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:

  1. 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.

  2. 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!

  3. Gather the paper work needed. At a minimum lenders will require the following:
    1. 30 days of paystubs (and 2 year work history)
    2. 2 years of W2 forms
    3. 2 months of deposit account statements
    4. 2 years federal tax returns
    5. If you own 25% or more of a business - 2 years federal business tax returns
    6. If you have deferred student loans - documentation of each loan and what the monthly payments will be
    7. 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
    8. 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
    9. Bankruptcy discharge paper, waiting period 2 to 4 years depending on circumstances

  4. 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).

  5. 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.

  6. After you apply, donít make any changes to your financial position.
    1. 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
    2. 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
    3. 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
    4. Donít change employment. Right before closing every lender verifies that the borrower is still employed in the same position
    5. 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!

Plan ahead...

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: 

Start saving!

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 stubs

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 employer. 

Pay your rent by check

Don't pay by cash, because cancelled checks will be an important way to demonstrate that you meet your housing expenses on time. 

Save cancelled checks

If your credit history needs bolstering, the ability to demonstrate on-time payments to utility companies, the telephone company, etc. will be important. 

Save bank statements

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 residence 

  • Check neighborhood and area amenities, proximity to points of interest, schools, churches, or businesses