Issue 1: To Prequalify or Not to Prequalify - That is the Question to Owning a Home of Your Own.
More Bank For Your Buck
Hi there!
Before we get to the main meat of our news letter, allow us to introduce ourselves.
We are Hut to Home (HH) and we ❤️ real estate. We love it so much that we’ve already put in 1,000+ hours of HGTV screen time🫣.
HH is Guam’s digital real estate digest, brought to you by industry professionals collectively working together to help get people into homes.
We’ve put together this bi-weekly newsletter to be the go-to resource for:
👩🏻💼👨🏽💼Agents. If you are one of the 700+ agents on island looking for resources to send to your clients, look no further. This newsletter is meant to help you be more badass at your craft.
👩🏻👨🏻Buyers. When you are in the market to purchase, you directly (and indirectly) shake hands with everyone - the brokers, agents, loan officers, loan processors, underwriters, escrow officers, insurance agents, appraisers and inspectors. It can be overwhelming but we hope to alleviate that anxiety by providing you with info to help smooth that bumpy ride associated with home ownership. If our content resonates with you, then hopefully the only bumpy ride you’ll have is off-roading on the hills of Channel 12.
Whether you’re an agent, a buyer, or a savvy real estate buff, HH’s intent is to help you navigate through all the nuances of RE on Guam with info on financing, a peek into interest rates, market updates, and more. We strive to make our content informative, digestible, fun and entertaining with a bit of local flavor. Our words are meant to be sweet, salty, and a little spicy 😉.
The Roadmap to a Home of Your Own
The journey to homeownership can be a long one… it can take months and sometimes years to get into a home. We’ve made an infographic to illustrate what that road will generally look like. Let’s take it one step at a time, we’ll be right there with you.
Pre-qualify or Not to Pre-qualify - That is the Question.
Do you want a house but don’t know where to start?
You’re in love with a property for sale but not sure if you can afford it?
Want to know what a pre-qualification is and what kind of information to give to your nosy banker?
…but you’re reluctant to venture that route because of all the things that might be uncovered by your banker.
It’s like finally going on a date with that someone that you’ve been secretly crushing on since elementary, but you’re afraid of all the flaws they’ll eventually uncover like the embarrassing fact that you snore… except with prequalifying, it might be “Do I make enough money to buy a house?”, or “Do I have enough saved for a down payment?”, or “How am I going to pay for these closing costs?”
Whatever the question may be that may point to some insecurity or reluctance to get started, we touch on what a pre-qualification is, what banks look at, and why it’s important that you get one.
So you woke up this morning and decided you’re tired of giving your money to your landlord for the “opportunity” to send him a rent check every first of the month. You dream of owning your own home… your own piece of paradise complete with a calamansi tree, two betelnut trees, and three back kitchen extensions. You meet with a Realtor, find your dream home, and then reality hits… you need to find a way to pay for that sweet Santa Rita dwelling overlooking the magnificent mountainous views down south.
Time to call the bank! ☎️
Financing. It can be a pain in the butt. A daunting process because you’ll be placed under a microscope, asked to shore up documents that you probably left with your ex-common law1… and there is also that fear of possibly being rejected because you “aren’t good enough”. I get it, first steps can be scary but let me assure you that the process is meant to help you, not hurt you.
No need to check your blood pressure 🚀… This is the first (and important) part of the process, but if you are working with a good banker, they will walk you through all the steps. Just remember that as a buyer, agents and sellers may not be excited to entertain you unless you show that you’ve prequalified with a bank.
If you aren’t already working with an agent, they may have asked,
“Have you talked to the bank?” or, “Do you know how much you prequalify for?”
And if you say no, you’re punted to a banker who will encourage you to apply.
Pre-qualification vs. Pre-approval
When loan officers (LO) get the call, buyers often have to get a prequalification or pre-approval. These two words should not be used synonymously, here’s the difference:
📄 A pre-qualification shows agents and sellers that you’ve talked to the bank and that they’ve provided you with a letter outlining an estimated loan amount, down payment and quoted rate. Lenders will start asking about things like income, assets, and debt and as the process moves along, they will ask for your paperwork to back it all up. The main goal of a prequalification is to get an idea of just how much house you can afford within the bank’s lending guidelines.
A pre-qualification is not commitment or guarantee and is based on information the buyer provides.
✅ A pre-approval takes place after a purchase contract is accepted and you’ve submitted your income documents to the bank for underwriter review. If and when the pre-approval letter is given, it will often list conditions that the buyer must fulfil in order to get final approval such as providing tax returns, getting an appraisal, and proving you can bench press 220 pounds.
Credit Qualifying
Both processes will still look at the following factors:
💸 Income. Show me the money! Don’t worry, your LO would have to be more discreet than Jerry McGuire’s passionate demands when they ask about income. They need to know that you can repay the mortgage and that you’re not faking it. Income must be documented so if you’ve been pocketing $75 in cash every month since you were 12-years-old for bush cutting your Uncle Joe’s 5-acre ranch in Chalan Pago but not reporting it in your tax returns, then this won’t qualify as income. But, if you have w2s stating that you’ve been employed at Payless (not sponsored) for the past two years making a decent and consistent wage, then this can factored into your prequal.
🏡 Assets. Lenders primarily look at liquid assets (this is just the banker’s fancy way of saying “access to some quick cash”) for qualifying. Bottom line is that you will need money for a down payment, closing costs and reserves. Not everyone is sitting on a pile of dough, but there are still some creative ways around this:
Gift Funds from your Lola2 (or another relative) who will need to sign a statement that you aren’t required to pay them back.
Seller Credit which is where the seller agrees to pay for some or all of your closing costs.
Liquidate one of your assets like the $60k GMC truck sitting in your garage.
First Time Home Buyer’s Grant from Guam Housing Corporation which pays for most of your closing costs. (Must meet certain requirements)
CAHAT, another program offered by Guam Housing which is an interest free loan (aka free money and a great way to avoid private mortgage insurance) to use toward the down payment. (Must meet certain requirements)
It’s important to note that these funds must also be documented which means you can’t use the stash of cash you’ve been hiding in a Nike (not sponsored) shoe box collecting dust beneath your bed.
🏦 Debt. It’s likely that a credit report will need to be obtained to determine credit-worthiness. Let’s take a look under the hood.
You might have cringed at the mention of a credit report. “Will it ding my score?” “Will it show up as a hard inquiry on my credit report?” “What if I’m shopping for other lenders?”
All valid questions and this is where you need to just chill... It isn’t the end of the world if a lender looks at your credit, and no, you can’t just take a screenshot of your credit score and send it to your loan officer. Lenders need a comprehensive view on your credit which includes score, credit utilization, repayment history, and all the credit accounts under your name or co-signed for your mom, second cousin, or great grandma to help them purchase a car two years ago.
Going back to your score being dinged, according to Experian, despite the credit inquiry being a hard pull, credit bureaus understand that you are shopping around, so multiple inquiries from different lenders within a 14-45 day time frame would actually count as one inquiry which won’t significantly impact your score. At most, it should only affect your score by 10 points or less, read more about that here.
Not only does the credit report provide a big picture snapshot to the lender, people should still check out their credit reports - there may be blemishes that they might have not been aware of which might turn out to be deal breakers later in the loan process. It’s always better to uncover these upfront before signing a purchase contract.
Get Yourself Some Nike’s and Just Do It.
The key message in this article is to not be afraid, speak to a LO and get prequalified. Going through the motions will only help you gain more clarity on whether or not you can afford a home and if you aren’t quite ready… then it’s a wake up call on what to do to get there. Yes, they may say things you might not have been ready to hear, but they are steps toward the right direction and into a home of your own (should you listen to their sound advice and we hope you do).
You’re welcome 😉,
HH
A common law is a partner in marriage by common law (which recognized unions created by mutual agreement and public behavior), not by a civil or ecclesiastical ceremony. It is very common to see this on Guam.
The Filipino term for Grandmother.
AWESOME 🙌 Will share your roadmap (and newsletter!) with my 1st-time buyers.