by Jessica Clark, Buyer Agent for Suzanne & Company
One of the best pieces of advice I give to buyers working with me is to get pre-approved for a mortgage right from the start of their home search. Pre-approvals can take a few days to be processed and there is nothing worse than losing a house you are qualified to buy simply because another offer is submitted while you're waiting for approval on your financing (Yes, we are seeing multiple offers on properties again!). Furthermore, a solid pre-approval from a reputable lender can do wonders for your offer in the eyes of the seller and their agent. It shows that not only are you qualified to purchase the home, but also that you are a serious buyer who has done your homework and you are familiar with the home buying process.
It is a common misconception that it is impossible to obtain a mortgage due to the new, stricter credit guidelines. This simply is not the case. Yes, you need more than just a name and stated income nowadays, but there is still plenty of mortgage money to go around to qualified borrowers.
Here are some of the most common questions and requirements from lenders, as well as question to ask them. If you have any questions or would like some lender recommendations please give us a call!
Mortgage 101: A First-Time Buyer FAQ
What factors do most lenders take into consideration?
1. Income (money you earned before taxes a.k.a gross income)
2. Debt (credit card balances, car loans, student loans, child support, etc)
3. Debt-to-income-ratio (normally you are allowed to use 38% of your income towards your debts)
4. Credit history
5. Employment history
6. Money in savings
What kind of paperwork do most lenders need for the application
1. Copies of tax forms (W2, 1099, etc) for the last 2 to 3 years
2. Copies of at least 2 pay stubs
3. Copies of 2 to 4 months of bank or credit union statements for checking and savings accounts
4. Credit cards account numbers and outstanding balance amounts
5. Loan numbers and amount owed on installment loans (car loans, students loans, etc)
6. Documentation to verify any additional income (child support, pension, etc)
What questions should I ask my lender?
1. How long will the loan approval process take?
2. Who will service the loan, your bank or another company?
3. What are the most popular mortgages you offer? Why are they so popular?
4. How long will my rate be locked-in? (Your lender will quote you a rate that will be honored for a set period of time.) Will I be able to obtain a lower rate if they drop during the lock-in period?
5. Do you require private mortgage insurance? If so, how much will it cost, and how long will it be required? (Private mortgage insurance (a.k.a. PMI) is often required if your down payment is less than 20% of the purchase price. On the plus side, most lenders will let you discontinue the PMI when you reach a predetermined amount of equity.)
6. Do you charge a penalty for prepaying my loan?
7. What are the closings costs involved and how long will it take to close?