You have found the home of your dreams after being pre-qualified for your loan. You and the seller have agreed to a price and are under contract. No issues with the inspection and appraisal. Emotionally you are invested in your new home. What could possibly go wrong now?
There are some very important steps that you need to take to prepare, before you start the loan application process pr start looking at houses. Here in the Loveland-Fort Collins Colorado area we are in a sellers market. What that means to you is if your contract falls through there are many other buyers that can step in and buy your dream home. If you do your due diligence prior to applying for a loan you will be ready to take on the loan process. It won't be stress free but there will be less stress when you are prepared and aware of the requirements.
You will be asked for records of your finances, including bank statements, pay stubs, tax returns, W-2s, investment accounts and any other assets you own. Be ready to explain any unusual deposits to your accounts. The $500 that Mom and Dad deposited in your account for your birthday could delay your loan closing if you can't prove where the money came from. If you sold a collection, be ready to prove that you owned the collection prior to selling and depositing the money into your bank account. If you don't have the proof that you owned the collection then sell and deposit the money into your account two months prior to putting an offer on a property to let the deposit season in your account. Seasoning simply means that the documentation you provide, in your loan file proves that the borrower has had these assets available in their personal accounts for a minimum period of 60 days or has sold an asset and deposited the proceeds into his or her personal asset account. The bottom line is 'cash at home, under the mattress, in a safe, etc.' are unacceptable sources of funds unless a specific First Time Home Buyer program allows for it. Keep a hard copy and computer file of any documentation that you have sent to the lender. Most likely the lending company will ask for it again even though you already sent it in.
Know your credit score. While each loan program has its own minimum credit score requirement, it’s always smart to know your credit score in advance. Check all three FICO scores to make sure that you are on the right track. By taking this step, you have the opportunity to review your credit rating before your lender does. And, you have the chance to take care of any necessary credit repair work. This may mean getting rid of those extra credit cards you don’t need, paying down your account balances and making sure you pay all your bills on time from this point forward. Remember, the best mortgage rates are almost always reserved for the borrowers with the best credit. It's nearly impossible to get a mortgage without decent credit these days. Lenders don't want to give out loans to borrowers who will have little money left each month after they pay their mortgages and other debt obligations such as credit cards and student loans. Try to keep your monthly debt obligations, including your mortgage and property taxes, below 43 percent of your income.
Know your options concerning Private Mortgage Insurance (PMI) premiums on loans. This type of insurance policy protects the lender. A PMI policy can be as much as several thousand dollars on your mortgage. When you have a better understanding of what PMI will cost you, you will be able to make informed decisions about whether it's worth trying to cut this extra cost from your lending contract. If you can provide at least 20 percent of the entire loan amount up front, you can avoid private mortgage insurance entirely. If you simply cannot gather the 20 percent down payment, which many borrowers can't, then you still have options for avoiding PMI through talking to your lender about getting other kinds of specialty loans that don't include this requirement. Another alternative is to buy-out the PMI. This will be less expensive in the long run and reputable mortgage lenders will be able to explore prices for you.
Shop around for the best type of loan and rate available for your situation. Ask your real estate agent to recommend a lender if needed. Real Estate agents work with many different lenders on a daily basis and know which lenders are better at taking care of their clients.
Steve Stinnett
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