Last month we started on a list of some of the things a home buyer (especially a first time buyer) should be prepared for when they're getting ready to purchase a home. We looked at the early financial planning involved, and talked about how to get your finances ready to make that dream home a reality. In this post we’ll continue our checklist, focusing on some basic info about how to be ready for your home loan so that you’re ready to strike when you find the right place.
Working the Paperwork - Smart Buyers Prepare Early for Their Loan and Closing.
Ok, so you read all our reminders about budgeting, saving, and planning your finances around your purchase and you’re ready to start house hunting and hopefully make an offer. But before you do, it pays to have your home loan approval and documents ready to go so that nothing is holding you back from getting the right offer in at the right time.
Collect Loan Paperwork
There’s going to be a lot of paperwork surrounding your loan, and banks are going to want your documents before they can consider lending to you. Some of the things you should gather and have ready early include:
- Addresses for the past five to seven years
- W-2 forms (or business tax return forms if you’re self-employed) for the last two to three years
- Personal tax returns for the past two to three years
- Your most recent pay stubs
- Credit card and all loan statements
- Your bank statements
- Brokerage account statements for the most recent two to four months
- Most recent retirement account statements, such as 401(k)
Find a Lender and Get Pre Approved
Contact several lenders for pre approval and fee estimates. Once you choose a lender, ask for a pre approval letter that you can use to present with any offer you make to purchase a home. Whatever lender you go with, they will take the required documents and run your credit, then tell you how much of a loan you’re approved for. You don’t have to borrow the maximum, and it can often make sense to borrow less than that if you’re able, so your monthly payments are at a level that allow you to live comfortably. Remember to stick to the budget planning you’ve done, which should account for the mortgage payments, insurance, property taxes, maintenance, and whatever else you needed to plan for.
Understand Your Closing Costs
The new mortgage rules that took effect last fall, TILA-RESPA, should provide you with a clearer picture of your mortgage closing costs prior to loan settlement, when you receive your Loan Estimate disclosure. Many people may still be surprised at what it actually costs to close the loan, and most think that they are the only ones who can pay them. However, closing costs can also be negotiated as a seller’s concession. Look over the disclosures, and talk to your lender to make sure you understand these costs completely.
And remember, as we mentioned in part 1 of our checklist, NOT to open a new line of credit, incur new debts, or purchase any big ticket items right before you apply for a loan, or during escrow.
You’ll need to decide on a carrier and get insurance for your new home. Don’t forget to secure this before closing. You’ll need to bring the proof of insurance to closing.
When you’ve finally found the right home, and have gone through all the paperwork for the loan, purchase, insurance, etc., you’ll eventually need a cashier’s check or bank wire for the cash needed at closing. Make sure you get an exact amount of cash needed for closing. You’ll get that number a few days before closing so you can secure a cashier’s check or arrange to have the money wired. Regular checks aren’t accepted.
That’s it for the paperwork side of things. There’s a lot more in the details of course, but hopefully now you have an idea of what to expect, and it’s your REALTOR’s job to be there to help you through the rest of it!
In our final Part 3 of the checklist to follow, we’ll get to the fun part - actually shopping for your home, and what to consider as you do. But should you have questions on any of this, or if you’re already ready to get out there and buy a home, contact us any time!