Mortgage Loan Information
Whether you are gearing up to buy your first house, or your fifth home, don't put off getting financially prepared. It's easy to get swept up in the fun parts of buying - looking at homes, checking out neighborhoods and daydreaming about your next "castle."
But before you do much else, and before you call a real estate broker and walk in front a home for sale real estate sign and speak to a FSBO seller by owner you should find out the reality of your financial and credit situation.
First you want to find a reputable mortgage loan officer. Ask friends, family and colleagues who they highly recommend. Find a loan officer who you like and feel you can work closely with. Remember, you are going to be giving this individual the very intimate financial details of your life. You want to feel comfortable with this person!
With a simple phone call, you can become "pre-qualified." Pre-qualification typically requires you to tell a loan officer how much income you earn, how much money you have in the bank, and the state of your credit. Based on this information, the loan officer is able to calculate the approximate price range you might be able to afford. Keep in mind that this amount is not a guarantee that you can buy a home for that amount. For example, Bill gets pre-qualified for $165,000. Bill places an offer on a home for $163,000. When the loan officer delves deeper into Bill's credit and his ability to pay, it turns out that Bill really only qualifies for $152,000. You can avoid this potential pitfall by getting pre-approved before shopping for a home.
Getting pre-approved is the best way to know what you can purchase. By providing the items needed to get pre-approved you can rest assured there will not be any surprises later in your transaction.
The following items are needed for pre-approval:
- Past two year's W2's
- Past two pay stubs
- Past two month's bank statements
- Past two statements on any retirement accounts or other financial accounts
- Copy of award letter if receiving social security or a pension
- For a veteran wishing to do a VA loan - provide the DD214 and certificate of eligibility
- Explanation of any late payments or collections in the past two years
- Bankruptcy discharge papers if a bankruptcy occurred in the past seven years
- Court documents for alimony or child support if applicable, and proof of receipt
Once these items are collected, the loan officer will have a complete file to turn in to an Underwriter. The Underwriter is the person who approves your loan. Because the Underwriter has final say on your loan, it is important to get your documents to this person as soon as possible. Until then, the loan officer can only make estimations of how much home you can afford.
Pulling Your Credit
When you initially call and tell the loan officer your scenario, the loan officer will respond to the financial details you provide. Be honest! The loan officer is going to pull your credit anyway, and see everything in black and white. There is no need to sugarcoat your situation. Loan officers can get creative in how they handle loans and are more willing to work with buyers who are completely truthful from the start.
Keep in mind 70% of the time a credit report has inaccurate information that could hurt your chances of approval. Because of this strong possibility it's important to get your credit pulled quickly. As long as there's time to fix the inaccurate information before your closing there is not much concern. However, there can be surprises that you were unaware of such as:
- You co-signed and that person has been late, thus reflecting a late payment on your report.
- Your medical insurance did not cover the full cost of a visit and there is a $50 medical collection on your report.
- The last time you moved, the cable company did not account for picking up your cable box. Now they are showing a $400 collection.
Know Where You Stand Financially!
A quick phone call to a loan officer is a good start to the home-buying process. But don't rely on that early pre-qualification number. Use it as a guideline only. And only until you have your pre-approval loan amount. Be up-front with your real estate agent when you begin looking at homes. You don't want to waste any of your or the agent's precious time looking at homes that are way under or way over your budget. Buying a home can be fun, but it can also be frustrating and heart-wrenching if you find the home of your dreams, only to find out it's not within your financial reach. By establishing your financial situation before you start the house hunt, you ensure a much happier home shopping time.