I recently closed two escrows that almost "killed" the buyers and want to prepare those who are taking advantage of today's low prices and will be purchasing their dream homes. Before even starting to look, contact your lender and obtain a real loan pre-approval, not just a pre-qualification based upon your income and credit. Things have changed so much recently that I was taken by surprise. I recommended a lender to buyer number one who had successfully closed loans for me in the past and he talked to the buyer and sent me a pre-approval letter to submit with the offer. After requiring all sorts of documentation, the lender then said, because the buyer owned another property that is worth less than its mortgage, they would not be able to do the loan. So, I had him send the paperwork over to another lender I thought I could trust. He said "No problem. The buyer can get his loan for $729,000; I'm submitting the package to underwriting." I reminded him that the loan had to be $829,000, per contract. After wasting three weeks of a 45-day escrow, we were without the financing and I was being pressured by the listing agent to have the buyer sign off on the contingency. Luckily, the buyer was discussing this situation with a fellow parent at a soccer game. The parent is a vice-president for an institutional lender and recommended what the first two lenders should have, "Get an adjustable loan and treat it like an interim loan until you sell the other property." We were able to close the loan and the buyer has moved into his new home, but the process was gruelling. This buyer has a good income and good credit.
Buyer number two also had good credit and a good income. He selected his own lender who was competent, but the buyer had borrowed money from a friend to pay off a debt. He was asked for a copy of the cancelled check that he had not gotten back yet showing he had paid the friend back and also he was asked to show the entire transaction...a copy of the check from his friend, the deposit of the money into the bank, a copy of the check he wrote paying back the friend and a copy of the friend's bank statement showing he was paid back. "Why?" I asked the lender. " Homeland security.", he replied, "They need to know the money was not laundered." This buyer almost backed out right at the last moment because he was so worn down. He is also happy in his new home and is in the process of doing improvements to it.
My advice is to be prepared for the pitfalls of obtaining the financing for your home. You will be asked for, among other things, a schedule of real estate owned, a valid California driver's license, W-2′s for the last two years, most recent pay stubs, Federal tax returns for the last two years, rental agreements (if the rents are not shown on the Schedule E of Form 1040). If you are self-employed, you will need a current year-to-date Profit and Loss Statement and Balance Sheet. You may also be required to provide copies of property tax bills and if you own a condominium a copy of the HOA bill.
I recommend requiring that the pre-approval REALLY IS a pre-approval. Also, ask the lender to propose alternative loans, just in case. The good news from all of this is the end result(your dream home) is worth the means to obtain it.
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