The Four C’s of Home Buying

Underwriting is when your lender analyzes the final mortgage application to make the decision to give you a loan or not. If the decision is made to go forward with the loan, conditions need to be made. This is a process that you have to go through even if you have been pre-approved for a mortgage. Lenders will consider four criteria, aka “the four c’s of home buying”: Credit, Capacity, Capital, and Collateral. All four of these areas must be satisfied for your application to be approved.

Credit: Possibly the most important factor of the 4 C’s. Your credit score taken from the credit report is the simplest measure of your credit strength. In determining an applicant’s credit score lenders will simply use the middle of the three credit scores reported by the three credit repositories (Transunion, Equifax, & Experian).

Credit scores are heavily influenced by your payment history over the preceding 24 months. Other factors may include the proportion of revolving debt relative to the high credit limits, the number of accounts, lack of credit depth, and many more.

Another factor that becomes part of your credit profile is your housing payment history over the preceding 12 months. This may be reflected in a previous mortgage on the credit report or by verifying rent payments if you don’t currently own a home.

Finally, bankruptcies, judgments, and foreclosures can all negatively impact your credit analysis. Just because you may have any negative marks on your credit report doesn’t mean you won’t get approved for a mortgage. It simply means that you will have to show other compensating factors and/ or may have to accept higher rates and terms.

Capacity: In addition to reviewing your credit, lenders want to analyze your ability to repay the mortgage over time. Capacity is the analysis of comparing a borrower’s income to their debt. The primary tool used for this analysis is a debt-to-income ratio. Simply put, the debt-to-income ratio is the sum of all monthly payment obligations you have (including the potential upcoming housing payment) divided by your gross monthly income.

Capital: Do you have a financial cushion to fall back on if your income is unexpectedly interrupted? Have you shown a pattern and habit of saving money over time? These are important questions to a lender and can be answered by reviewing your capital accounts.

Capital accounts are any account with liquid assets that a borrower could access if need be. The most common forms of capital accounts on a loan application are checking, savings, money market, brokerage, IRA, and 401K accounts.

Usually, the bank will want to verify that you have an amount equal to 2 months’ worth of your total housing payment (including real estate taxes and homeowner’s insurance) saved up in a capital account after they subtract any cash required for down payment & settlement charges. If the mortgage is going to be secured by an investment property or second home the bank may want to see more capital for the applicant.

Collateral: This refers to the property itself. Underwriters consider a home’s appraised value when deciding whether to approve a mortgage application. Property size, location, condition, and the value of nearby homes are just some of the things considered when a house is appraised. If you have passed the first three C’s with flying colors, unfortunately, if a home doesn’t appraise well the final loan may not be approved. This is because collateral ensures that the lender won’t lose their money if you default on the loan.

The Bottom Line: Private lenders may have different practices than traditional banks or other financial institutions. They could be more flexible and willing to consider other factors. You, as the borrower, should be prepared to demonstrate that you meet the criteria of the four C’s to increase your chances of getting loan approval. You should also talk openly and freely to the loan officer as they will be supporting you and want to build your file as favorably as possible.

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Buying a House? Here’s What You Need to Know

Becoming a homeowner is one of the most thrilling next steps in anyone’s life. You’ve gained the financial independence you need to feel comfortable venturing into big commitments, and there’s truly no better feeling than entering the real estate market to find a home to call your own. 

We won’t be the first to tell you that buying a home isn’t a simple or easy process— it’s one that takes plenty of time, planning, and painstaking research. As one of the most expensive purchases you’ll make in your lifetime, it’s well worth arduous labor. Using this guide, we’ll walk you through everything you need to know about buying a house.

Do Your Research 

As you venture into the homebuying process, it’s important to evaluate your own financial situation, examine the current status of the housing market and, of course, take stock of your desires, priorities, and objectives. Doing all of this upfront research will help lay the foundation for which you begin your house hunt and budget planning.

Naturally, part of this process involves checking your credit score, analyzing your spending habits, and studying online to find out the average going price of homes sold in the location you want to buy in. Finding answers to the following questions would also be incredibly insightful for you:

  1. What is compelling you to buy rather than rent?
  2. Do you have any financial roadblocks that could affect your ability to secure a mortgage with favorable terms?
  3. Do you have any large, outstanding debts that could make budgeting more difficult?
  4. What are your must-have amenities in a home? 
  5. What factors do you consider to be deal-breakers in a home?
  6. What factors are you flexible on? What factors are must-haves?
  7. Do you plan on hiring a real estate agent? 

Craft a property wishlist

Crafting a property wishlist is the most enjoyable portion of the home-buying process.  If you have been dreaming of a futuristic minimalist home in the middle of a massive metropolis or a spacious coastal hideaway with floor-to -ceiling windows, now’s the time to make good on those dreams and turn them into a reality. Working out those specifics early on will help you  narrow down your search and optimize your time spent looking.   

The better an idea you have, the simpler it will be for you to pare down your selection and speed up the touring process. Consider splitting your wishlist into two: the must-haves and the nice-to-haves.

Check your credit score

In order to purchase a home, most people will need to secure some degree of financing— so unless you’re paying in cash, you’ll need to do your fair share of research into your available mortgage options. But before you even think about weighing your options, you’ll need to first ensure that you have a good enough credit score to get approved for a favorable loan, especially for one with an attractive interest rate. 

You will need to build  a positive rapport with lenders and that begins with providing a clear history of paying your bills on time and maintaining a budget that exemplifies your ability to live within your means. We highly recommend checking your credit score before you start applying for any mortgage or home loan. Most traditional mortgage lenders require a 620-640 FICO score.

If your score doesn’t fit inside of that range, consider dedicating time to improve your credit score. The following steps can help boost your score:

  1. Setting up automatic payments to ensure you never miss a payment deadline
  2. Minimizing your credit utilization rate by paying off any outstanding debt
  3. Diversifying your credit profile by applying for a variety of credit types, including
    1. Personal loans
    2. Auto loans
    3. Credit cards

Get help from a realtor

If you’re a first-time homebuyer, it won’t be soon before long that you realize the real estate market can be a bit relentless and confusing without the right guidance.. Receiving assistance from a reputable real estate agent can help you get to know the many intricate details of home buying and can even help you narrow down the options that work in your best interest. 

At first, you may think it’s far out of your budget to enlist the assistance of a realtor to help on your behalf, however it is worth noting that the seller, not the buyer, pays for the fee imposed by realtors. One stipulation to note is that this is usually factored into the overall price of the property, which usually amounts to anywhere between 5-6%,

Ultimately, realtors are experts in their field, and if you’re new to the home buying scene, having a person in your corner who understands everything about buying a home is a responsible investment.

Compare your financing options

You will be better prepared to look at your borrowing prospects when your credit score is in tip-top shape. There are several distinct types of specialized home loans that could be better tailored to your particular circumstances. For example, if you’re classified as a low-income borrower, choosing an FHA loan might be the perfect funding option for you. Or if you’re an active duty military  personnel,  a VA loan may offer the best bang for your buck. There are even specialized options for those who work in the agricultural industry.

 Make sure to explore all of the alternative methods that are open to you before you settle on a traditional mortgage.

Key takeaways

Buying a house is nothing short of a big deal, so as you venture into this next chapter, it’s okay to feel overwhelmed, stressed, and unsure. To avoid the brunt of your inevitable stressors, be sure to take the proper precautions to ensure you make the right decision before signing your name away on a mortgage and taking your photo in front of the “SOLD” sign. You’ll gain the peace of mind that you deserve and a house you love with these genius home buying tips.

Did we miss anything? What are your best home buying tips for first-timers?

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Title Search for Buyers and Sellers

Buying or selling a home has become a complex transaction and you need a trusted title search company to guide you through the process. The experts at Title First oversee and perform thousands of closings each year. When using Title First, you can sign confidently on the dotted line knowing that all details of your title transfer and closing are in proper order. We are here to answer any questions you may have about buying or selling a home, and our team will guide you through the entire process.

Title First will be responsible for ensuring that all the documents related to the ownership of a property are in order before the real estate transaction is performed. We will also provide an agent to oversee the entire closing process. Insurance will be furnished that protects the buyer and the lender if legal issues arise after the closing.

Once a home is bought, the buyer takes possession of the title for the property. Titles are at the local courthouses and the buyer does not own the property until his name appears on the title. There have been times when titles are not properly taken care of when a home changes hands, which means that if there are any liens on the property still have a claim on it. When this happens, the owner who did not sign off on the deed exchange still has a claim on the title.

Title First will perform searches on behalf of the property owner and the lender. We will review court records to guarantee that any liens on the property have been satisfied and that there are no outstanding claims. We also make sure that the seller that holds the title has the right to sell the property, and that it is has a clear title to close.

Title First will supervise over the loan closings and any other real estate transactions. We are then responsible for recording the title, mortgage and any other document related to the transaction at the local courthouse.

Title First will offer a title insurance policy that will provide coverage for property owners and buyers in the event of legal disputes related to the ownership of the property. However, these issues should not arise as all of the searches are done before the closing. But, there is always the occasion that something was overlooked that can threaten the interest of the owner or lender.

If you have a question or would like more information, please contact our title experts.  614-503-7434


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Real Estate Myths: Debunked

Are you ready to start looking for your first home?  Buying a home can seem intimidating, but it doesn’t have to be. Your home will likely be the biggest investment you’ll make in your life, which can also make it your biggest risk.  Don’t fall for the following myths:

Myth: If you pre-qualify for a loan, you will be approved for a mortgage

Loan approval involves an underwriter analyzing hundreds of pages of documentation, as well as considering other factors like the home appraisal report. A pre-qualification letter, however, is based on a quick, preliminary analysis of your credit report. Getting the letter is a recommended early step to show you’re a serious buyer, but it doesn’t mean a loan approval is guaranteed.

Myth: You need 20% for a down payment

There’s an array of loan options that don’t require 20 percent down — in fact, this amount is rare in today’s home buying market. According to the National Association of Realtors, 60 percent of millennials are putting just 6 percent down on average.

Saving for a big down payment can be advantageous, but you don’t want to deplete your savings or risk coming up short on your mortgage payment. Instead, you should save as much as possible for unexpected expenses.

Myth: You don’t need a real estate agent

Realtors are so important to the home buying process. Real estate agents get a commission, but the home buyer does not pay their fee. It is paid by the seller and is built into the selling price. Every seller expects to pay a buyers agent commission. If you show up without one thinking you can get a 3% discount on the price you will quickly regret it. Realtors help you get the lowest purchase price with their expertise and using comparables. Real estate contracts are long and often hard to understand for the average person. There are many items such as home appraisals, inspections, opt-out clauses, etc. that you need to know about in depth in order to protect yourself.

Myth: You need a perfect credit score

Your credit score doesn’t have to be flawless for you to be able to find a mortgage that fits your budget. It surprises many when they talk to a lender and realize that they can still qualify, even with a lower credit score. To offset potential negative factors on your credit history, you may need to have a larger down payment or meet other qualifications, but you don’t need to have a “perfect credit score” to qualify.

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