Before you spend any time and energy previewing homes, you should have a lender’s opinion of your buying power. Nothing is more disheartening than to find “the perfect home” only to realize that you cannot afford to purchase it. In today’s real estate market it is essential that a buyer is pre-approved for a loan prior to beginning a serious home search. Lenders have stricter requirements now and require proof of your income and funds in the bank. Credit scores also make a big difference in the interest rate and fees you will pay for a loan. Meeting with a lender and getting a pre-approval for a loan will answer many questions for you, such as:
• What price range do you qualify for?
• What kind of monthly payment (including homeowner insurance and property taxes) are you comfortable paying? Keep in mind that your lender may qualify you to purchase a home that is more expensive than you want to buy. It’s important that you know what monthly payments you’re comfortable paying. That will determine what your maximum purchase price will be along with the amount of your down payment.
• What kind of loan program suits your needs? Examine the different financial options open to you. There are numerous Fixed and Adjustable rate (ARMS) mortgage plans. When you meet with your lender you’ll learn about the various programs and select one that best suits you. You will not need to select or “lock” into a particular loan until you are under contract to purchase a home, but now is the time to learn about the various programs so that when the time comes to make the decision you can.
We cannot stress how important the pre-approval process is. Without a pre-approval in place you cannot seriously look for a home nor can you make an offer that will be seriously considered by a seller. A seller is unlikely to consider your offer to purchase without a letter from a lender telling them you can borrow the money.
To begin processing your loan, your lender or mortgage company will most likely need this information to obtain a pre-approval:
• Name of borrower and co-borrower
• Social Security number(s)
• Years completed in school
• Marital status
• Address of current residence, plus address of previous residence if you’ve been at your current residence less than two years
• Number of dependents and birth date for each dependent
• Employment Information
• If purchasing a new home, price or estimated price of the property you are buying and down payment amount
• Amount you would like to borrow
• If applicable, monthly homeowners dues
• Address of property (sometimes yet to be determined for purchases)
• Type of property (single family, condo, land, etc.)
• Use of property (primary residence, second residence, etc.)
• All sources and amounts of monthly income including salary, bonuses, commission, dividends, interest, and retirement
• Current expenses; housing, alimony, child support, and other debts
• Real estate assets; location, value, loan amount, mortgage payments, and rental income
• Other assets; bank accounts, stocks, bonds, insurance, and retirement funds
Submitting the right items from your mortgage application checklist will speed the process of determining if you qualify for the type and amount of loan you want. Should you fail to qualify, these mortgage application checklist items can often help your Loan Officer determine and present alternative financing options. Be prepared to submit the following along with your application:
• Checking and savings account statements for the last two to three months.
• Borrower and co-borrower pay stubs demonstrating earnings for the last 30 days and year-to-date earnings.
• Last year’s W2 (and 1099, if applicable) if applicable for each borrower and co-borrower, plus federal tax returns for the last two years (or other proof of income and employment verification).
• Divorce settlement papers (if applicable).
• Credit card bills for the last few billing periods, or cancelled checks for rent or utility bill payments.
• Documentation for debts such as car loans, furniture loans, student loans, and credit cards.
• A gift letter if you are using a gift from a parent, relative, or organization to help with you down payment and/or closing costs.