Your offer has been accepted... So, now what? Part II (financing)
2) Financing: Though I usually request that my buyers get approved for financing before placing an offer, there are occasions when this is not possible. So, let's say you put in an offer on a new home and everyone has agreed to a loan contingency allowing for 30 days +/- to secure financing. Now what? In years past, you could sneeze and qualify for a loan (ever hear of no-doc loans?). These days I'm afraid it's a lot tougher, regardless of your qualifications. Full document ("full-doc") loans are the standard now, and will provide ample opportunity for you to become fast friends with your mortgage lender. Why? Because she/he will be asking you for your income, asset and debt information at the beginning of the process, probably in the middle of the process, and quite possibly toward the end of the process. It takes time, patience, and a lot of documentation.
About documentation... Keep copies of what you send... all of it! Not all documents copy well or are easy to read. Send low quality copies, and you will surely hear from the bank requesting new ones. Take a few days to provide these replacement copies and the loan process will take that much longer.
Let's go into more detail:
Income: You'll need to collect your most recent pay stubs (30-days worth), andars' W2s/1099s and tax returns for the last two years.
Debt: Found in your credit report are all the open lines of credit in your name: payment history, late payments, collections and foreclosures. By starting the approval process early (before your offer), mistakes or problems can be remedied, possibly raising your credit score, potentially allowing you to qualify for a better interest rate.
Assets: Here's where you get to share 2-months' worth of bank statements (every single page) for each account you have open. Are you receiving gift money in order to make your purchase? Your giver (generally a family member) needs to fill out a form (get one from your lender so you hit on all the right topics) and show his/her ability to give the gift by... you got it... providing a bank statement. I know. It gets tiresome.
Identity: You'll need a legible copy of your driver's license along with a social security card or possibly a passport. The loan officer needs to see that the name on your i.d. matches your documentation and loan application.
Loan Process: During this period you may be asked to provide more documentation (pay-off information, recent bills... whatever the Underwriter deems necessary). Be ready. You might be asked to provide a bank statement hi-lighting the line showing your earnest money deposit exiting the account. Similarly, if you are receiving gift funds, you'll have to show the funds coming into your account. Why is this all necessary? The law requires that the banks show proof that you are using your funds to purchase a house, and this is how they do it. These laws apply across the board, so don't feel singled out.
Now, all of this needs to be accomplished in 30 days (give or take, according to your contract). And guess what... they can turn you down. If you have the opportunity to get approved (not just pre-approved... we want you 100% fully approved), please do so. You'll be saving yourself a lot of time and energy, and ... you'll know exactly how much money you can or cannot spend*. Don't get caught by surprise. Your realtor will thank you!
*a note of caution. After you've been approved for a loan, please don't run off to Vegas and gamble away all of your savings. Or, have a mid-life crisis and buy a Corvette. Or write a big fat check on that home equity line of credit. If you choose to waive that financing contingency because you've been approved, and then you can't perform on the loan, you've just created a really big problem for yourself.
Part I of "Your offer has been accepted... So, now what?" tackles home inspections and how they might play out in your home purchase scenario.
Coming soon... Be on the lookout for "Your offer has been accepted... So, now what? Part III" which will discuss settlement attorneys.
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