Home Buying Tips

Homebuyers are often not aware of how an innocent transaction such as moving cash from one bank to another can create a major problem for their mortgage application process. There are several major things to avoid doing before applying for a loan and during the loan process itself. Any one of these things can greatly impact your ability to qualify for a mortgage loan, so it is critical to avoid doing any of the following until AFTER you loan has closed escrow:

DON’T MOVE YOUR CASH AROUND:

We have to verify all funds for closing including the source of those funds. Moving assets around can create a paper trail nightmare. The best advice is to leave everything where it is, even if the purpose of the move is to pool your funds for buying the house. After we verify your accounts and give an “ok”, then you can consolidate your accounts if you want. Always consult your Loan Officer or Processor before you move any funds.

LARGE DEPOSITS:

We have to verify all sources of funds for the transaction. We will be looking at any large deposits into your asset accounts (checking, savings, money market, etc.). You should be prepared to document the source-perhaps a copy paycheck, bonus check, money from the sale of an asset, etc. If you have a question as to how, please call your Loan Officer or Processor.

SELLING SOMETHING:

If you are selling an asset such as a car, antique, baseball card collection, etc. to come up with the cash for closing, please document the asset including the check the buyer gives you, car title, and a bill of sale. Sometimes you will need to get a certified appraisal of the item.

GIFTS:

Gifts from relatives are a very common item in the purchase of a home. However, there are certain ways a gift needs to be handled as to not create a paper nightmare for you. If you are going to receive a gift, hold off receiving it until we have talked. Please carefully follow the instructions on our Gift Letter form for your particular type of loan.

DO NOT PACK ANY FINANCIAL PAPERS:

Keep all of your tax returns, along with any W-2’s, 1099’s, or K-1’s and any other financial papers from the past two years in a handy place. If you sold a home in the past two years, have your (HUD-1) Settlement Sheet handy. You may have to produce an item that you did not expect.

CREDIT CARDS/ NEW DEBT:

Do not apply for any new credit because that creditor will show up on your credit report and we will have to verify that there is no new outstanding debt. If you are planning to pay debts off for closing, hold off until you have spoken to your Loan Officer or Processor. We may be able to pay off those debts at closing, with no effect to your approval process. If you have paid off any debts recently, it may not show on your credit report and we will have to re-verify each creditor’s current balance, which requires more time.

CHANGING JOBS:

Please do not change jobs during this process without your Loan Officer’s knowledge. The new position could jeopardize your approval for this loan.

And finally something you will want to do:

REVIEW YOUR CREDIT REPORT:

The best way to get a jump start on your mortgage process is to know what your creditors are saying about you. Call your Loan Officer to run an in-file for you and review it together.

WHAT TO START COLLECTING BEFORE YOU APPLY FOR A LOAN

Lenders require a lot of documentation so it's a good idea to start collecting some of the things you'll need to bring to your loan application beforehand. To save yourself time and frustration during your loan process, start gathering all the documentation listed below as soon as possible.
1 ) For Your Residence History:
a) Your previous addresses for the last 2 years and how long you lived in each place
b) If you currently rent, your landlord's name and address (for the last 12 months)
2) For Your Employment History:
a) The names and addresses for all your employers for the last 2 years
b) The dates you worked at each place of employment
c) A letter explaining any gaps in your employment in the last two years
d) Original paystubs for the last 30 days
e) Most recent 2 years W-2's
f) Most recent 2 years 1040's
g) Year-to-date profit and loss statement and current balance sheet (if self-employed)
h) Transcript or diploma if you were a student in the last 2 years
i) Award letter and copy of most recent check for retirement, Social Security or disability income
3) For All Outstanding Loans and Credit Cards:
a) Coupon book or most recent statement for every account you have open
4) For All Savings, Checking or Investment Accounts:
a) The name and address for each financial institution and the account number
b) The current balance or value
c) 3 months bank statements on all accounts
d) 3 months statements for any IRA'S, Keogh's, 401 K's or profit sharing you have
5) For Personal Property You Own:
a) The net cash value of your life insurance
b) The make, year and value of your automobiles
c) The value of your furniture or other personal property
6) For Real Estate You Currently Own:
a) The property address
b) The estimated market value, outstanding loan balance and the amount of your monthly payment.
c) The amount of your monthly rental income (if applicable)

HOW TO INCREASE YOUR PURCHASING POWER

There are several factors that lenders take into consideration when determining how much they will lend to you for your home purchase. The three most important factors are your income, debts and downpayment. Any one of these factors can greatly impact the amount of mortgage you qualify for. Lenders are primarily concerned with the percentage of your gross monthly income that goes to your new monthly housing expense and to your new monthly housing expense plus your other monthly debts. As a general rule, no more than 28% of your gross monthly income should be going towards your monthly housing payment and no more than 36% of your income should be going to your housing payment plus other monthly debt. These guidelines vary by the amount of downpayment you make and the loan program you choose.

If you have been pre-qualified and are not satisfied with the amount you qualify for, we've listed four of the most common obstacles to qualifying for a home loan below and some possible solutions to each.

1) Excessive Long-Term Debt
a) Consolidate your debts by taking out one loan and paying off your bills with the money.
b) Pay off long-term debts by using some of your cash and making a lower downpayment. Selling an asset to pay off debt is another option.
2) Inadequate Income
a) Income from alimony, child support, bonuses, overtime or future raises might be considered in qualifying. If you've overlooked any income, be sure to tell your loan officer.
b) Find a co-mortgagor who is willing to go on the loan with you to help you qualify.
c) Make a higher downpayment.
d) Consider a financing option that will allow you to stretch your purchasing power. Some of these options include FHA loans, adjustable rate mortgages, balloon financing or a graduated payment mortgage.
3) Credit Problems
a) Repair your credit file by contacting creditors and requesting that negative information be removed.
b) Pay off outstanding judgments, liens and collections.
c) Re-establish good credit.
4) Lack of A Downpayment
a) Get a gift from an immediate family member.
b) Ask the seller to carry back financing.
c) Sell or borrow against an asset.
d) Borrow against or cash out your 401 K.
e) Ask the seller to contribute towards closing costs.
f ) Obtain a low point or zero point loan.
g) Consider financing options that offer lower downpayments and help with closing costs.

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This may be your golden opportunity to re-establish your credit...recover from overwhelming debt...or consolidate your high-interest debt into one easy, low-interest monthly payment. Because you may qualify for a debt consolidation loan. Our friendly staff is ready to help you! Start by applying online - even if you have been turned down before!