We are now three weeks into the new year. Energy levels depleted by the holidays have begun to return. You may have already blown most of your New Year’s Resolutions. The college football bowls are finished up. You’re back into your work and family routine. Downton Abbey is back on PBS and in between “snow days” you’re beginning to make your Super Bowl plans. What better time to begin to think about your needs and desires for a new home in 2016?!?
I have worked with hundreds of home buyers over the past 18 years as a nationally certified, state licensed mortgage professional and I have found some who have made great preparations to enter into the largest single purchase they will ever make in their lives and I have also met some who are woefully unprepared. Those who prepare well generally experience a much smoother process and avoid being hit with additional fees for extensions and delays. If the right steps are taken BEFORE you actually go out to look for a house the new home buyer will find the process manageable, systematic and successful. Those who rush into a home purchase contract with a seller and Realtors without taking these steps will generally experience an immense amount of stress, confusion and unnecessary pressure from everyone involved in the process – and will be tempted to give up after spending $1,000 – $2,000 of their hard earned and saved money.
What can a prospective home buyer do now to prepare for their upcoming home purchase later this year? Here are the steps I would recommend:
- Get your tax returns for the past 2 years finished and get copies ready to pass off. Your mortgage professional will be required to submit your completed tax returns and W-2’s for the past 2 years to the underwriter who will approve your loan. Borrowers who have not completed their taxes or can’t find their returns will delay the underwriting process. The Loan Processor who will take your file from your mortgage originator and prepare it for underwriting will need to verify the tax returns you submit as the same as what was submitted to the IRS. This takes a few days and will cause additional delays if your tax returns are not prepared correctly and available to be submitted when you have an accepted offer to buy a house.
- Locate and provide your pay stubs for the past 30 days. It is required for any loan to show that the buyer has the ability to repay the new loan. You must show a consistent and reliable income stream from somewhere. Most borrowers can do this with pay stubs from a company where they work. If the buyer is self-employed it is still possible to do this with tax returns and a year-to-date Profit and Loss statement. Find your pay stubs if they are on a HR website with your company and begin downloading them each pay period so you have them available to pass off to your originator or his assistant. Again, this information will be verified by the Processor to make sure that the employer agrees with the information that is found on the pay stub.
- Locate and provide your bank statements and all retirement account statements for the past 2 months. I find is amazing when I hear a borrower tell me that their bank “doesn’t do bank statements any more” when in reality they just don’t know how to navigate within the online banking website of the bank where they have been a customer for many years. Take the time, now, too find, print or download bank statements every month and save them to a folder on your computer or in your home office cabinet so you will have the bank statements required to get your loan approved. You will need at least 2 months of statements and in some cases you might need 12 months of statements to show rent payment or the receipt of child support or some other income source you desire to use to help you qualify for your new loan.
- Talk to a licensed mortgage professional to help you explore you loan options early. There aren’t as many loan programs available to a home buyer as there were back before the Credit Crash of 2008 but there still are many options and most mortgage companies will be able to offer many of the same programs. Banks will generally have fewer options but they also can offer many options to a prospective home buyer. Your licensed mortgage professional will evaluate the documents we listed above and help you explore which home loan option would be best suited for you. Some programs are only available for first-time home buyers. Some programs are only available for those wishing to buy a house outside the city limits or in certain counties. An experienced, licensed professional will keep up with the ongoing changes in the program requirements and be able to help the new home buyer know what needs to be done in preparation for approval for best loan fit and where the buyer should be looking to find their next home to purchase.
- Prepare your down payment and cash required to close your loan. After talking to your licensed mortgage professional the prospective home buyer will have a good feel for how much cash and down payment will be required – if any. Some loans allow for the seller to pay for the buyer’s closing costs and require NO DOWN PAYMENT! Even if no down payment is required, many programs will require the buyer to show that they have 2-3 months of house payments in the bank – just in case the bottom falls out regarding a job or extended health issue. It is important for the borrower to demonstrate to the underwriter that they know how to manage a checking and savings account and that there are no recent overdrafts on their bank statements. Get control of your banking accounts and manage your cash flow so it will be easy to prove to the mortgage underwriter that you are now ready to take on a new house payment for the next 30 years and that you can make this payment on time, every time.
This year can be a year of amazing new beginnings and one where life-time accomplishments can be made. However, without making the necessary preparations in advance, it could also be one of set-backs, disappointments, frustrations and failures. Follow these steps above to make this year an unimaginable milestone for well-deserved successes!