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Article 4 I Want To Buy A House Now What
While idly shopping for a home might be a lot of fun, serious homebuyers should really start their home buying journey by talking with a lender, not by starting to attend open houses. Potential buyers benefit in several ways by consulting with a lender first and obtaining a pre-approval letter.
First, they have an opportunity to discuss loan options and budgeting with the lender. Second, the lender will check on their credit and alert the would-be buyers to any problems and how to fix those problems. Third, the buyers learn the maximum they can borrow, the purchase price that best fits their monthly budget, and therefore has an idea of their price range. Buyers should be careful to estimate their own comfort level with a housing payment rather than immediately aiming for the top of their spending ability. Lastly, home sellers expect all buyers to have a pre-approval letter before making an offer on a home and are sellers more willing to negotiate with people who have proof that they can obtain financing.
Pre-qualification Vs. Pre-approval
A mortgage pre-qualification can be useful as an estimate of how much you can afford to spend on your home, but a pre-approval is much more valuable because this means the lender has actually checked your credit and verified your documentation to approve a specific loan amount (usually for a particular time period such as 90 days). Final loan approval occurs when you have an appraisal done and the loan is applied to a particular property.
Here is what the lender will need to get you a Pre-approval:
1. Proof of Income
"No verification" or "no documentation" loans are a thing of the past, so all borrowers need to be prepared with W-2 statements from the past two years, recent pay stubs that show income as well as year-to-date income, proof of any additional income such as alimony or bonuses and your two most recent years of tax returns.
2. Proof of Assets
You will need to present bank statements and investment account statements to prove that you have funds for the down payment and closing costs, as well as cash reserves. An FHA loan requires a down payment of as low as 3.5% of the cost of the home, while conventional home loans require 5%, 10% or 20%, depending on the loan program. If you receive money from a friend or relative to assist with the down payment, you will need a gift letter to prove that the funds are not a loan.
3. Good Credit
Most lenders today reserve the lowest interest rates for customers with a credit score of 740 or above. Below that, borrowers may have to pay a little more in interest or pay additional discount points to lower the rate. FHA loan guidelines have relaxed in recent months, too, so that borrowers with a credit score below 580 can be approved through certain lenders. Many lenders require a credit score of 620 or above in order to approve an FHA loan. Lenders will often work with borrowers with a low or moderately low credit score and suggest ways they can improve their score.
4. Employment Verification
Your lender will not only want to see your pay stubs but will likely call your employer to verify that you are still employed and to check on your salary. If you have recently changed jobs, a lender may want to contact your previous employer. Lenders today want to make sure they are loaning only to borrowers with stable employment. Self-employed borrowers will need to provide significant additional paperwork concerning their business and income. If you are self-employed, paid by commission or own your own business I can recommend a lender who specializes in loans for individuals that have less conventional income.
Your lender will need to copy your driver's license and will need your Social Security number and your signature allowing the lender to pull a credit report. Be prepared at the pre-approval session and later to provide (as quickly as possible) any additional paperwork requested by the lender. The more cooperative you are, the smoother and quicker the mortgage process will be.
When you are ready to find a mortgage professional and get started with your pre-approval for a loan, please call or email me. My goal is to provide you with practical information as you consider your next move, and I look forward to working with you.
Your real estate agent
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