Types of Loans for Home Buyers in Houston

In this interview, Brian Spitz interviews Darel Daik, owner of Noble Money, regarding the basics of home loans. He discusses the most common types of home loans and the benefits and challenges of each. Check out more Podcast episodes at We Buy Houses with Brian Spitz on Blog Talk Radio! 

The Interview

Brian Spitz:  My name is Brian Spitz. I’m president of Big State Home Buyers and today we’re talking with Darel Daik, who is the president of Noble Mortgage. It’s a mortgage company here in Houston that specializes in investment loans. But he’s going to talk to us about regular consumer loans, FHA loans, and what’s going on in the general lending market for consumers. So, thanks for joining us today.

Darel Daik:  Sure. Thanks for having me, Brian.

Brian Spitz:  Sure. Well, I wanted to start, you know, we’ve seen the huge upswing in real estate prices and sales and all of that stuff in the Houston market right now. It’s actually hard to believe what a seller’s market it is. But, for a while, lending was really strict and really difficult for the average person to get a loan. I wanted to find out from you what you see happening in the loan market right now.

Darel Daik:  Yeah, the loan market hasn’t changed too terribly much in the last five years, since all the new regulations have come down. But it’s still very possible for people to get a loan.

For a primary residence, if someone’s purchasing a loan, you really have two avenues, which are FHA and Fannie Mae lending. FHA is, typically you need to have at least about a 620 credit score, but you can put down as little as 3 ½% down payment on it.

Fannie Mae is very similar also, but you typically need to have about a 5% down payment. But these are 30 year fixed mortgages. Very low interest rates, still. They’re higher than they were a year ago, but they’re still hovering around, on a 30 year fixed mortgage, around 4%, maybe a little bit under. So still a very good loan market.

You do need to be able to document your income, qualify for a debt-to-income ratio based on your current debts.

Brian Spitz: And what do they lend up to? Cause there’s a cap to how much FHA and Fannie Mae will lend on a house, isn’t there?

Darel Daik:  There’s a Jumbo. A Jumbo loan in the Houston market is considered over $417,000. So as long as your loan amount is under that, you’re not considered a Jumbo. There are loans available for Jumbos, but they’re not in that same platform.

Brian Spitz:  And so, how difficult is it to get a Jumbo loan?

Darel Daik:  Typically, on a Jumbo loan, you need to have a little bit more down payment. I mean, the qualifications are the same. You need to have more like a 680 credit, because it’s more in the Fannie Mae platform. And you need to qualify still for the payments.

Brian Spitz:  Uh-hmm.

Darel Daik:  And so all that is pretty similar, but you do need to have more of a down payment. Normally about a 20% down payment on a Jumbo loan.

Brian Spitz:  Tell us, as far as the debt-to-income ratio, how much generally the bank will want your mortgage payment to comprise x percentage of your total income for the month. Where does that, generally, what is that?

Darel Daik:  A good rule of thumb for your debt-to-income ratio is you take your gross income, let’s say on a monthly basis. Multiply that by 40% and they want your housing expenses, including your taxes and insurance, and any other monthly obligations that you have, such as car payments, installment loans, any other mortgages that you have, need to fall in that 40% ratio.

It doesn’t count utilities. It doesn’t count food. It doesn’t count daycare, things like that. So pretty much anything that’s reported on your credit report. They look at those minimum payments and they weigh that against your income.

Brian Spitz:  Okay. So the less debt you have the more of a mortgage that you can pick up.

Darel Daik:  That’s correct. And that 40%, sometimes you can go 45%. We’ve even seen as high as 50%, if you have other compensating factors, such as liquid assets and so forth.

Brian Spitz:  Right. What’s your opinion of the market right now in Houston?

Darel Daik:  The Houston market is doing unbelievable right now. The market, like you said, has just completely exploded in the span of a year. So it’s a seller’s market. Sellers are putting their properties on the market above and beyond maybe what the market price is, and in certain areas, especially the hot markets, you have people in bidding wars, bidding above and beyond what that home is really going to appraise for.

So we’ve actually run into situations where a property doesn’t appraise, because they’re bidding above and beyond the market price.

Brian Spitz:  So they have to come to closing with that cash above the appraisal price.

Darel Daik:  Correct. Correct. Because the lender’s going to loan, they’re going to arrive at their loan-to-value, which is a loan based on the purchase price or the sales price, whichever is lower. So if it doesn’t appraise, then you would have to bring that extra equity to the closing table.

Brian Spitz:  Okay. Interesting. And anything else that you can think of? Right now in the?

Darel Daik:  You know, the thing we always tell people is, before you even start looking at houses, to get pre-qualified. Because the realtors are so busy right now that they don’t want to spend time with a buyer, a seller, most of the time, won’t even accept an offer unless they know they have a pre-qualified buyer.

Brian Spitz:  Right.

Darel Daik:  So it’s important to get pre-qualified up front, so you know exactly what you can qualify for.

Brian Spitz:  Right. Even here at Big State Home Buyers, we sell and buy residential real estate. We sell to a lot of investors, but we do sell quite a few properties to regular residential buyers. And so, same thing here. We really won’t look at a financed offer without a pre-approval.

Which also reminds me of a question. How valid are pre-approval letters? What’s the, what kind of research does the lender really do before they’ll issue a pre-approval.

Darel Daik:  You know, it depends on the lender. But, when you get a pre-approval for anybody, you’re supposed to use a promulgated form that the state provides to us. And in that form, it has boxes that you check. You know, what have you verified? Have you verified the credit? Have you verified their financials? Have you run the debt ratio? And so it should state on there, exactly what they have verified. Truth be told, it depends on the lender.

Brian Spitz:  Right.

Darel Daik:  You know, some of those pre-approval letters, we try to go and make sure that we know without a shadow of a doubt that they qualify. Some lenders don’t go to those steps, you know?

Brian Spitz:  Right.

Darel Daik:  They pull their credit report. They have good credit. They’ll issue a pre-approval letter. So, as a seller, you want to make sure you verify how qualified they really are.

Brian Spitz:  And you can do that by contacting the mortgage broker or studying the forms to see what they’ve checked off?

Darel Daik:  I would contact the mortgage broker. If I’m selling my property, just because I know how the real estate industry works, I would want you, my agent to, or I would want to talk to my loan officer specifically and verify that they have gone through all the steps and have run their debt ratio and have looked at their credit and have verified their assets, as opposed to just taking their word for it.

Brian Spitz:  Right. I know a few years ago, when the home market was more lax, it was really easy for people to get pre-approval letters and for us, we do go and talk to the mortgage broker when we get a pre-approval, just because I remember when those letters really didn’t mean anything. So, you know, it’s really important, I think, for a seller to check that out.

And also, in our position, because there’s so much competition for these houses and so much bidding going on, you really want to capture, in my opinion, the first round good offer. You know, you don’t want to see the property bust out and then put it back on the market. My opinion is you get your best offer first.

Darel Daik:  And I agree with that. That’s why, again, when I’m selling a property that I own, I don’t want to take it off the market.

Brian Spitz:  Right.

Darel Daik:  Because once you put it as a Pending Sale, you’re going to have a whole slew of agents that are not even going to show your property any more.

Brian Spitz:  Right.

Darel Daik:  And so before I take a property off the market, or put it as a Pending, that we have an offer pending, I want to make sure that this buyer can at least qualify.

Brian Spitz:  Right.

Darel Daik:  And you take that part out of it.

Brian Spitz:  Right. Interesting. Well, tell us how we can reach your company.

Darel Daik:  Sure. We’re on the web at NobleMoney.com.

Brian Spitz:  And again, that’s Darel Daik with Noble Mortgage. And this is Brian Spitz with Big State Home Buyers. You can find us at www.BigStateHomeBuyers.com or call us. Thanks!

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