I love living vicariously through our borrowers’ home searches. It’s like having my own real life HGTV. It’s always a unique journey and I see them ponder over and often change their “must haves” into “would be nice ifs.” They’re shopping, which is so fun, so sometimes it can be a bummer being the boring lender requesting a million documents all the time. Well, maybe not a million, but you get the idea. It’s not rocket science, it’s just shopping is way more fun than paperwork.
So, in an effort to make the paperwork part of the process less work, less stress, less unknown, and almost as fun as the shopping part, I’ve devised a checklist for anyone who wants to obtain a mortgage:
- Start with a lender. If you want to go to some open houses, or search for hours on Zillow, fine. But, understand, you really shouldn’t be shopping for a house until you know what you can afford. Yes, there are online mortgage calculators, but because so many of the details of your personal finances can only be truly proven through documentation, you’re going to need to get pre-approved with a lender. It’s easy to get a quote online, and you can have “like entities” pull your credit within a 30 day period to make sure you’ve found the lender with the rates, terms, and personality that meshes best with yours. That last part is pretty important, as, honestly, because of the Frank Dodd bill the vast majority of lenders have comparable rates, terms, and products. You really want to have a lender who can provide you with the service, communication, hard work, and honesty you deserve. There’s nothing worse than a lender who works bankers’ hours, especially when you’ve looked at 12 homes and it’s Saturday at 8pm and you MUST know that monthly payment before you write your offer. My advice, get a lender who is available to you and whom you trust implicitly. HINT HINT, APPLY HERE: ONLINE APPLICATION.
- Understand the application process. The four pillars of your mortgage loan approval are your credit score, assets, work history, and debt-to-income ratio. That means your application (link) will ask for the following items:
Full legal name
Date of birth
Social security number
Marital status and if you have any dependents
Current address, length of time at residence, and whether you own or rent
If less than 2 years, your previous address
Your current employer, length of time there, position held there, salary or hourly rate
If employeed less than 2 year, your previous employer
Any other income
Amount of cash available for closing costs and/or down payment
Ideal monthly mortgage payment and if you’d like to include taxes and insurance
Phone number and email address
Honesty and accuracy upfront will make for a smooth process in this step, which is called the “pre-qualification.”
The next step, the “pre-approval” is done through verification of that initial
information. So now it’s time to:
- Get your paperwork together. It may seem like you have to give your lender everything plus your blood type and your first born child, but we’re just complying with the regulations that have been set in place to prove that we have issued your loan approval through lawful evaluation. The government says we need these things, thus we ask them of you:
Last 2 pay stubs
Most recent 2 years’ W-2s
Most recent 2 years’ complete and signed federal tax returns (ALL PAGES and schedules)
Last month’s bank statements from any account you will be using for cash to close (ALL PAGES)
Clear copy of your driver’s license
Copy of your social security card
Contact number and address for all employers over the last 24 months
- Establish and agree upon your expectations. At Home Team Equity, we take pride in having the knowledge and system in place to streamline your mortgage process. We also truly care about our borrowers. We get it, this isn’t just an investment, this is your HOME. One of the ways we not only match but EXCEED our clients’ expectations is by communication. We do what we say we’re going to do. We answer your phone calls, texts, and emails. We are present and available for our clients. We keep you and the real estate professionals you are work with during the transaction updated on the progress of your loan so there are never any surprises. It’s a level of expectation that we believe everyone deserves when working with a mortgage lender. Once you’ve made an application with your lender, you will receive within three days of that application what’s called a Loan Estimate and that will show you your rate, monthly payment, and cash to close.
- From contract to closing. Under your real estate purchase contract, you are bound by deadlines in that contract and your trusted Realtor® will be such a valuable resource, working together behind the scenes as a liaison between you, the seller, their agent, the title company, the insurance company, home inspectors, appraisers, and even us, your lender. They ensure you are on task with those contract deadlines. What you can expect from Home Team Equity as your lender is for us to be in touch with you on a weekly basis to keep you informed of how the loan is progressing. The main thing you’ll need to keep in mind during this time is how vitally important it is for you to produce any extra documentation that are requested within 24 hours. That will ensure that your closing date can be met. It’s a tough job at times when much of the outcome depends on other people, but our guarantee to you is that you and your investment are protected. That is why we try to work with like-minded professionals who have the same sense of urgency when it comes to our clients. As a buyer, you also need to have the sense of urgency so that your deadlines are met and you are protected. We will be there each step of the way.
- Closing time! One of the most important things you’ll need for closing is money to cover the closing costs, which include things like courier fees, recording fees, title insurance premiums and underwriting fees. For this you must plan ahead, as most title companies accept only a wire transfer or a cashier’s or certified check. Personal checks will not be accepted. Your initial Loan Estimate that was given to you will have a basic outline of your fees. And, once you are locked into your loan rate, have the property address with exact real estate taxes, and doc stamps, and have secured your insurance and your survey, you’ll have your final numbers on what is called a Closing Disclosure. Ironically, the exact amount of the closing costs sometimes won’t be determined until the last minute, so be prepared to have the funds wired from your account or a check drawn up right before closing. GET YOUR PEN READY! THERE’S LOTS TO SIGN!
The reality is, the paperwork is not as fun as the house shopping, but in my experience with any area of life, if you know what you’re getting into, then you can walk confidently forward. And the good news is, with professionals you can trust, you won’t ever have to walk alone.
You did it! You got approved for a mortgage and you’re finally out looking for a new home. You may even have a home under contract! Just be careful during this process because even with a pre-approval letter from a lender, you can still sabotage your ability to get final loan approval if you do any of the following:
- Put that new sofa on a credit card. Ok, you’ve measured out your potential new living room and that suede sectional is everything you need and more. Do not rack up your credit card with large purchases. In fact, if you can swing it, don’t use any of your credit cards excessively (or at all) and certainly don’t let the payments fall behind.
- Tell that pushy cashier at Kohls that you’re buying a house, so enough with the high pressure sales to get an additional 30% off! Isn’t it funny how at Kohls you always save, like, $700? I actually really, deeply, truly love Kohls, but, y’all know what I mean. Whatever store it is, do not, no matter how great the temptation, get any new lines of credit during this mortgage process. That “extra 20% off today” is not worth the risk of lowering your credit score.
- You’re getting a new house, don’t go out and get a new car, truck, or van…unless you want to live in them. I’m not kidding. This has happened. Settle down with that fabulous credit score and save the new whip for your next big purchase.
- Don’t even co-sign for a loan for anyone (have I made the “ no new credit until you’ve closed” thing clear?) If your cousin Joey desperately needs a new car and the only way to make it happen is with a co-signer, you are not the co-signer he is looking for! Or, if you are, Joey must wait until you’ve closed.
- You’ve set aside money for your closing. Don’t touch it. The “oops I spent my down payment money,” excuse has never worked for any underwriter.
- Speaking of money…please don’t make any large deposits into your bank accounts without checking with your loan officer. I know this sounds crazy, because you’d think the more money in your bank account the better, but unexplained deposits can look suspicious to an underwriter, and whatever the deposit is must be documented. So, just to avoid the hassle, tell your sister she can pay you back for that Spring Break trip AFTER you’ve closed.
- Speaking of bank accounts…please don’t change bank accounts until after you’ve closed.
- Keep your job! Even if you’ve been offered the opportunity of a lifetime, or you just simply cannot stand Bob in accounting for one more day of your life….do not change jobs until after you’ve closed. Ignore Bob too.
- Still thinking about that suede couch? Keep it in mind, but whatever you do, don’t request a credit line increase in order to purchase said suede couch after closing. Patience is a virtue!
- Lastly, if your lender requests a document from you, please, for the love of all that is holy, get it to them in a timely manner. By timely manner, I mean within 24 hours. Ideally, 2-4 hours! Truly, I cannot tell you how many deals have almost fallen apart because a borrower couldn’t get one little piece of paper in and the contract expired and the sellers didn’t want to extend the contract. Phew! So much hassle! Just know that if your lender is requesting a document, it is imperative that you get them that document as soon as humanly possible.
The basic overall lesson here, folks, is…major changes in income, assets, or debt can alter the terms of your mortgage or kill your deal all together. So, if you’re not sure how your action may or may not affect your approval, just ask your lender. With an open line of communication, we can make your dream of home ownership a reality!
According to an article from flordiarealtors.org, one of the most recognized credit scoring companies, Experian, was penalized $3 million last week by The Consumer Financial Protection Bureau (CFPB) for telling consumers that the credit scores they provide are the same scores that lenders use to make credit decisions. This comes on the heels of similar fines and accusations made against Equifax and TransUnion earlier this year. The CFPB ordered the credit bureaus to truthfully represent how credit scores are used, and forced them to change the language in their marketing.
A credit score is the numerical summary that predicts a consumer’s payment behavior. As a consumer, you need to know that no single credit score or credit scoring model is used by every lender. When you are looking to obtain a mortgage, understand that 9 out of 10 lenders use your FICO scores from the three bureaus in what’s called a tri-merge credit report. And, of those three, we use the median score as part of our decision to extend credit. “Tri-merge” is just another way to say 3-in-1. It’s just one long credit report that includes information provided by all three credit bureaus: Equifax, TransUnion, and Experian, each of which has their own separate credit reports and FICO scores. The tri-merge is the all-in-one summary that lenders use to get an accurate assessment of your history as a credit user. Your tri-merge will determine what terms your lender can offer you, including your interest rate. General rule of thumb: the lower your credit, the higher your interest rate.
The reason lenders use three scores is because we want to make sure nothing slips through the cracks. It basically allows us to triple check your credit before we give you hundreds of thousands of dollars. Each credit bureau uses different scoring methodology and software. They then supply a generic risk score based on their own software. And, many times, the three credit scores are quite different from one another. Additionally, the major difference in that tri-merge that your lender pulls in the loan application process and the credit report you see from a website, is that those credit bureaus sell you, the consumer, their own proprietary score, NOT your FICO score.
So, when you think you’re ready to buy a home, understand that the “free credit report” or one credit score from one bureau can be used as a guideline, but understand that a lender’s hard credit pull to assess your credit history is going to be the most accurate.