Start by creating a file with all of your important financial documents. Regardless of the loan type, lenders will need information about you. Make copies of the following and place in your folder:
1. Last two years of W-2's/1099's
2. Driver's license or form of ID. If you are not a U.S. citizen, then your PRA Card, Visa, Green Card as applicable.
2. Last two years of your filed tax return with all pages and schedules
3. Copies of any other loans including auto, boat, student loans, etc.
3. 2 most recent pay stubs showing year to date (SS or disability income will need awards letter, proof of retirement income)
4. Proof of other income sources (alimony, trusts, rental income, etc), any offer letter from new employer.
5. Credit card statements
4. If applicable, the following: divorce decree, school transcripts, military status, proof of payment on all retained properties including taxes, insurance, PMI and HOA dues.
Credit scores range between 400 and 800. 620 + is considered "good". 680 + is considered "premium" and may possibly help get you a lower interest rate.
Below you will find the contact information for the 3 major credit reporting agencies to help you determine your credit rating. You do not have to check your credit before applying with a lender, however, as they will do this for you. Ask your lender how to improve your credit score if you need to. Going forward, treat your credit like gold.
1. Down Payment: This will depend on your loan type. There are 100% loans with no down payment. Other down payments range from 3.5% down to 20% down or more. Once you are preapproved with a lender, you will know which kind of loan program you qualify for and how much down payment you will need, if any.
2. Closing costs: These are the fees you pay at closing. We roughly estimate these around 3% of the sales price on the home. However, this can vary based on your personal loan program, the lender you choose and the closing company selected. Your lender and real estate agent will be able to estimate your closing costs more accurately for you before putting in an offer on a home. Depending on whether it is a Seller's market or a Buyer's market, your real estate agent may be able to negotiate the seller to pay some of your closing costs. Be open with your agent and lender about whether or not you can afford to pay closing costs, so they can best help you moving forward.
3. Inspection Fees: Inspections take place within the first two weeks of being under contract on a home. Most inspections are paid for at the time of service. Total inspection fees range from $350-$550 on average.
4. Appraisal: Appraisers will evaluate the property’s purchase price, condition and size compared to similar recent neighborhood sales. This helps ensure the purchase price is not too high, and gives the lender more confidence in getting repaid in the event they are forced to sell the property if the borrower defaults. The appraisal costs vary depending on the property, type of appraisal, and region.This is usually an out of pocket expense before closing, and will cost around $400-$500 roughly in our area.
TIP: Try to pay down existing revolving and high interest rate debt like credit cards. Talk to the lender before doing so though, as paying off credit cards completely can sometimes hurt your credit instead of help it.
Stability is key when trying to buy a home.
1. Do not change careers/jobs when looking to buy a home.
2. Do not move money around if at all possible (i.e. from one account to another).
3. Do not buy big ticket items!
If you are considering major changes, talk with your lender first to see how it might affect your purchasing ability.
Consider the following: A $500 per month debt (auto loan or boat payment, for example) could lower the amount of your preapproval by as much as $83,000! * Based on a 30 year mortgage at 6% interest.
CHOOSING A LENDER:
We have seen the good, the bad, and the ugly with lenders! So many of our past clients have chosen to go with their bank or an online lender only to find out they were working with long distance lenders, have communication breakdowns, high/hidden lender fees, lenders who fail to close on time, and many times cost us the deal. Today, lenders can be found through a variety of sources. Finding a trusted source for a lender, is important. Asks friends and family about their experience with a lender. As a real estate agent, we only recommend lenders who we have used successfully. While the decision is yours to make, we recommend lenders who have proven themselves competitive and capable. We like local lenders who care about their local reputation, and their client. We look for lenders whose office is local, they have in-house underwriting, their communication skills are excellent, their loan programs are competitve, their fees are not high or hidden, etc. We love lenders who will answer their cell phone on weekends and in the evening if need be. Nothing frustrates us more than lenders with 9am-5pm banking hours with automated call answering. Don't forget to check out our Trusted Lender Partners on the sidebar to the right, or if you are using a mobile device, down below.
Tip: If you apply with one lender today, then two weeks later you apply with another lender, it will ding your credit each time you apply. However, if you apply with a whole bunch of lenders all within a few days to a week, the credit bureau will know you are shopping for a mortgage and it will only touch your credit (slightly) once.
PREQUALIFICATION VS. PREAPPROVAL
Prequalification is fast and easy. You start a prequalification and preapproval the same way, by filling out an application. Some lenders will issue a prequalification letter right away based only on the information you provide in the application. While this is fast, and it is a start, a prequalification letter is an opinion and nothing more. It is a guess of the maximum amount you might qualify for, based only on what you told them via the application. In a competitive seller’s market, an offer from a buyer with a pre-qualification letter only will often lose out to a person who has a preapproval letter (see below). Buyers who are prequalified tend to have their home sale fall through more often than those who are preapproved. So many of them put a contract on a home, start spending money on inspections, etc - only to find out down the road that they can't actually get the loan they thought. This is devastating for everyone. You are considered a higher risk to a seller than someone who is qualified/preapproved. Since you are going to have to hand over a lot of documents at some point in the process of buying a home, you might as well do that up front to get preapproved instead of prequalified:
Preapproval is a step further than being prequalified. All of the documents you gathered (as described above) will be asked for up front by the lender when doing a preapproval. If a lender doesn't ask for this documentation right away after you finish you application, we recommend going to find a lender who will. A preapproval will help you know exactly how much you can afford, and you will be a much more competitive/stronger buyer. Your loan is less likely to be declined in the end, giving peace of mind to you and the seller. Your preapproval letter will state that your important documents have been checked, and that will put you in a better position than someone who is less prepared. The letter may even state that you have been through pre-underwriting, which looks awesome to any seller. Being preapproved is more efficient; it reduces the amount of time it will take your lender to fund your loan. This is because the underwriter (who works with the lender to get the loan approved) will need this documentation at some point in the buying process anyway.