The Pre-Game - Get Pre-Approved
Buying a home, it is as American as apple pie. It is that one common dream, that common goal that most of us strive for. Having your own safe and cozy place to call your own, there’s nothing better. Just like most goals, a successful outcome can depend on a little planning, good preparation, and maybe even an experienced guide.
Buying a home is no different, unless you are sitting on a pile of money. It starts with talking to a great, local mortgage broker who can help you plan, set your budget, and determine the best mortgage program to suit your needs. There is a word for all of this and it is “pre-approved.”
You need to be pre-approved before you start making offers on potential dream homes.
Getting pre-approved is simple! It requires you have a conversation about your housing goals with your mortgage broker, complete a loan application, and have your credit checked. Your mortgage broker can determine whether you are qualified and craft a pre-approval based on your credit score, income, and the funds you have available for a down payment. Being pre-approved will determine your loan program, maximum purchase price, and an estimated monthly mortgage payment.
Now it is time to go shopping!
“Home Owners Are Happier and Healthier!”
– NATIONAL ASSOCIATION OF REALTORS®
It’s a Team Sport – Finding Your Dream Home
Now that your budget is set, and you know what you can afford, it is time to start your home search. The easiest and smartest way to do this is with the help of a licensed real estate agent. If you need help finding a qualified agent, we can help. We work with some of the best in the business.
Your agent plays a huge role and it is critical that you use one when buying a home. Your agent will help you set up an online home search based on your pre-approval and your needs. They will schedule showings and accompany you on home tours. Once a property catches your eye, your agent will help you write your offer and negotiate with “the other team,” the seller. If it all works out and you come to terms with the seller, you go under contract.
Once you are under contract, your real estate agent’s job does not stop there. Your agent will help you work through your home inspection. The agent will coordinate with your mortgage broker to make sure deadlines are met, and everything runs smoothly through closing.
We cannot stress enough how important it is to have an agent on your side! Your agent is your advocate, they work for you and your best interests.
It’s Game Time – The Process
You found a home, made your offer and the seller said YES! Congratulations, you are halfway to your new home.
Now it is time to get the loan.
If you completed step one and were pre-approved, this part should be painless and simple. Your mortgage broker will receive a copy of your purchase contract and complete your loan application. They will lock in your interest rate based on the appropriate loan program, as well as prepare your application and any state and federal disclosures for your signatures. Most lenders will email you the loan paperwork and will allow you to sign electronically. Mortgage disclosures are time sensitive so it is important to pay close attention to your email for instructions given to you by your broker or the lender.
Once your loan package is signed, your broker will order your property appraisal, and upload your supporting income documentation to the lender for underwriting review. The underwriter will make sure the information on your loan application matches up with your documentation. If everything looks good, they give the loan a conditional approval. This means the underwriter has approved the loan; but needs additional documentation either from you or information regarding the property.
The underwriters can seem demanding, but they are really on your side and want to approve your loan. The broker will be in communication with any additional documents if needed. It is important to remember that your contract has deadlines, so staying on top of additional documentation requests is crucial to closing your loan on time.
Touchdown - Closing Day!
The loan is approved. Closing day is in sight. You are packed up. We hope you are excited!
The days leading to closing will be a whirlwind, but are just as critical as the days spent in underwriting:
Your lender and broker will coordinate with the title company to issue a really important document called the Closing Disclosure or CD.
The CD will outline the final itemized cost of your loan, interest rate, monthly payment, and the exact amount you need to bring to closing. If your original loan estimate was done correctly, there should be no surprises on the closing disclosure. This document, by law, needs to be issued to you and signed at least 3 days before closing.
The day of closing has arrived and you have completed your final walk-through of your new home. Time to sign paperwork at the title company… what is the title company?
The title company is a 3rd party that prepares all the real estate and mortgage closing documents. They also collect all the funds from you and the lender. This is to ensure they are distributed to the appropriate parties. The most important thing they do is ensure that you get your home with a clear title, and ownership of the home is recorded with the county.
Be prepared for your closing to last an hour and bring a valid ID. Your down payment and any other money should be in the form of a cashier’s check or wire transfer to the title company. Cash or personal checks are not acceptable forms of payment. There is going to be a lot of signing your name in front of a notary at the closing table and your hand is going to hurt but it is worth it!
The seller just handed you the keys to your new address! Congratulations! It is time to move in your home!!
Credit Myths You May Not Know
Checking out your credit scores and credit reports does not affect your credit score. Examining your score may help create the right kinds of behaviors early on; or show any potential identity theft. However, doing hard inquiries — when a creditor runs your credit report in order to decide about extending new credit to you — may influence your credit score.
A credit building loan from a bank builds credit as it is paid off…
A credit building loan is just that, a loan. Any installment loan (auto, student, mortgage, personal) is a fixed monthly payment and backed by property or the government. Its payment history or dollar amount does not factor into credit scores until it ages two to three years old and then it grows credit scores minimally.
My online (credit karma/credit wise) scores are my true FICO scores…
There are hundreds of different FICO formulas and four main industries who use their specifically approved formulas to assess debt and risk. The online, credit card, auto loan, and mortgage industry all use very different scoring models to provide credit scores. It can be a difference of 40 points between the industries!
Can paying off collections remove the reporting from a credit report and raise my credit score?
Collection companies will tell a consumer “if they pay a collection they will remove it.” Once paid, the most a collection company can do is update the bureaus and report the collection as paid. They cannot un-report what they originally reported. Paying a collection does not remove it from a credit report nor does it raise the score.
7 Things You Shouldn’t Do After Applying for a Mortgage
Don’t change jobs or how you are paid at your job.
We must be able to track the source and amount of your annual income. If possible, you will want to avoid changing from salary to commission, or becoming self-employed during this time as well.
Don’t deposit cash into your bank accounts.
We need to source your money and cash is not traceable. Before you deposit any large amounts of cash into your accounts, discuss the proper way to document your transactions with us.
Don’t make any large purchases like a new car or new furniture for your new home.
New debt comes with it, including new monthly obligations. With new debt you will have higher debt to income ratio. Which means higher ratios can make for riskier loans, and sometimes qualified borrowers will no longer qualify.
Don’t co-sign other loans for anyone.
When you co-sign, you are obligated. As stated in number 3, with that obligation comes higher ratios as well. Even if you will not be the one making the payments, we will have to count the payment against you.
Don’t change bank accounts.
Remember, we must source and track assets. That task is considerably easier when there is consistency among your accounts. Before transferring money between accounts, talk to us.
Don’t apply for new credit.
It does not matter whether it is a new credit card or a new car. When you have your credit report run by companies in multiple financial channels (mortgage, credit card, auto, etc.), your FICO score will be affected. Lower credit scores can impact your interest rate and maybe even your eligibility for approval.
Don’t close any credit accounts.
Many clients have mistakenly believed having less available credit makes them less risky and more likely to be approved. Wrong. A major aspect of your score is your length and depth of credit history (as opposed to just your payment history). And your total usage of credit as a percentage of available credit. Closing accounts has a negative impact on both those factors of your score.