Borrowing basics for first-time homebuyers.
Applying for a home loan is a task many first-time homebuyers regard with apprehension and uncertainty. If your clients are in the market for rural property, chances are they may have additional uncertainties about securing mortgage approval.
Farm Credit Services of America (FCSAmerica) consumer lending officer, Lindsey Alstad, answers five frequently asked questions to help guide your clients through the home loan application process.
1. What red flags do lenders look for?
“High levels of debt coupled with little savings is probably the most common red flag we see in applications,” says Alstad. “Maintaining rural property generally requires additional labor and expenses, so homebuyers need to think ahead about the costs of country living. It’s tough to buy an acreage and start out with no cash.”
Other oversights may include gaps in employment, failing to disclose debt, ignoring past credit issues or providing incomplete bids when seeking financing for new home construction.
“Homebuyers should always be upfront about their financial history to help their lender get a better grasp of their situation. Character goes a long way when it comes to loan approval,” she adds.
2. What documentation is required?
To begin a country home loan application, homebuyers should be prepared to provide basic information about the property and the purpose of the loan, as well as proof of income. Financial documents needed for a credit decision include the past two years’ tax returns, a most recent paystub and an updated balance sheet.
When applicable, Alstad says it is also beneficial for homebuyers to share additional information such as the purchase agreement, a copy of the land survey or future plans for the property.
“For example, when working with homebuyers who farm or generate income from agricultural property, it pays to anticipate and account for changes in an operation,” she says.
3. How is loan approval determined?
Once a home loan application is submitted, an underwriter will manually review the file, calculate debt-to-income ratios and analyze credit risk.
“Our lending and underwriting team is made up of experienced, local professionals and our loan processing is pretty hands-on,” says Alstad. “Our team structure allows for direct lender-to-underwriter communication and quick resolutions when questions arise.”
4. What’s the difference between fixed, variable and adjustable rates?
Another important aspect of the home loan application process includes working with a lender to select the mortgage rate that’s right for the homebuyer.
Alstad advises homebuyers comparing their options to ask themselves questions such as ‘How long do I plan to stay in the home?’, ‘How secure is my job?’ and ‘What are my monthly payment goals?’.
“A variable rate is ideal for homebuyers who are willing to take on a high level of short-term risk and who have access to cash and investments they can liquidate quickly to pay off the loan,” Alstad explains. “Whereas a fixed rate would apply to someone who may be risk-averse or doesn’t have a large capacity for income fluctuation. They may have future plans to expand their farm or start a family.”
“An adjustable rate, also known as our interim-fixed rate, is probably our most common product,” says Alstad. This option is ideal for homebuyers who pay aggressively on debt or prefer to take a lower rate over a longer period of time.”
5. How long does it take to close a mortgage loan?
On average, Alstad says underwriting is completed in a window of 24 to 48 hours while total loan processing may take anywhere from 30 to 60 days from the date of application to closing.
“The more organized and thorough the application, the shorter the processing time,” says Alstad. “I encourage all homebuyers to do their homework, research building costs if applicable and consider their debt payments with taxes, interest and insurance included before applying. Above all, reduce debt and build savings.”
Help your clients enjoy their place in the country by referring them to FCSAmerica, the rural home financing experts.