Preparing First-Time Buyers for the Mortgage Process

First Steps: Encouraging Pre-Approval¹

As you’re getting to know a new client and learning about their desires for their home, it’s not too early to mention the benefits of pre-approval.

What Is Pre-Approval?

Pre-approval gives a borrower conditional approval for a certain size home loan. To receive pre-approval, a potential borrower reaches out to a lender and provides them with documents that verify their income and assets. Then, the lender will run a full credit check on the borrower.

Once the lender has verified the borrower’s credit and the financials, the lender may grant pre-approval, putting the borrower on track to secure a mortgage on a home. The borrower has now received loan approval as long as certain conditions are met – for example, the execution of a purchase of a home, and adequate title and appraisal documentation. The pre-approval is valid for 120 days from the date of the credit pull.

How Does Pre-Approval Benefit My Client?

Pre-approval benefits a buyer at three points in the homebuying process:

1. During the homebuying process, pre-approval sets clear limits on buying power. This tells a buyer exactly how much house they can afford, which helps the buyer tailor their home search and shop with confidence.
2. A pre-approval letter adds weight to a buyer’s bid on a home. Pre-approval shows sellers that your client is a serious buyer with the financials to back up their offer, which could help their offer stand out from the bidding crowd.
3. Pre-approval streamlines the final mortgage approval process. Once your client is locked in on a home, much of the paperwork required for the final approval process has already been provided, which may help speed things along.

Tips for Advising Your Client About Pre-Approval:

1. Documents: Let clients know which documents they may need to track down, such as:
   - Pay stubs for the last 30 days
   - W-2s or 1099 forms for the last two years
   - Bank and financial statements for the last two months
   - Other forms of income verification, if your client is self-employed
2. Connect your client with Newrez. We’ll answer any questions on the lending side and walk them through their mortgage options.
3. Lender-Agent Communication: Be sure to stay in regular contact with us to ensure the mortgage experience goes smoothly for everyone.
4. Credit Caution: Advise clients that if they open new credit accounts, make large purchases or do anything to significantly impact their credit during the pre-approval process, this may impact their approval. It may be best to hold off on big credit moves.
5. Job Changes: Encourage your client to inform their lender about any employment changes, since their source of income may impact their loan approval.

Loan Options for First-Time Homebuyers

First-time buyers might not be fully informed about their loan options, and may not know that they don’t necessarily have to put 20% down on a home. Connecting new buyers with Newrez will allow them to speak with a loan professional who will learn about their individual circumstances and suggest a loan that meets their needs. However, it’s a good idea to give your client of an idea of the basics:

• Conventional Loans: If your client has a strong credit score, they may be able to qualify for interest rates as low as 3%.
• Federal Housing Administration (FHA) Loans: These loans cater to borrowers with less-than-perfect credit, with options for down payments as low as 3.5%.
• Veterans Affairs (VA) Loans: Available to Veterans, active-duty service members and some surviving spouses. Borrowers may qualify for zero down.
• U.S. Department of Agriculture (USDA) Loans: Available to those with low-to-moderate incomes living in less populated areas, and may enable borrowers to put no money down.
• HomeReady^® and Home Possible^® Loans: Designed to grant homeownership to those with low-to-moderate income for as little as 3% down.
• Renovation Loans: Newrez offers several options that may allow borrowers to fund their home renovation as a part of their mortgage payment.

Here are a few unconventional loan types for less-conventional buyers.

• Jumbo Loans: For borrowers looking for high-value homes, Newrez offers several options.
• Bank Statement Loans: Perfect for self-employed buyers who want to qualify using alternate proof of income.
• Asset Qualifier Loans: For individuals who have high but irregular incomes, such as trust fund inheritors and retirees.
• Financing for Non-Warrantable Condos: Ask Newrez about our condo loan options.

Walking Clients Through Appraisal

At this point, the buyer has found a home they love and the seller has agreed to accept their offer. Once your client goes under contract, we’ll coordinate an appraisal to determine the property’s fair market value. From here, a few things can happen:

Appraisal Meets or Exceeds Contract Price

• Great news! The loan application can move forward toward closing.

Appraisal Comes in Below Contract Price

• Renegotiate the Price: Clients can ask the seller to lower the price to match the appraised value.
• Meet in the Middle: Clients may choose to bring additional cash to closing to cover the difference.
• Reconsideration of Value Request: A buyer can make this request if they believe the appraisal is inaccurate.
• Walk Away: If the seller isn’t willing to adjust and the purchase contract allows it, clients may be able to rescind their offer and recover their earnest money.

A Buyer’s Closing Disclosure

At least three business days before closing, your client will receive their Closing Disclosure so they can review it. Let them know that this document includes:

• Loan information such as the amount, interest rate, monthly principal and interest payments
• Closing costs, typically including origination charges, appraisal fees, title services, survey fees, taxes and government fees, and prepaids
• Additional information, including feels for late payments and escrow details, if applicable

Guiding Buyers Through Closing Day

Once clients receive their Closing Disclosure, they’re ready to schedule their closing date. First-time buyers may not know what to expect when it comes to the big day, so be sure to give them a heads up of how they can prepare.

1. Seller Transfers Ownership: The home seller will sign documents passing ownership of the property.
2. Client Loan and Ownership Documentation: The buyer will sign documents related to their loan agreement and property ownership.
3. Final Payment: Clients typically present a cashier’s check, certified check, or wire transfer to cover closing costs and any escrow payments, if applicable, as detailed in their Closing Disclosure. (Let clients know that a personal check won’t be accepted.)
4. Keys: Once your client receives the keys to their new home, it’s time to celebrate!

Great Partnerships Lead to Great Homebuying Experiences

Here at Newrez, we know how critical our real estate agent partnerships are. Supporting one another leads to opportunities for growth on both sides. Not to mention, a team of supportive professionals are essential to giving buyers a wonderful experience.

HomeReady® is a registered trademark of the Federal National Mortgage Association. Home Possible® is a registered trademark of the Federal Home Loan Mortgage Corporation. None of the above-mentioned companies are affiliated with Newrez LLC.

For real estate professionals only and not intended for distribution to consumers or other third parties.

1 A pre-approval does not signify that all underwriting requirements have been met. Actual terms, including interest rate, are subject to change without prior notice and may vary based on eligibility criteria. All products are subject to credit and property approval. Not all products are available in all states or for all dollar amounts. Other restrictions and limitations apply.