Choose A Loan OfficerIf you have not already talked to a Loan Officer prior to meeting your Realtor, ask for a recommendation. After all, your Realtor works hand in hand with lenders on a daily basis and knows who may be the best to help you out. Trust and Customer Service are key in Loan Officers that I love to recommend. Over the years, I have had the privileged of working with a variety of lenders and here are a couple that I highly recommend:
Choose A Loan ProgramHome Loans come in a variety of shapes and sizes. Deciding which one makes sense for you, your financial situation, and your goals means understanding the benefits of each. Whether you are interested in buying a home or refinancing, there are 2 basic types of home loans and each a different reason you'd choose them.
1) Fixed Rate MortgagesA fixed rate mortgage usually has terms lasting 15 or 30 years. Throughout those years, the interest rate and monthly payments remain the same. You would select this type of loan when you:
- Intend to live in the house more than 7 years
- Like the stability of a fixed principle/interest payment
- Don't want to run the risk of future monthly payment increases
- Think your income and spending will stay the same
2) Adjustable Rate MortgageAdjustable Rate Mortgages (often called ARMs) typically last for 15 or 30 years, just like fixed rate mortgages. But during those years, the interest rate on the loan may go up or down. Monthly payments increase or decrease. You would select this type of loan when you:
- Intend to stay in your home less than 5 years
- Don't mind having your monthly payment periodically change (up or down)
- Comfortable with the risk of possible payment increases in future
- Think your income will probably increase in the future
Submit A Loan Application for Pre-Approval
Factors In Qualifying A Home Loan:LTV & Debt Income Ratios LTV or Loan-To-Value ratio is the maximum amount of exposure that a lender is willing to accept in financing your purchase. Lenders are usually prepared to lend a higher percentage of the value, even up to 100%, to creditworthy borrowers. Another consideration in approving the maximum amount of loan for a particular borrower is the ratio of monthly debt payments (such as auto and personal loans) to income. Rule of thumb states that your monthly mortgage payments should not exceed 1/3 of your gross monthly income. Therefore, borrowers with high debt-to-income ratio need to pay a higher down payment in order to qualify for a lower LTV ratio. FICO Credit Score FICO Credit Scores are widely used by almost all types of lenders in their credit decision. It is a measure of creditworthiness of an individual, which is based mathematical models developed by Fair Isaac and Company in San Rafael, California. FICO scores reflect credit risk of the individual in comparison with that of general population. It is based on a number of factors including past payment history, total amount of borrowing, length of credit history, search for new credit, and type of credit established. When you begin shopping around for a new credit card or a loan, every time a lender runs your credit report it adversely effects your credit score. It is, therefore, advisable that you authorize the lender/broker to run your credit report only after you have chosen to apply for a loan through them. Self Employed Borrowers Self employed individuals often find that there are greater hurdles to borrowing for them than an employed person. For many conventional lenders the problem with lending to the self-employed person is documenting an applicant's income. Applicants with jobs can provide lenders with pay stubs, and lenders can verify the information through their employer. In the absence of such verifiable employment records, lenders rely on income tax returns, which they typically require for 2 years. Source of Down Payment Lenders expect borrowers to come up with sufficient cash for the down payment and other fees payable by the borrower at the time of funding the loan. Generally, down payment requirements are made with funds the borrowers have saved. If a borrower does not have the required down payment they may receive “gift funds” from an acceptable donor with a signed letter stating that the gifted funds do not have to be paid back.
Begin The Loan ProcessIn general, approval is based on two factors: your ability and willingness to repay the loan and the value of the property. Lenders do follow standards set by government agencies, loan approval guidelines can vary depending on the terms of each loan. Once your loan application has been received the loan approval process will start immediately. Your loan processor will verify all of the information you have given. If there are any discrepancies found, the processor or your loan officer will troubleshoot to straighten them out. This information includes: Income/Employment Check Is your income sufficient to cover monthly payments? Industry guidelines are used to evaluate your income and your debts. Credit Check What is your ability to repay debts when due? Your credit report is reviewed to determine the type and terms of previous loans. Any lapses or delays in payment are considered and must be explained. Asset Evaluation Do you have the funds necessary to make the down payment and pay closing costs? There are additional costs to buying a home that do not include your down payment. An estimate can be provided by your Real Estate Professional. Property Appraisal Is there sufficient value in the property? The property is appraised to determine market value. Location and zoning play a part in the evaluation. This is an out of pocket expense for the buyer and is generally paid prior to the close of escrow. Other Documentation In some cases, additional documentation might be required before making a final determination regarding your loan approval. Getting all of your paperwork in before you get started looking for a home can help eliminate stress towards the end of the escrow when you are focusing and preparing to move.
Tip To Help You Get Loan Approval
- Fill out your loan application completely.
- Respond promptly to any requests for additional documentation especially if your rate is locked or if your loan is to close by a certain date.
- Do not move money into or from your bank accounts without a paper trail.
- If you are receiving money from friends, family or other relatives, please prepare a gift letter and let your lender know
- Do not make any major purchases until your loan is closed. Purchases cause your debts to increase and might have an adverse affect on your current application.
- Do not go out of town around your loan's closing date. If you plan to be out of town, you may want to sign a Power of Attorney.
Close Your Loan - Get Your Home
After your loan is approved, you are ready to sign the final loan documents. You must review the documents prior to signing and make sure that the interest rate and loan terms are what you were promised. Also, verify that the name and address on the loan documents are accurate. The signing normally takes place in front of a notary public. Often you can make an appointment to sign at escrow or after hour arrangements may be needed to accommodate your work schedule.
There are also several fees associated with obtaining a mortgage and transferring property ownership which you will be expected to pay at closing. Bring a cashiers check for the down payment and closing costs if required. Personal checks are normally not accepted. You also will need to show your homeowner's insurance policy, and any other requirements such as flood insurance, plus proof of payment.
Your loan will normally close shortly after you have signed the loan documents. On owner occupied refinance loan transactions federal law requires that you have 3 days to review the documents before your loan transaction can close. It is important to monitor that your close date does not interfere with any rate locks that are in place so that none of your terms are at risk of changing or preventing your from closing escrow in a timely manner or at all.
Once you have funded and have confirmation that it has been recorded, it's time to get the keys and let the joys of moving begin!Congratulations ~ You Are A HOME OWNER!!!