If you are a first time home buyer, not knowing what to expect can be a little stressful. You may or may not encounter the process listed below. Hopefully the information below will give you an idea of what to expect.
- Find an area where you would like to live. The wider the area, the better chance of finding a home
- Contact a Realtor OR Contact a lender (preferably me) who can refer you to a Realtor
- Gather the following documents: Most recent pay stub, most recent bank statement, last 2 years federal tax returns, last 2 years W2’s. If you don’t have all of this, don’t freak out. It’s okay. Just gather together what you can
- Call the lender to get an idea of what you can qualify for and if any issues need to be worked on. Be truthful in your answers. We do not judge people based on their situation. We are here to help you, not make your life miserable. If you don’t tell the truth up front, your loan process will be miserable
- The lender will ask you for your name, social security number, date of birth, addresses for the last 2 years, employer name and your job title, your monthly income, other income, amount of money in the bank, retirement assets, your current rent or mortgage payment, if you’ve filed bankruptcy, foreclosures in the past, citizenship status and government monitoring questions
- If you don’t pay rent, it’s okay. We just have to know up front. If you pay cash to someone and cannot prove it, it’s okay. If you fix things around the house instead of paying rent, it’s okay. If you are behind on rent, it’s not okay (but tell us why). Sometimes Landlords can be difficult
- If you don’t have a bank account, it’s okay. If you keep cash in your home, it’s okay (just don’t go telling everyone that you have a wad of cash under your mattress)
- If your income is weird, it’s okay. We’ll figure it out
- The lender will pull credit and use the middle of 3 scores or the lower of 2 scores to know which program is best for you
- You don’t have to have a 700 credit score to buy a house. Your credit score can be as low as 580 with 3.5% down and 560 with 10% down. The lender may advise you to wait and buy later when your scores have improved if he/she thinks that waiting will get you a better interest rate or make the process smoother
- If you are late every month on your bills, you won’t get a loan
- If you have a negative balance in your checking account every month, you won’t get a loan but call us anyways and we’ll get you to someone who can teach you how to budget
- The lower the credit score, the lower the loan amount, to offset risk
- The lender will issue a pre-qualification letter describing what it is you can borrow and the type of program you will use
- The lender also sends you a list of documents needed in order to move forward. Start gathering as much of the documents possible: Picture ID, 2 months bank statements, 30 days of paycheck stubs, last 2 years federal tax returns, last 2 years W2’s, last quarterly retirement statement, letters of explanation for issues (if applicable), any other requests based on your situation
- The pre-qualification letter will be given to the Realtor which will then be given to the seller or seller’s Realtor as proof that you spoke to a lender
- A Real Estate Contract is signed by you, your Realtor, the seller and the seller’s Realtor (if applicable). A closing date is set to buy the home. Almost always, the contract closing date is set too early and must be changed to a later date. Reasons for delay: Government laws enacted that cause the date to extend, seller unable to repair items in time, title issues involving the home for sale, people going out of town, buyer unable to produce documents in a timely manner, appraiser unable to find properties that support the value until another home is sold among other things.
- Do not rent a moving truck for the date of closing on the contract. Do not move out of your apartment, do not move out of your house, do not cut off your utilities, do not connect utilities to the new home (because it’s not yours yet), do not change your address, do not change your driver’s license address, do not stress out
- A deposit is paid to your Realtor as a sign of good faith that you intend to buy the house
- The deposit is held by your Realtor until you sign the paperwork at the closing table at which time the money is paid to the seller. If the Realtor deposits the money into his/her business account in advance, make sure you have the funds. The money will then be credited to you at closing
- The lender receives the contract and enters the information into a mortgage application system.
- The lender emails you a request to accept future emails and you acknowledge the email setup
- The lender sends you documentation via email that requires you to e-sign online and/or requires you to print documents, sign them and fax them back
- If you don’t have email, get one and make your life easier. Not having email delays closing the loan by as much as 30 days. If you are scared about technology, the Loan Officer can meet with you and have the printed documents ready for you to sign
- The lender receives your documents and sends another request for any missing items
- The initial documents sent include you paying for an appraisal (if applicable). Pay with a debit card so that the payment can be credited back to you at closing. Paying with a check or credit card may delay crediting you the money paid and you’ll have to pay it again at closing. You will then receive a refund after closing
- All this paperwork provided by you, the documents you signed, the appraisal completed, the title work ordered, the employment verification completed, the homeowner’s insurance declaration page received is processed and sent to the underwriter
- The underwriter ensures that all that stuff passes their requirements for obtaining a loan. The requirements come from the future lender who is buying the loan from the original lender. The original lender may decide to keep the loan and provide its own requirements
- The underwriter will either approve the loan with conditions, turn down the loan or issue a clear to close with no conditions
- Conditions are additional requirements needed to support the loan’s approval
- If a lender is thorough in its processing, an underwriter shouldn’t have to consider turning down a loan, however, things happen that no one can predict and some conditions can’t be met:
o Underwriter wants proof that the HOA of a condo complex has sufficient assets. The HOA may not be able to meet that requirement
o Underwriter wants the appraiser to obtain 2 more properties sold within the last 6 months to prove the current value. Appraiser cannot find any other properties
o Underwriter requires an elevation study to rule out flood insurance requirements but the buyer cannot afford to pay for the study
o Underwriter requires bars on a window be removed, hole in the roof patched and dripping water faucet be fixed prior to close but seller cannot afford repairs
o Underwriter notices that buyer’s credit report has a new inquiry from an auto dealership and wants proof that no loan was taken but buyer’s bank statement shows a car payment deducted from the statement balance
- Underwriter receives documentation from the Loan Officer to satisfy conditions and the loan is issued a “Clear to Close”
- Closing Disclosure (CD) is sent to buyer with final numbers due at closing (who pays what and who gets what etc.)
- Buyer agrees to the CD and the title company or Real Estate Attorney office is notified that a closing is going to take place
- The time is set for closing. Directions are given to you with a list of things to bring
- If bringing money, pay with a cashier’s check made out to yourself or wire the funds. Bring your ID and your check book/debit card just in case. Bring anything else the loan officer tells you to bring
- You will sit in a room with the seller, his/her agent if applicable, your Realtor and the Loan Officer should be there
- The Title Officer/Closing Attorney receives documents from the bank for you to sign. There can be as many as 50 pages but not all require a signature. If someone else is going to be added to the title, they should be there also.
- Any money paid up front, out of pocket is credited to you at closing as part of your down payment
- If you are getting down payment assistance, then the money you paid goes towards other costs to close not covered by down payment assistance
- Most all down payment assistance services require a minimum investment from you, so don’t expect a check at closing
- Down payment money is paid to the seller at closing. It is a percentage of the sales price requested by the seller
- The Title Officer/Closing Attorney should explain to you what you are signing. If you don’t understand what you are signing, don’t sign it
- The paperwork for the most part is pretty basic. If you don’t pay, you don’t stay (in non-judicial states)
- After signing everything, the Title Officer/Closing Attorney will ask you for your check or if money is wired he/she will validate the wire transfer
- All the documents you signed are sent back to the bank to validate that you signed everything correctly. It can take up to 30 minutes depending on internet traffic/how busy is the closing department at the bank etc.
- The Title Officer/Closing Attorney comes back in and congratulates you on your new home – Yay!
- You get the keys to the house (garage door openers, termite letter bond information and anything else promised to you on the contract)
- You get into your car and scream!