rent payment work for you!
5 Steps to Homeownership
Gather the documents needed to get pre-qualified for a home loan
- 1 month of your most recent paystubs
- 2 years of your most recent W2s
- 2 years of your most recent tax returns
- 2 months of your most recent bank account and other asset statements
- Copies of any monthly statements for other income sources, student loans and any AMEX accounts.
- The lender will require these documents to be updated throughout the process, to ensure that the most recent information is on file.
Choose a lender and Loan Officer, and apply for your pre-qualified home loan
- Ask your friends and family to refer you to a good Loan Officer who can guide you through the process (or meet KeyPoint's Loan Officers)
- Make sure the company has a good reputation, and the Loan Officer has at least five years of experience
- Provide your Loan Officer with all of your information and documents
- The Loan Officer will work with you to find the best loan program and rate for your credit and down payment profile
- If all of your documents are ready, your loan will be pre-approved very quickly (the pre-approval process can take longer for 0% to 10% down payment options)
- Your Loan Officer will be paid out of the total loan cost, which includes the loan amount and all fees
- Once you have been pre-approved for your loan, make sure that you do not change anything about your financial or credit profile until after your loan closes. Any new credit inquiries, credit cards, new debts, large amounts of money being moved, and changes in employment can cause delays in your final approval, or even cause the lender to decline your loan.
Choose a Realtor and start shopping for your home
- It’s customary in California for the home seller to pay the home buyer’s real estate agent fees, so you can focus on finding the very best agent to represent you without worrying about the cost
- You should select your Realtor after you secure your loan approval, especially if you are utilizing a unique loan program for your financing, such as a low- or zero-down payment option; it's important to find a Realtor with experience representing clients with your type of financing to improve your chances of getting your offer accepted
- Show your real estate agent your loan pre-approval, and begin shopping for your home
- This part of the process can take months, depending on the real estate market and how many homes are available for sale. You may have to make offers on several homes before an offer gets accepted. Don’t get discouraged—this is a normal part of the home buying process.
Your offer was accepted—it’s time to finalize the contracts
- You may go back-and-forth with your sellers as you finalize the purchase price and determine who will pay for each service provider’s fee
- Once the sales contract has been accepted by both parties, the home is considered to be “in contract”
- The contract specifies the date that the loan must close, which is usually 30-45 days from the date that both parties accepted the terms of the contract
- The contract will also specify the date that the appraisal contingency and financing contingencies must be removed (appraisal contingencies typically must be removed within seven days of the final contract, and financing contingencies typically must be removed within 15 days)
- Once in contract, your Loan Officer will work with you to submit any remaining documents that the lender requires as conditions of your loan, and will order the appraisal through one of the lender’s approved appraisers
- The fee for the appraisal is typically paid by the borrower, and ranges from $425-475 (if the appraisal does not support the home’s sales price, this will re-open negotiations between the buyer and seller, provided the appraisal contingency has not been released)
- Once the lender has reviewed and approved all of your documents and the appraisal, you will receive final loan approval and your loan documents will be sent to escrow to finalize the purchase; this is the point where the financing contingency is released
Sign your loan documents and get your keys
- The escrow company will gather all of the documents and funds, and schedule an appointment for the buyers and sellers to sign the final documents
- Once all of the legal documents have been signed, the lender will review the final documents and wire the loan proceeds to the escrow company
- Escrow will distribute copies of the documents and funds to the appropriate parties, and send the information to the county recorder’s office to transfer legal title of the home to you
- As soon as the recorder’s office confirms that you are the legal owner, escrow will inform the real estate agents that the purchase transaction has closed and that keys can be released to the buyer
- Once you have the keys, you will need to set up power, water, garbage and other utilities in your own name. In California, it is common practice for the refrigerator to be excluded from the sale, so you may need to purchase items or schedule repairs as required by your lender.
Definitions of Real Estate and Mortgage Terminology
A clause in the purchase contract that says your offer to buy the home is contingent upon the appraisal supporting the purchase price.
The Real Estate Appraiser is an individual licensed to perform real property valuations, usually to determine market value.
Similar to an interest rate, the APR is also expressed as a percentage of the loan. However, it includes the interest rate and other charges (e.g., closing costs, discount points, origination fees, etc.) to reflect the total cost of the loan.
Fees paid to the various third-party service providers (e.g., lender, title, escrow, appraiser, etc.) involved in a real estate transaction.
Combined Loan-to-Value (CLTV)
Combined loan to value. Calculated by dividing the total of all loans obtained divided into the lower of the current appraised value or purchase price.
Made in writing by a home buyer or seller when negotiating sale terms. The buyer will submit an initial purchase contract offer, and the seller will issue a counter if he wishes to change the terms. The negotiations continue until the parties agree or the offer expires.
The County Recorder’s function is to maintain permanent public records of transactions involving real estate, mortgages, liens and other important documents and instruments.
Debt-to-Income Ratio (DTI)
A debt-to-income ratio is a percentage of your monthly debts compared to your monthly income (e.g., if you make $1,000 per month and your debts are $300 per month, your DTI is 30%). The lender will consider current debts and expenses, as well as the proposed mortgage payment, property taxes, monthly insurance, etc. to ensure that you can afford to purchase a home.
A discount point is a fee equal to 1% of the loan, except that it is used to buy down the interest rate. Example: If the interest rate is 4.5%, the lender may allow you to buy it down to 4% by charging you discount points. Your Loan Officer can help you determine if this is a good option for you.
An initial payment of 3% to 20% of the home’s value that the borrower usually must pay in cash. The mortgage loan from the lender will cover the difference between your down payment and the purchase price.
An encumbrance is any legal interest held by someone other than the seller, usually a duty owed by the owner to a third person or persons (e.g., easements, deed restrictions, liens, assessments and taxes).
The Escrow Holder is an unbiased third party that safeguards the funds and ensures that all provisions of the escrow and lender’s instructions have been met before dispersing funds and conveying the property’s title.
A person’s credit score, calculated with software from Fair Isaac Corporation. FICO has now come to mean a credit score from any major credit bureau.
Final Loan Documents (Docs)
After your loan is approved and all of the qualifying conditions have been met, your lender will draft the final loan docs and send them to escrow for you to sign.
A lien secured by real estate that has first position, or first priority, over all other liens against that property when paid during a foreclosure or default.
First Position Lien (1st)
A clause in the purchase contract that says your offer to buy the home is contingent upon you receiving final loan approval from the lender.
Good Faith Estimate (GFE)
The good faith estimate is a standardized form that lists basic information about the terms of the loan and the costs you will have to pay for financing.
Home Owners Association for properties that are Condo’s or PUD’s.
Monthly dues owned to the Home Owners Association, over and above the property taxes, home owners insurance and the principal and interest due for the loan.
The buyer will usually hire a licensed/certified home inspector to review the house and ensure that there are no significant defects.
The HUD-1 settlement statement is a standardized form that itemizes all of the services and fees charged to the buyer and seller during the purchase transaction.
Initial Escrow Deposit
Sometimes referred to as an earnest money deposit, the buyer might deposit some funds to show his good faith when he makes an offer to purchase the home.
Initial Loan Disclosures
The lender is required to provide you with initial disclosures within three days of taking your loan application. Your final loan costs and terms will be different, but these disclosures provide an estimate based on the information you provided.
The interest charged for extending the loan, expressed as an annual percentage of the loan.
The Lender is typically a financial institution (e.g., credit union, bank or mortgage lender) that loans you money to purchase a home.
The Loan Officer (also referred to as a Mortgage Loan Originator) is a licensed and/or NMLS-endorsed employee of the financial institution who recommends loan applications for loan approval.
Loan-to-Value Ratio (LTV)
A loan-to-value ratio is a percentage of the loan amount compared to the property’s value (e.g., if the home is worth $100,000 and the loan is for $80,000, the LTV is 80%).
Mortgage Insurance (MI)
This insurance policy will compensate the lender for a portion of any losses in case a borrower defaults on the loan. The policy is typically paid for by the borrower in monthly installments, and may sometimes be included in the financing or interest rate.
Mortgage Loan Underwriter
The Underwriter is an employee of the lender (and in some cases the Mortgage Insurance Company), who reviews the borrower’s loan application, purchase contract, appraisal, title report and other documents to determine if the requested loan and property represent an acceptable level of risk.
The Nationwide Mortgage Licensing System (NMLS) is the official system for companies and individuals to register as Mortgage Loan Originators.
A Notary Public is an official appointed by the State government to serve the public as an impartial witness in the execution (signing) of documents.
An origination point is a fee that is equal to 1% of the loan amount charged by the lender for originating the loan.
Principal and interest portion of the payment for the loan in question.
Principal, interest, property taxes and homeowners insurance payments, all combined for the loan in question. It is considered to be the total outgo for the loan.
Principal, interest, property taxes, homeowner’s insurance payments and home-owners association dues, all combined for the loan in question. It is considered to be the total outgo for the loan.
Because interest rates can change daily, a rate lock is an agreement between the lender and the borrower to lock in the interest rate for a specified time period.
Real Estate Agent
The Real Estate Agent acts as an intermediary between sellers and buyers of real estate/real property, and represents either the seller or the buyer.
A portion of your savings/assets that are set aside in case of an emergency. The lender may require reserves instead of letting you spend all of your money to purchase the home.
Second Position Lien (2nd)
A lien secured by real estate that has second position, or second priority, when paid during a foreclosure or default.
A legal agreement that ranks one lien secured by real estate above another in priority for collecting repayment.
The Title Company verifies ownership, all outstanding liens, taxes, and other items that affect the title to a piece of real estate, making sure the title is legitimate and free of encumbrances.