Preparing to Purchase
Things to Consider when Purchasing a Home
Mortgage rates are still incredibly low!
Is it time to purchase that 1st home, move into something bigger or invest in a 2nd home?
Howís a person to know what to do?!
Well be prepared. Whether youíre buying a home or refinancing an existing home loan youíll soon find out lenders today are a
picky and demanding bunch when it comes to loan approvals. Even well qualified borrowers are expected to jump through hoops to qualify for financing.
Not to worryÖ.weíll help you prepare! Here are some steps to follow:
- Start with your credit report. The first thing a lender will do is check your credit. Lenders like to see a credit score of at least 660. Get a head
start to assure your credit report is accurate. Once a year you can get a free credit report by going to www.annualcreditreport.com. If you see accounts that
you didnít open or addresses that arenít yours, take immediate steps to investigate what could be identity theft.
- Work with a "good" lender. Do your homework when considering who you will work with on your mortgage. Ask around, get referrals and find out who your
family and friends have worked with. Your lender must be someone you can trust!
- Gather the paper work needed. At a minimum lenders will require the following:
- 30 days of paystubs (and 2 year work history)
- 2 years of W2 forms
- 2 months of deposit account statements
- 2 years federal tax returns
- If you own 25% or more of a business - 2 years federal business tax returns
- If you have deferred student loans - documentation of each loan and what the monthly payments will be
- If youíre divorced, the lender will need a copy of the Divorce Decree/Court Order to ascertain how much alimony or child support you are required to
pay or are entitled to receive and documentation of such
- If you are receiving retirement or disability income, an award letter and proof that the income will continue for the next 3 years, is required
- Bankruptcy discharge paper, waiting period 2 to 4 years depending on circumstances
- Crunch the numbers, know what you can afford. Home ownership may be the American dream, but you donít want to get in over your head. If you are currently paying $750 per month for rent, and your new mortgage payment will be $1,500, thatís a huge payment shock. Typically lenders will consider about 28% of your gross monthly income to be allocated towards servicing a monthly mortgage payment including principal, interest, taxes and insurance (PITI).
- Down payment and closing costs/prepaid fees. When purchasing property, lenders typically require a minimum down payment of 3.5% to 20% of the purchase price (depending on the loan program). Closing costs and prepaid fees also need to be planned for; they can be2% to 6% of the loan amount.
- After you apply, donít make any changes to your financial position.
- Donít increase your debt burden. Donít make any large purchases once you have been approved for a mortgage. Your credit may be checked again
before closing and any additional debt may disqualify you for the loan
- Donít open any new credit card accounts or transfer a credit card balance. If you transfer a balance to a new zero interest credit card your
FICO score will drop because you now have more credit
- Donít delay a lenderís request for more documents. When underwriting your file, the lender may require additional documentation; provide whatever is
requested as quickly as possible
- Donít change employment. Right before closing every lender verifies that the borrower is still employed in the same position
- Donít delay payment of your rent or mortgage. Although you will be closing on a new mortgage donít risk being considered late on your rent or
mortgage payment. This will cause your credit score to decline and could prevent your new loan from closing
Remember, weíll be here to guide you through the process!
If you are planning to purchase a
home in the near future, begin now to make certain you'll be ready.
In addition to locating and saving the documents listed in our
Mortgage Application Document Checklist, you can prepare for the
home purchase process by doing the following:
If you're serious about purchasing
a home in the near future, accelerate your savings plan.
Demonstrating your ability to save and having extra funds on hand
will help you enormously in the approval process.
Pay all your
bills on time
Let's face it, some of us need
some work on our bookkeeping. However, the ability to demonstrate
that you are diligent about paying your bills on or before the due
date is important when applying for a mortgage loan. So be sure to
pay those bills on time! It will save you money on late fees too.
Save your pay
Begin saving all the stubs from
your pay checks from your employers. If these pay stubs are
computer-generated, they can, in many instances be used to verify
your income, without having to obtain documentation from your
Pay your rent
Don't pay by cash, because
cancelled checks will be an important way to demonstrate that you
meet your housing expenses on time.
If your credit history needs
bolstering, the ability to demonstrate on-time payments to utility
companies, the telephone company, etc. will be important.
Bank statements showing deposits
and withdrawals will be needed to demonstrate funds for the
downpayment and funds to close. If you can provide lenders with
original statements, they may not have to wait for your bank to
verify the information when you apply for your mortgage, a process
that takes time.
Order a copy of
your credit report
By ordering your credit report in
advance of your purchase, you will have the opportunity to correct
errors on the report or close/satisfy accounts that may present a
problem when you are ready to apply for a loan. Too many open
accounts can be a detriment, even if you have a zero balance!
Once a year you can get a free credit report by going to www.annualcreditreport.com.
Consider waiting on major purchases
Borderline mortgage applicants may
sabotage their own eligibility if they sign on for a large ongoing
debt (such as a car loan) just before applying for a mortgage. Your
loan officer can answer your questions on this.
Find a real
estate agent you are at ease with
Even if you are still in the
exploratory stages, you can ask a real estate agent to provide
information on the town in which you are interested. He or she can
usually give you information about the schools, taxes, price ranges
and town services. If your real estate agent understands that you
are working with a mortgage lender, he or she will know that you are
a serious buyer and will be happy to invest time in your home search
process. This is particularly true if you have been pre-qualified or
if you have a pre-approval loan commitment. Once you've found an
agent you like, stick with them! Through the multiple listing
service, they have access to almost every home listed for sale.
When you've found a possible home
or community that interests you:
Inquire with local government or
the realtor about possible buyer assistance programs that
community may offer (if needed)
Contact the County Assessor to
determine taxes and possible special assessments for the property
Possibly contact utility
companies to determine an average billing or usage for that
Check neighborhood and area
amenities, proximity to points of interest, schools, churches, or