Home Buying Tips
Major things TO DO or AVOID doing:
- BEFORE applying for a loan
- DURING the loan approval process itself
Any one of these actions may greatly impact your ability to qualify for a mortgage loan.
KEEP ANY FINANCIAL PAPERS HANDY
Collect your important financial papers and put them in a convenient and secure place. These include: W2s, Federal tax returns, 1099s for investments and social security, K1s and social security award letter for the most recent 2 years. Start saving paystubs, banks statements, retirement funds statements, and proof that you have paid your rent. If you sold a home in the past 24 months, include the settlement sheets you received when you closed. If in doubt whether to save a financial document, do it.
ASK FOR A PRE-APPROVAL LETTER
A pre-approval letter tells you the dollar amount of the price of the house you can afford to buy. A pre-approval letter helps you and your agent negotiate for the best price you for the house. Your loan officer determines the amount you can afford by reviewing your credit report, W2s, tax returns, paystubs, bank statements and retirement funds statements.
DON'T MOVE CASH AROUND
Leave all your funds where they are! Even if you think pooling your funds is a good idea when you are buying a house. ALWAYS consult your Loan Office BEFORE you move any funds.
DO NOT APPLY FOR ANY NEW CREDIT OR PAY OFF DEBTS
DO NOT apply for ANY new credit even if you are thinking about purchasing a new home. Wait to apply for new credit until AFTER you have closed on your mortgage loan. TALK TO ME BEFORE you pay off any debts.
DO NOT CHANGE JOBS
Changing jobs during the loan application process can jeopardize your approval for a mortgage loan. If you do plan to change jobs, BE SURE to tell your Loan Officer before, during and after the loan application process.
DO BE PREPARED TO DOCUMENT WHERE LARGE DEPOSITS CAME FROM
We will be identifying any large deposits into your checking, savings, or money market accounts. Be prepared to provide documentation for who any large deposit came from, such as paycheck, bonus check, money received from the sale of an asset. NOTE: deposits made in cash must be documented also; AVOID cash transactions; cash deposits may not be included when determining the total amount of your assets.
IF YOU SELL SOMETHING TO GENERATE MONEY FOR YOUR HOME PURCHASE
If you sell an asset such as a car, antique, collection, etc. to generate money for closing costs, SAVE COPIES OF THE DOCUMENTS involved with the sale, such as: car title, bill of sale, check you receive from the buyer. You may need a certified appraisal for large ticket items.
RECEIVING AND DOCUMENTING GIFTS OF FUNDS FROM RELATIVES
Federal regulations allow you to receive gifts from relatives to help with the purchase of your home. Be sure to:
- Tell me when you apply for your mortgage loan that you may be receiving a gift from a relative
- DO NOT take possession of the funds until AFTER you have spoken to me
- DO NOT take cash
- Tell the donor to be prepared to complete the gift letter form we provide and to show documentation for the funds coming out of their checking account
WHAT TO START COLLECTING BEFORE YOU APPLY FOR A LOAN
Lenders require a lot of documentation so it's a good idea to start collecting some of the things you'll need to bring to your loan application beforehand. To save yourself time and frustration during your loan process, start gathering all the documentation listed below as soon as possible.
1) For Your Residence History:
a) Your previous addresses for the last 2 years and how long you lived in each place
b) If you currently rent, your landlord's name and address (for the last 12 months)
2) For Your Employment History:
a) The names and addresses for all your employers for the last 2 years
b) The dates you worked at each place of employment
c) A letter explaining any gaps in your employment in the last two years
d) Original paystubs for the last 30 days
e) Most recent 2 years W-2's
f) Most recent 2 years 1040's
g) Year-to-date profit and loss statement and current balance sheet (if self-employed)
h) Transcript or diploma if you were a student in the last 2 years
i) Award letter and copy of most recent check for retirement, Social Security or disability income
3) For All Outstanding Loans and Credit Cards:
a) Coupon book or most recent statement for every account you have open
4) For All Savings, Checking or Investment Accounts:
a) The name and address for each financial institution and the account number
b) The current balance or value
c) 3 months bank statements on all accounts
d) 3 months statements for any IRA'S, Keogh's, 401 K's or profit sharing you have
5) For Personal Property You Own:
a) The net cash value of your life insurance
b) The make, year and value of your automobiles
c) The value of your furniture or other personal property
6) For Real Estate You Currently Own:
a) The property address
b) The estimated market value, outstanding loan balance and the amount of your monthly payment.
c) The amount of your monthly rental income (if applicable)
HOW TO INCREASE YOUR PURCHASING POWER
There are several factors that lenders take into consideration when determining how much they will lend to you for your home purchase. The three most important factors are your income, debts and downpayment. Any one of these factors can greatly impact the amount of mortgage you qualify for. Lenders are primarily concerned with the percentage of your gross monthly income that goes to your new monthly housing expense and to your new monthly housing expense plus your other monthly debts. As a general rule, no more than 28% of your gross monthly income should be going towards your monthly housing payment and no more than 36% of your income should be going to your housing payment plus other monthly debt. These guidelines vary by the amount of downpayment you make and the loan program you choose.
If you have been pre-qualified and are not satisfied with the amount you qualify for, we've listed four of the most common obstacles to qualifying for a home loan below and some possible solutions to each.
1) Excessive Long-Term Debt
a) Consolidate your debts by taking out one loan and paying off your bills with the money.
b) Pay off long-term debts by using some of your cash and making a lower downpayment. Selling an asset to pay off debt is another option.
2) Inadequate Income
a) Income from alimony, child support, bonuses, overtime or future raises might be considered in qualifying. If you've overlooked any income, be sure to tell your loan officer.
b) Find a co-mortgagor who is willing to go on the loan with you to help you qualify.
c) Make a higher downpayment.
d) Consider a financing option that will allow you to stretch your purchasing power. Some of these options include FHA loans, adjustable rate mortgages, balloon financing or a graduated payment mortgage.
3) Credit Problems
a) Repair your credit file by contacting creditors and requesting that negative information be removed.
b) Pay off outstanding judgments, liens and collections.
c) Re-establish good credit.
4) Lack of A Downpayment
a) Get a gift from an immediate family member.
b) Ask the seller to carry back financing.
c) Sell or borrow against an asset.
d) Borrow against or cash out your 401 K.
e) Ask the seller to contribute towards closing costs.
f ) Obtain a low point or zero point loan.
g) Consider financing options that offer lower downpayments and help with closing costs.
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*Monthly payments based on a 15 year fixed loan with an APR of 12.831%. This is an example only. Actual monthly payments, closing costs and APRs may vary.