As I was preparing for my meeting with Zoe for the first time regarding questions on home buying, I was thinking about the contrast in our experiences. Zoe, a twenty something who is living at home with her parents and me, a Realtor with 30 + years of experience. I was looking forward to being able to answer her questions since she said this is this was her first time talking with a Realtor.
When Zoe sat down in the neighborhood lounge and settled in, before I could even offer her a water, she stated, “I want to buy a home, what do I do?”
Okay, no time for small chit chat, let’s get right into it. “The process of buying a home varies on the type of home you are going to purchase. Are you looking for new home construction or a home that has already been lived in? The answer to that question will determine many other processes.” Zoe expressed her interest in new homes. And so we begin.
The Beginning: One of the first things you need to do is to determine your purchasing power. Speaking with a lending professional at the beginning of your home search is one of the smartest ways to ensure a happy ending. Meeting with a mortgage professional is the best way to learn about the various loan programs available to you based on your unique circumstances. When you are at a new home sales office, the builder may have a lending professional available to speak with in order to help you start. Many lending professionals who work with new homes, understand the construction phases and timing and will work with the new home builder to makes sure that the loan is ready when the home is ready. They coordinate each aspect of the process together so there are no delays.
5 Things you need to know about what a lender will be looking for:
- Proof of Income
These documents will include, but may not be limited to:
- Thirty days of pay stubs that show income as well as year-to-date income
- Two years of federal tax returns
- Sixty days or a quarterly statement of all asset accounts including your checking, savings and any investment accounts
- Two years of W-2 statements
Borrowers also need to be prepared with proof of any additional income such as alimony or bonuses.
You will need to present bank statements and investment account statements to prove that you have funds for the down payment and closing costs on the residence, as well as cash reserves. If you receive money from a friend or relative to assist with the down payment, you will need gift letters which certify that these are not loans and have no required or obligatory repayment. These letters will often need to be notarized.
You will need a paper trail of where your down payment and closing cost funds are coming from. Having undocumented money, maybe some that you put under the mattress will not be counted.
- . Good Credit
Simply put, good spending and saving behavior usually equals good credit. Most lenders today reserve the lowest interest rates for customers with a credit score of 740 or above. Below that, borrowers may have to pay a little more in interest or pay additional discount points to lower the rate. Most lenders require a credit score of 620 or above in order to approve an FHA loan, especially in order to qualify for a 3.5% down payment; borrowers with a credit score below 580 are required to make a larger down payment of 10%. Lenders will often work with borrowers with a low or moderately low credit score and suggest ways they can improve their score. It is really important to be honest and truthful with your lender so they can position your loan in the best possible way. They are here to help you, the more information they have, the better they can assist.
- Employment Verification
Your lender will not only want to see your pay stubs, but is also likely to call your employer to verify that you are still employed and to check on your salary. If you have recently changed jobs, a lender may want to contact your previous employer. Lenders today want to make sure they are loaning only to borrowers with a stable work history. Self-employed borrowers will need to provide significant additional paperwork concerning their business and income. This is not to say a self-employed person cannot obtain a loan, but it will require more paperwork, documentation and patience. It is really important that if you have a job change in any way that you notify your lender as soon as possible. Surprises are fun, but not when you are getting a loan.
- Other Documentation
Your lender will need a copy of your driver’s license or state ID card as well as your Social Security number and your signature. These items allow the lender to pull a credit report. Be prepared at the pre-approval session, and later, to provide (as quickly as possible) any additional paperwork requested by the lender. The more cooperative you are, the smoother the mortgage process will be. We like to say One Team, One Dream!
So after 2 glasses of water and all of this information Zoe and I decided we would meet over the next few weeks and continue walking through the entire home purchasing process. Please join us in our conversation over time and if you have any questions, email me at [email protected]. So I can personally answer your home buying questions.