A Step By Step Look at Financing the American Dream
Buying a home is the biggest financial investment most of us will ever make. As with any large project or goal, it requires dealing with a variety of complex issues. The best approach is to divide the process into manageable tasks.
Before you go looking for a home, you should determine how much home you can afford. Most lenders will prequalify you to borrow up to a certain amount. Prequalification allows you to focus in on a realistic price range and makes you a more attractive buyer.
Step 1. Get Your Finances in Order
Take a fresh look at your household budget to determine how much you can spend on a mortgage each month.
It is a good idea to review your credit report. Your credit reports are an ongoing look at how you manage your finances. You must know exactly what your credit reports say about your financial history before you apply for a mortgage, because the reports play an important role in the mortgage approval process and in determining the interest rate and other loan terms that a lender offers you.
Organize Your Documents
- If you are salaried: provide two years W-2 and one month of paystubs OR if you are self-employed: provide two years tax returns and a YTD profit and loss statement.
- If you own rental property, please provide rental agreements and two years tax returns.
- If you wish to speed up the approval process, please also provide three months bank statements for each bank, stock and mutual fund account.
- Provide recent copies of any stock brokerage or IRA/401K accounts that you may have.
- Provide a copy of divorce decree if applicable.
- Copy of your Drivers License or Picture Identification Card.
- If you are NOT a US citizen, provide us with a copy of your green card (front & back), or if you are NOT a permanent resident provide us with your H-1 or L-1 visa.
Step 2. Get Qualified
Getting qualified before you apply for a loan can help you understand how much you can borrow.
When buying a house, you may get pre-qualified or pre-approved. You can typically get pre-qualified over the phone or on the Internet in a few minutes. A pre-qualification is not as beneficial as a pre-approval where you have to go through a more rigorous process which includes verification of your credit, income, assets and liabilities. It is highly recommended that you get pre-approved before you start looking for a house. This will help you:
- Find out the maximum house you can buy, so you don’t waste time looking for properties you can not afford.
- Puts you in a stronger position when you are negotiating with the seller, because the seller knows that your loan is already approved.
- Helps you close quickly, since your loan is already approved.
Step 3. Compare Loan Programs And Rates
To compare loans you will need to:
- Think about how long you plan to keep the loan. If you plan to sell the house in a few years you may want to consider an adjustable or balloon loan. On the other hand if you plan to keep the house for a longer time you may want to look at fixed loans.
- Understand the relationship between rates and points. Points are consider to be prepaid interest and are tax deductible. Each point is equal to one percent of the loan. So for example 1 point on a $150,000 loan is $1,500. The more points you pay, the lower the rate you will get.
Compare different programs. Comparing for a loan can be difficult. With so many programs to chose from, each of which have different rates, points and fees, its hard to figure out which program is best for you. That’s where an experienced loan officer can help you make a decision that’s best for you.
Step 4. Apply for a Loan
Step 5. Obtain Loan Approval
Once your loan application has been received we will start the loan approval process immediately. This involves verifying your:
- Credit history
- Employment history
- Assets including your bank accounts, stocks, mutual fund and retirement accounts
- Property value
Based on your specific situation, additional documents or verifications may be required. To improve your chances of getting a loan approval:
- Fill out the loan application completely.
- Respond promptly to any requests for additional documents. This is especially critical if your rate is locked or if you plan to close by a certain date.
- Do not make any major purchases. Do not buy a car, furniture or another house till your loan is closed. Anything that causes your debts to increase might have an adverse affect on your current application.
- Do not move money into your bank accounts unless it can be traced. If you are receiving money from friends, family or other relatives, please contact us.
- Do not go out of town around the closing date. If you do plan to be out of town when your loan is expected to close, you may sign a power of attorney, to authorize another individual to sign on your behalf.
Step 6. Close The Loan
After your loan is approved, you will be required to sign the final loan documents. This will normally take place in front of a notary public. Be prepared to:
- Bring a cashiers check for your down payment and closing costs if required. Personal checks are normally not accepted.
- Review the final loan documents. Make sure that the interest rate and loan terms are what you were promised. Also, verify that the name and address on the loan documents are accurate.
- Sign the loan documents.