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  • Writer's pictureRebecca Richardson - Mortgage Consultant

Get the 411 on the mechanics of a mortgage

The mortgage process can be confusing. But it doesn’t have to be with the write partner in your corner. Down payment, earnest money, underwriting, these terms and more may seem like a strange language to many. While you may buy a home once every few years, keep in mind I help hundreds of homebuyers every year and have your back on the ins and outs of the process.

How do DPA programs work? Everyone loves to talk about first-time homebuyers using down payment assistance (DPA), but I don’t see many people explaining how it works.

Here’s the down low on DPA programs: ✅ The minimum credit score is higher for most programs ✅ The max debt to income ratio is lower ✅ Income limits are usually a factor ✅ Rates are often higher ✅ And so are closing costs

There are four types of DPAs homebuyers can take advantage of: ① Grants – Gifted funds that never have to be repaid. But be prepared to explain where it came from and why it doesn’t have to be repaid. ② Loans – A second mortgage that is paid monthly along with your primary mortgage. ③ Deferred loans – Second mortgages with deferred payments that only have to be paid when you move, sell or refinance. ④ Forgivable loans – This is a second mortgage that is forgiven over a set number of years (often five but can be up to 20). Like a deferred loan, this only needs repaid when you move, sell or refinance prior to the term length.

There are many paths to buying your first home and using a DPA program is a great one. If this is something you are exploring, work with a lender who’s experienced with the program.

How does earnest money work? No doubt about it – when you’re buying a home it feels like money is going left and right. One of the biggest upfront expenses is earnest money.

Earnest money is a deposit that’s given in good faith when you put a home under contract. Depending on your state’s contract, if certain requirements aren’t met or you don’t buy the home, the seller keeps the money. You read that right, the seller keeps the money even though you didn’t buy the home.

But the good news is, if you do buy the home, then this money is applied to your down payment and closing costs, so it’s like an upfront deposit on your amount needed to buy.

What happens during underwriting? Underwriters are like the Wizard of Oz of mortgage lending. Or the Grim Reaper. It depends on who you’re asking and the result of the underwriting process on your loan.

But what IS underwriting and what do they do?

The underwriter’s job is to be an expert in mortgage rules (aka guidelines) and apply those rules to the loan file they’re reviewing to confirm the borrower’s loan can be approved.

Now, since I keep it real in real estate and that’s why you follow me, I’ll level with you: people love to complain about underwriters when something goes sidewise, but most of the time it’s not their fault. It’s just the easiest part of the process to blame.

The best way to have your file sail through underwriting? Take the time to get fully preapproved and choose a lender with a proven record of closing on time.

If you are still trying to process the mortgage process, be sure to follow me here or any of my social channels.

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