Obtaining a Loan
Buying vs Renting
- Rents are the highest they have been in history.
- Buying a house builds your wealth! Build equity over time.
- Make your home your own! Remodel anytime.
- No landlord rules to follow.
- Received tax benefits when owning your own home. (Talk to a tax professional for specifics.)
- Don't worry about getting your rent raised.
- Moving is expensive! Move less because you own your home!
- Owning a home is a better option for those who are growing a family and want stability.
- Rates are low! The lower the rates, the more buyer power you have. As rates increase, the less you will qualify for, which results in less home.
Different loan options:
- FHA 3.5% down. Your credit score can be as low as 580. Anything less than 580 will require a 10% down payment. In Palm Beach County, the max loan size for FHA is $356,500.
- Conventional 3% down payment down. Your credit score can be as low as 620. Max loan amount is $484,000.
- 100% financing with no money down. Your credit score can be as low as 640 with FHA or 660 with conventional.
- Veterans can take advantage of 100% financing with VA loans.
- Low down payment options are also available for condos.
Qualifying for a Loan:
- Credit - You do not need to have perfect credit. Loans are often approved with less than perfect or low credit scores. Major things that can disqualify you include: recent bankruptcies, IRS tax liens, lack of credit history etc. You want to strive for the highest credit score because it keeps the rate the lowest.
- Income – In order to assess your ability to make payments in the future, we will review your paystubs and tax returns for the last 2 years to ensure your income has been stable and consistent. If your income fluctuates because you are self-employed or on commission, that’s ok too!
- Employment history - Having employment stability and the ability to show a continuous 2 years is good but not required. You do not need to have the same job for 2 years, but we do need to show a history of the past 2 years. If someone was in school and graduated last year, only had a job for 1. That will be ok. When a buyer has a gap for 6 months in employment, we need to review other compensating factors to see if that would be acceptable.
- Down payment - In most cases First last and security could be equivalent to 3% down. You do not need 20% down to buy a house. When you close on a mortgage you skip your first mortgage payment. That can help with the money that is needed for closing.
- Gift funds from family members are acceptable.
The Pre-Approval Process:
If you are considering a home purchase, regardless if it is a month from now or a year from now, the first thing to do is get pre-approved.
The pre-approval is extremely important and it is important to do it with a lender that has a strong pre-approval process and understands underwriting guidelines.
It is also important to not confuse pre-approval with pre-qualification.
Q: What is the difference between a pre-approval vs pre qualification?
A: Getting pre-qualified means you speak to a lender and tell them what your overall financial picture looks like. This includes your debt, income and assets. A Lender can give you an idea of the mortgage amount for which you qualify based on the information you provide.
A Pre-qualification can be done over the phone or on the internet. A loan pre-qualification does NOT include an analysis of your credit report or an in depth look at your ability to purchase a home. The initial pre-qual step allows you to discuss any goals or needs to may have regarding your mortgage. This is when the loan officer you are working with can explain different mortgage options and recommend the type that might be best for your situation. Because this process is based on the information you tell your lender your pre-qualification is not a sure thing. It’s just the amount for which you might expect to be approved for.
Getting pre-approved is much more involved. You’ll complete an official mortgage application then provide the lender with the required supporting documents in order for an extensive check of your financial background and current credit rating is done. The lender can tell you the specific monthly mortgage amount and they can provide a better idea of the interest rate that can be charged on the loan. The lender will provide a written letter which explains the terms of the pre-approval, purchase price amount and down payment.
***Being pre-qualified borrower doesn’t carry the same weight as being a pre-approved buyer who has been more thoroughly reviewed. In a competitive market, this lets the seller know that your offer is serious and could prevent you from losing the home to another potential buyer.
Here is an outline of the pre-approval process:
Step 1 – Initial Conversation: budget, property needs, explanation of the lending process.
Step 2 - Mortgage Application: either via telephone or online.
Step 3 – Collect ALL supporting documentation (see below.)
Step 4 – Run credit and complete calculations.
Step 5 – Follow Up Conversation: including a review of numbers, monthly expenses, and more.
Step 6 – Receive Pre-approval Letter!
Documentation for pre-approval:
1) Copy of driver’s license
2) Most recent 30 day pay stubs
3) For any new employment ( Copy of new employment letter )
4) Last 2 years W2s and tax returns
5) Most recent 2 months bank statements with all pages (Checking, savings, retirement accounts etc
Do’s & Don’t’s
- Inform your lender of any changes your have made in income or employment
- Continue to pay your rent and credit cards on time
- Keep a paper trail of funds transferring between accounts
- Notify your lender of any changes in your finances
- Notify your realtor and lender of any travel plans during the home buying process
- Change or quit your job
- Co-sign for anyone
- Transition from your current employer to self-employed
- Apply for or close out any credit cards
- Max out any credit cards (maintain a low balance and avoid large purchases)
- Move funds from account to account (large deposits will require a paper trail)
- Deposit cash into your bank account (all funds must be acceptable and cash deposits are not acceptable sources of assets. Talk to your loan officer if you have cash you need to deposit)
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