Before I take a new Buyer out to see any homes, I like to make sure that they’re fully prepared. We sit down and discuss everything they need to know about the home buying process because I believe it’s important that my buyers are well informed. I give them the benefit of my experience, discuss the local real estate market and – if they haven’t already – help arrange for them to get pre-approved for a mortgage. Bidding wars are becoming more and more common and the best prepared buyer will be the one who winds up with their dream home in today’s competitive market.
Below is a guide to starting your Pre-Approval and Home Buying process. If you’d like to come in for a personal consultation and learn more about any of this, feel free to call me anytime.
The first step to getting pre-approved for a mortgage is watching, and understanding, your credit score. Credit report inquiries can lower your FICO score, so be careful what you do during this time. Applying for credit cards might be a bad idea right now, however inquiries under 30 days old won’t count against your score, so make sure you coordinate your timing carefully. Additionally, scoring takes the fact that consumers shop around for loans into account, so if you’re applying for home loans with a few companies within one time period, their credit report inquiries will all count as one request, rather than several. This protects your score – even if you shop extensively before settling on a lender. For more information on protecting and improving your score, I recommend that you check out my blog post on 5 Easy Steps to Improving Your Credit.
Next, gather all of the documents you’ll need to apply for your loan. If your credit score is good and your paperwork is ready, you’ll be prepared to house hunt in no time. Below is a list of documents you’ll be asked for.
- 1 months paystubs (all customers)
- 2 months bank statements with all pages for all accounts being used for the transaction (all customers)
- Last 2 years W2’s (all customers except self employed)
- Last two years Federal Tax Returns with all pages (for self employed, commissioned, and customers receiving bonus). And all FHA Borrowers.
- Photo ID (all customers)
- Divorce Decree and or Property Settlement Agreements for all divorced or separated customers.
- Bankruptcy papers and discharge papers for of those with prior bankruptcies (all pages)
- HUD1 from sale of any currently owned homes being sold by a buyer
- Contract of sale for new home being bought (all customers)
- Letter of explanation for any late payments, judgments, BK’s, Short Sales, Foreclosures, and collections that appear on a credit report
- Letter of explanation for any credit inquiries coming up on a credit report
- CPA letter that a borrower has been self employed for more than two years (self employed only).
- Current tax bill, insurance bill, and condo maintenance fee (if they own a condo) for any currently owned home not being sold prior to buying a new home.
- It is also very important to sign and return any disclosure sent to the borrower by the lender as soon as possible – most importantly the 4506, 4506-t and Borrowers Authorization Form
Once your paperwork is in order, you’re ready to shop for a loan. Make sure you’re not just taken in by the company promising the lowest rate. You want a trustworthy business with a reputation for solid customer service. You wouldn’t believe how many real estate deals are derailed by lenders who don’t follow through when it’s time to finalize the loan. Ask your realtor, friends and family for recommendations and visit the Better Business Bureau website. While most loan packages will look fairly similar when you compare them, the attention and service you receive from your loan officer can be invaluable as you approach your closing.
Additionally, once you have your pre-approval, make sure you know when it “expires.” This is usually 90 days after it’s issued, so make sure you keep up with your lender and get it renewed if you’re house hunting for more than a couple of months.
Now you know what you can spend, and it’s time to get a realistic picture of what that allows you to buy in today’s market. Make sure that you choose a local expert to advise you. A good Realtor knows the local inventory and can guide you through the buying process with that knowledge. Is that house you love a bargain or a rip-off? Should you make a low-ball bid, or will you lose the house to other buyers if you try to negotiate? There are a lot of pressing questions involved in this stage of buying and it’s important to have someone you can trust to answer them.
Call me today with any questions! I’m always happy to share my 26 years of experience. Also, if you’d like recommendations on Mortgage companies, I have trusted lenders who I can endorse wholeheartedly.