When you buy a home, there are going to be certain costs involved. You'll have to make a down payment, cover your closing costs, and have some cash reserves in the bank to satisfy the lender. The down payment might be anywhere from 3.5% to 20% of the purchase price and closing costs can be significant, depending on the property. The more money you can save between now and the time you apply for the loan, the better off you'll be.
Review Your Credit:
Get a copy of your credit report and have corrections made to it to improve your credit score, if necessary. When you apply for a mortgage loan, your lender will review your credit reports and scores. You need to find out where you stand.
Determine Your Budget:
Your mortgage lender can tell you how much they're willing to lend you not what you can afford. Determine what is comfortable for you as the lender’s number might exceed that amount.
Choose A Loan Product:
What type of loan works best for you? The 30-year fixed mortgage? An adjustable rate mortgage? You should discuss these products with your mortgage professional.
Before you begin the property search with your FARE agent, you should get pre-qualified for a mortgage to determine some financial parameters that will save us time in finding the right property. Further, sellers will be more inclined to take us seriously if you've already been pre-qualified.
Gather Your Documents:
While the list of required documents will vary from lender to lender, the same kinds of documents are commonly required. Below is a list of a few:
Social security number and date of birth, for all signing parties.
Income verification - a copy of your 2 most recent pay stubs.
Employment verification - list of employers for the last 2 years.
Place of Residence - full list of your prior addresses for the last 2 years.
Bank account statements - last 2 months to verify your cash assets.
Tax documents - W-2 statements and tax returns for the last 2 years.
Other assets - CDs, stocks and bonds, or IRA account statements.
Credit information - information regarding all outstanding debts, if any.
Gift letters - If you will be receiving "gifted" money from a friend or family member to help cover your costs to purchase a property, you will need to provide a gift letter. The lender would like to make sure that no repayment is required.
Self-employment documents - profit and loss statement, federal tax statements, etc.
Divorce decree - If applicable.
Monthly expenses - an itemized list of your monthly payments (rent, credit cards, loans, etc.)
Submit Application/Get Pre-Approved:
A pre-approval is similar to the final commitment process except that you won't have a sales contract to provide yet, and that the pre-approval itself is non-binding. Present to your lender the documents you have gathered for pre-approval as soon as possible as this process is helpful in identifying any problems in receiving financing.
This commitment is binding, unless it is conditional or contingent upon the submission of further supporting documentation.
Review Good Faith Estimate (GFE):
A Good Faith Estimate is a legal requirement set forth by the Real Estate Settlement Procedures Act (RESPA). The GFE gives you an itemized estimate of the fees and costs associated with your loan.
Lock in Your Rate:
When you apply for a loan, your lender may offer you a rate for a certain timeframe. You may want to “lock in” your rate while the deal is being finalized as rates could rise between the time you apply for the loan, and the time all parties are ready to close, which can take a few weeks depending on the property.