Shelter-in-place and stay-at-home orders have had an immense impact on our lives. Owning a home and having a place where you feel safe has never been so crucial in recent history. While we are all staying home, it is a great time to get organized to ensure your next home or first-time home purchase goes smoothly. Getting your ducks in a row will pay dividends in making that home a reality down the road.
Get a mortgage loan pre-approved
The first step is to “meet” with a mortgage lender. Of course, not in person, in today’s environment. Almost all mortgage lenders can receive online applications or can visit with you using many of the technology platforms available today. Obtaining a pre-approval from a mortgage lender provides many benefits to you, the homebuyer.
Likely the most important benefit of getting pre-approved is to help you search for the “right” homes relative to price. I’ve learned quickly in my career that there’s nothing worse than trusting a homebuyer’s opinion as to what they can qualify for first, before showing them houses. If buyers look for homes before seeing the lender, it is usually the case that they discover the homes they can qualify for are 30 percent less than what they believed they could afford. It becomes very onerous for the homebuyer to go backwards and to restart a home search, therefore, it’s always best to see the mortgage lender first!
A mortgage lender will determine the loan amount that a homebuyer will be able to obtain based on their financial qualifications. The type of loan program that best suits the homebuyer’s needs will be determined. The type of loan program will also dictate the amount of down payment required. Buyers are often pleasantly surprised when they find out they can get a home with five percent down or less.
To qualify for a mortgage loan, your credit report will be pulled. Reviewing your credit report and knowing your credit score early on is essential. Your credit report will let you know if there are any “skeletons in the closet” that you need to clear up before you can become a homebuyer. It’s never fun to pick out the ideal home only to discover you have a credit or financial issue to resolve before you can move ahead with your purchase. Your credit score could also dictate the type of loan that works best for you.
Having a pre-approval letter from a mortgage lender also gives you some negotiating power. When a potential home seller is considering your offer compared with others, knowing you have a pre-approved loan might be the reason the home seller takes your offer.
Getting ready to “meet” with your lender
To prepare for a “meeting” with a mortgage lender, you can use the industry standard checklist below to make sure you have collected everything you will need for the discussion:
• Photo ID
• Two months of current pay stubs
• Last two years of W2s
• Checking and savings account statements for last three months
• Copies of statements for retirement funds, CDs, money market funds, etc.
• Two-year employment history with address and contacts
• Proof of any commissions or bonus income
• Two-year history of addresses
• Down payment source. Is it cash on hand, a gift, or a grant source? (Ask the lender about how to document the down payment sources.)
• If self-employed, last two years of tax returns
• Partnership or corporate tax returns if homebuyer owns more than 25 percent of the company
• Ask the lender for other requirements, like divorce decrees, bankruptcy, etc.
• Ask the lender for special requirements when using FHA/VA loans
• Making sure you have all documentation on hand when you apply for your loan application will make everything go much smoother!
It takes a village
When you go to buy a home, it literally takes a village to facilitate the process. Your Realtor® is like a wedding planner, lining everything up to make the closing happen. The home buying process entails the kind of elaborate logistical planning that would make a wedding day so special. Your Realtor will work with you to coordinate the mortgage lender, title company, inspector, appraiser, and various other vendors so that they work in concert to make the whole process a pleasant and seamless experience.
Lining up your proverbial “ducks in a row” while under our current stay-at-home order is a perfect time to plan for this!
By Duane Duggan. Duane has been a Realtor for RE/MAX of Boulder since 1982. Living the life of a Realtor and being immersed in real estate led to the inception of his book, Realtor for Life. For questions, e-mail DuaneDuggan@boulderco.com, call 303.441.5611 or visit boulderco.com.