FREQUENTLY ASKED QUESTIONS
MORTGAGE LOAN PROCESS
Step One: Determine how much you can borrow
A couple of factors determine this amount. What kind of monthly payment are you looking for? Given your unique credit and employment history, income, debt, and goals, how much will a lender loan you? You can get a good idea of your preferred payment amount using the calculators on our website and, after answering a few questions, we can guide you to the right loan amount and best program for you. Based on standard lender guidelines, we will give you a good idea of what kind of terms and which loan program you can expect to benefit most from.
Step Two: Complete a pre-qualification
This is where Liberty Mortgage Company can start saving you money. You will supply information about your employment, assets, and residence history. We will view your credit score and report (only after you give permission). After we’ve finished reviewing your information, we’ll give you a pre-qualification letter. Be careful with this letter — it is a great tool when you make your offer! With this letter, your real estate agent will negotiate the best deal for your new home. While you’re shopping for a new house with your agent, we find the best program for you.
Step Three: Apply now! We make it easy
Once you have made the offer and it has been accepted, you should apply for the loan. Applying for your loan could not get much easier; apply right here on our site. At the end of this step, we will order the appraisal of your new home.
Step Four: Funding
Your REALTOR® and the sellers will work together to find an escrow/title company to handle the funding of your loan. We will work with this company to make sure all the papers your lender will require are available, and you will likely sign everything at their office. We do all the work to coordinate with this company to set your date of closing. This allows you to concentrate on your move because you do not have to worry about these details. You can focus on repainting, carpeting, and all the details of getting your new home.
You’ve answered a few questions, given us lots of information, applied, and before you know it, you are moving in! Liberty Mortgage Company is in the business of mortgage loans; you’re not — so take care of the details. Makes sense, doesn’t it??
HOW DO I GET MY CREDIT REPORT?
Getting Your Credit Report
The information in your credit report has a huge impact on whether or not you qualify for a mortgage loan and what interest rate a lender will offer. Therefore, it’s important your credit report reflects a positive image of the way you manage your money. If you’re getting ready to buy a home, checking your credit report is the best way to ensure you get the loan and interest rate you deserve.
The easiest way to see what’s in your credit report is to contact the three national credit reporting agencies – Equifax www.equifax.com,
Experian www.experian.com and TransUnion www.transunion.com – and request a copy from each. That’s because the three agencies are independent of each other and the information may differ on all three reports. In addition, you may not know which agency your lender will use to check your credit, so it’s best to verify that all three have correct information about your credit history.
For additional fees, each agency may offer you different report variations, such as:
- A credit report with or without your credit score.
- A three-in-one credit report that lets you see a side-by-side comparison of records, from all three agencies, with or without scores.
- Notification services when your credit history is requested.
- Routine notification changes to your file.
- Subscriptions that allow you to access your report on a regular basis.
New law promotes free access to credit reports
Soon you’ll be able to get your credit report for free regardless of your employment or financial situation. A recent amendment to the federal Fair Credit Reporting Act (FCRA) mandates that each agency provide you with a free copy of your credit report, at your request, once every year, from AnnualCreditReport.com.
Free reports will be phased in during a nine-month period, rolling from the West Coast to the East beginning December 1, 2004. By September 1, 2005, free reports will be accessible to all consumers.
Here is a breakdown of eligibility for a free credit report:
Beginning December 1, 2004 – Consumers in Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming
Beginning March 1, 2005 – Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin
Beginning June 1, 2005 – Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, Oklahoma, South Carolina, Tennessee, and Texas
Beginning September 1, 2005 – Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, Vermont, Virginia, and West Virginia – the District of Columbia, Puerto Rico, and all U.S. territories.
Whether you are thinking of buying a home or simply curious about what’s in your credit report, it’s important to correct any errors you discover as soon as possible. You don’t want errors in your credit report affecting your eligibility for credit in the future.
HOW CAN I IMPROVE MY CREDIT SCORE?
It’s virtually impossible to change your score in the time between when most people decide to buy a home or refinance their mortgage and when they apply. So the short answer is, you really can’t “on the spot.” But there are strategies you can live with to make sure when you apply for a loan your score is as high as possible.
Make sure that the information each of the three credit reporting bureaus has on you is consistent and up to date. Order a copy of your credit report about once a year, and dispute any inaccuracies.
Note: Theoretically, if a series of credit reports is requested on your behalf during a limited amount of time, your score goes down until time passes without any inquiries. Changes in the law though have made “consumer-originating” credit report requests not count so much. Also, a series of requests in relation to getting a mortgage or car loan is not treated the same as a number of credit card requests in a limited time. This is because the credit bureaus, and lenders, realize that people request their own credit reports to keep up with what’s on them, and smart consumers shop around for the best mortgage and car loans.
Unsolicited credit card solicitations in the mail don’t count against your credit report, so don’t worry.
The two main components of your credit score are your payment history and the amounts you owe. Bankruptcy filings and foreclosures, which can stay on your credit report for as long as 10 years, can significantly lower your score. It’s never a good idea to take on more credit than you can handle.
Late payments work against you. It’s extremely important to pay bills on time, even if it’s only the monthly payment.
Don’t “max out” your credit lines. Since the size of the balance on your open accounts is a factor, lower balances are better.
It’s said that by carefully managing your credit, it’s possible to add as much as 50 points per year to your score.
HOW DO I GET QUALIFIED?
We Will Help You Pre-Qualify
We will help you calculate how much of a mortgage you can afford, and the amount of money you will be able to borrow, by walking you through the pre-qualification process. We can accomplish this by analyzing your income and debts, your work and residence situations, the available funds for down payment, required reserves, and some other conditions. We will require a minimum amount of paperwork with a quick process.
At the point you are determined to be eligible, we will prove our confidence in your ability to qualify for a mortgage loan by awarding you a Pre-Qualification Letter (also called a “pre-qual”).
Several benefits open to you after you find your new house, and have pre-qualification. First, you have some definite numbers in mind as to the amount you can borrow. Being pre-qualified also will make your offer look even better to the seller, like you were bringing them a bag full of cash! They will not need to worry about wasting their time if you do not have the qualifications for a high enough mortgage loan. Your qualification for the necessary mortgage loan amount won’t cause them concern. You will have the influence of a buyer ready to make the purchase on the spot!
It’s important for you to sit down and meet with us, though you are free to also try the helpful mortgage calculators on our site. That way, we’ll be able to help you get your pre-qualification letter. In addition, we may be able to figure out a different mortgage option that is a better fit for you. Let us help you get started: Call us at 614-224-4000.
WHAT INFORMATION WILL BE NEEDED FOR THE APPLICATION?
For All Loans
- Social Security Number, for borrower and co-borrower if any
- Employment History
- For the last two years, employment dates, addresses, salary.
- Current pay stubs or W-2 forms.
- Check and Savings Accounts and Certificates of Deposit
- Location of bank accounts, account numbers and balances
- Address of bank if out of town
- Last 3 months’ statements
- Stocks, Bonds, and Investment Accounts
- Broker’s name and address, description of stocks, bonds, etc.
- Last 3 months’ statements or copies of stock certificates
- Life Insurance Policies
- Insurance company, policy number, face amount, cash value, if any
- Retirement Plan
- Approximate vested interest value
- Copy of latest statement
- Make and model of automobiles, their resale value
- Other Assests
- Market value of personal and household property
- Liabilities and Other Non-Mortgage Debt
- Creditors names, addresses, account numbers
- Monthly payments and balances
For VA Financing
- DD214 and Certificate of Eligibility
For Construction/Perm Loan
- Signed construction with cost breakdown, builder plan and specifications
For FHA Financing
Evidence of Social Security Number and photo identification
INSURANCE CLOSING COSTS
This insurance covers replacement costs for damages caused by fire, wind or other disaster that might affect the value of the property. Typically, the insurance also includes personal liability and theft coverage.
Flood or Quake Insurance
Additional hazard insurance coverage that is required for homes located in a designated hazard zone as established by the Federal Emergency Management Agency (FEMA). As we tour houses, I will let you know if the property resides in a hazard zone.
Private Mortgage Insurance (PMI)
Insurance required for conventional mortgage loans when the borrower’s down payment on the house is less than 20 percent of the loan value.
This policy protects both the buyer and lender by insuring a clear chain of title. (In other words, it insures that that the person who sells the house has the legal right to do so.)
INSURANCE CLOSING COSTS
Loan Origination Fee
This covers the administrative expenses in setting-up and processing the loan. The loan origination fee may be a percentage of the mortgage amount.
An option for the home buyer is to pay points to lower the interest rate at which the loan will be repaid. Each point equals 1 percent of the mortgage amount. For example: on a $150,000 loan, 1 point would equal $1,500.
The fee for having the house appraised may be incorporated into the closing costs or payment may be required by the lender at the time the loan application is submitted.
The lender uses a credit report to determine the creditworthiness of the loan applicant. This fee is often paid when the loan application is submitted.
Typically the buyer is required to pay interest on the mortgage loan to cover the time between the closing date and when the first mortgage payment period begins. For example: If closing is on May 15. Your first monthly payment begins to accrue interest on June 1 with your first mortgage payment due July 1. At closing an interest payment covering the accrual period between May 15 and May 31 may be required.
At closing a payment may be required to fund the escrow account if the lender is paying home insurance, property taxes and/or other expenses out of the escrow account.
HOW DOES ESCROW WORKS?
To finalize the sale of the home a neutral, third party (the escrow holder, a.k.a. escrow agent) is engaged to assure the transaction will close properly and on time. The escrow holder ensures that all terms and conditions of the seller’s and buyer’s agreement are met prior to the sale being finalized, including receiving funds and documents, completing required forms, and obtaining the release documents for any loans or liens that have been paid off with the transaction, assuring you clear title to your property before the purchase price is fully paid.
The documentation the escrow holder may be collecting includes:
- Loan documents
- Tax statements
- Fire and other insurance policies
- Title insurance policies
- Terms of sale and any seller-assisted financing
- Requests for payment for various services to be paid out of escrow funds
The Escrow Holder Will:
- Prepare escrow instructions
- Request title search
- Comply with lender’s requirements as specified in the escrow agreement
- Receive funds from the buyer
- Prorate insurance, tax, interest and other payments according to instructions
- Record deeds and other documents as instructed
- Request title insurance policy
- Close escrow when all instructions of seller and buyer have been met
- Disburse funds and finalize instructions
The Escrow Holder Won’t:
- Give advice – the escrow holder must maintain neutral, third-party status
- Offer opinions about tax implications
HOW MUCH CAN YOU AFFORD?
How large a down payment can I make?
Many buyers look at their cash on hand as their only source for their down payment. This simply is not the case. One way to fund or partially fund a down payment is by using a gift. Parents, grandparents and other family members are often eager to help by making a cash gift toward the purchase of your home.
There are also down payment assistance charities that can help you. And, of course, if you are selling a home, the equity you’ve built up can be applied to your down payment.
But these are not your only options. We can help you explore all your down payment options, including low down payment and 100% mortgage financing options that might be right for you.
What size monthly payment can I afford?
When determining what size monthly payment you can afford, you’ll want to consider what other monthly expenses you have. Tangible expenses such as car payments, day care and utility bills, all play a role in how large a monthly payment you can afford.
There are also the intangible expenses or lifestyle expenses that you’ll want to consider. Things such as dining out, travel and when you buy your next car can effect how much you can afford. Are you willing to curtail or delay some of these expenses in order to afford a larger monthly payment?
How much can I borrow?
This is a question you’ll want to get answered before you begin your home search. This is something that we’re here to help you with. Our mortgage calculators will help you see how your down payment, monthly payment and the amount you borrow are all interrelated.
We can answer any questions you may have about the mortgage process. But the best way we can help is by getting you pre-qualified for a mortgage loan. To get started, simply complete the form below to let us know a good time to contact you. We look forward to helping you buy your dream home.
ARE YOU PRE-APPROVED?
Are you pre-qualified or pre-approved for a loan?
Before you begin to shop for a new home, you should set up a time to meet with one of our representatives so we can figure out how much you can afford. This will put you in a better position as a buyer. That is when it is important to understand the distinction between being pre-qualified for a loan and pre-approved for a loan. The difference between the two terms will be crucial when you decide to make an offer on a house.
To get pre-qualified for a loan, I will collect information about your debt, income, and assets. We’ll look at your credit profile and assess goals for a down payment and get an idea of different loan programs that would work for you. I will issue you a pre-qualification letter indicating the amount you are pre-qualified to borrow.
It is important to understand that a pre-qualification letter is just an estimate of what you are eligible to borrow, not a commitment to lend. Getting pre-approved for a loan gives you competitive advantage when the time comes to bid on a home because you have been approved for a loan for a specified amount.
To get pre-approved, you will complete a mortgage application and provide me with various information verifying your employment, assets and financial status such as W-2 forms, bank records and credit card statements. We’ll review your mortgage options and submit your application to the lender that best meets your needs. Once the application process is complete you will receive a pre-approval letter indicating the amount your lender is willing to lend you for your home.
WHAT IS A CREDIT SCORE?
Before they decide on the terms of your mortgage loan (which they base on their risk), lenders want to discover two things about you: whether you can pay back the loan, and if you are willing to pay it back. To assess your ability to pay back the loan, they assess your debt-to-income ratio. In order to calculate your willingness to pay back the loan, they look at your credit score.
Fair Isaac and Company developed the first FICO score to help lenders assess creditworthiness. We’ve written more about FICO here.
Credit scores only assess the info contained in your credit profile. They don’t consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was invented as a way to consider only that which was relevant to a borrower’s willingness to pay back the lender.
Delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all considered in credit scoring. Your score is based on both the good and the bad in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will improve your score.
To get a credit score, borrowers must have an active credit account with a payment history of six months. This history ensures that there is sufficient information in your report to calculate a score. Should you not meet the criteria for getting a credit score, you might need to work on your credit history prior to applying for a mortgage loan.
WHAT IS THE RATIO OF DEBT TO INCOME?
About the qualifying ratio
Most underwriting for conventional mortgage loans needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be applied to housing costs (including principal and interest, private mortgage insurance, homeowner’s insurance, property tax, and homeowners’ association dues).
The second number is what percent of your gross income every month which can be applied to housing costs and recurring debt. Recurring debt includes things like vehicle payments, child support and monthly credit card payments.
WHAT IS YOUR CREDIT - HOW'S YOUR FICO?
Scoring your Credit
Since we live in an automated society, it should come as no surprise that your ability to repay your mortgage comes down to just one number. Credit reporting agencies use your loan payment history in order to compile this score.
All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. The original FICO was developed by Fair Isaac and Company. While Experian still calls its score “FICO”, TransUnion calls its score “Beacon” and Equifax uses “Empirica.” While the formulas vary, the differences aren’t huge; all of the agencies use the following factors in calculating your score:
Credit History – How many years have you had credit?
Payment History – Do you have any payments later than 30 days?
Your Credit Card Balances – How many credit card accounts do you have, and how much do you owe on them?
Requests for Credit – How many times have lenders pulled your credit report for the purpose of lending you money?
These factors are weighted a little bit differently depending on which formula the agency uses. Each formula produces a single number which varies slightly from one agency to another. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most folks who want to get a mortgage these days have a score above 620.
Your score greatly affects how much you pay in interest every month
Did you know? Credit scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.
Raising your credit score
How can you raise your FICO score? Since the score is entirely based on your lifelong credit history, it’s hard to significantly improve the number with quick fixes. (Of course you must remove incorrect data on your credit report.)
How do I find out my FICO score?
Before you can improve your credit score, you must know your score and ensure that the reports from each credit reporting agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It’s inexpensive to get your FICO from all three reporting agencies, along with your credit report. Also available are information and tools that can help you analyze what actions might have the greatest impact on your FICO score.
You can get a free credit report once a year from all three credit reporting agencies by visiting AnnualCreditReport.com. These reports do not include a free score, but it’s very inexpensive to get one at the same time.
Now that you have all the facts, you will be a more informed consumer and you’ll be better positioned to get the right mortgage for you.
WHAT IS DISPUTING CREDIT REPORTS?
Disputing Credit Reports
Your credit report is a record of your credit activities. It lists all of your credit card accounts and loans, the balances as well as your payment history. It also shows if any action has been taken against you because of unpaid bills such as a lawsuit or bankruptcy filing. Because businesses use this information to evaluate your applications for credit, insurance and employment, it’s important that the information in your report is complete and accurate, especially if you plan to make a big purchase like a home.
The Fair Credit Reporting Act (FCRA), enforced by the Federal Trade Commission (FTC), is designed to promote accuracy and ensure the privacy of the information used in consumer reports. Under the FCRA, both the credit reporting agency (CRA) and the organization that provided the information to the CRA (usually the credit card company) must correct any errors or incomplete information in your report.
If you do encounter a mistake on your credit report, several steps need to be taken to correct the matter:
1. The first thing to do is get a copy of your credit report from each of the three major CRAs: Equifax, http://www.equifax.com; Experian, http://www.experian.com; and TransUnion, http://www.tuc.com.
2 In a written letter, tell the CRA what information you believe to be inaccurate. Include copies (not originals) of documents that support your position. Provide your complete name and address, identify each item in your report you dispute, and request deletion or correction. Be sure to make copies of your dispute letter and enclosures.
3. Send your letter by certified mail, return receipt requested, so you can document what the CRA received.
4. The FCRA mandates that all CRAs reinvestigate the items in question — usually within 30 days — unless they consider your dispute frivolous. They also must forward all relevant data you provide about the dispute to the credit card company. After the credit card company receives notice of a dispute from the CRA, it must investigate, review all relevant information and report the results to the CRA.
5. If the disputed information is found to be inaccurate, the credit card company must notify all nationwide CRAs so they can correct this information in your file. Disputed information that cannot be verified must be deleted from your file.
6. When the reinvestigation is complete, the CRA must give you the written results and a free copy of your report if the dispute results in a change. If an item is changed or removed, the CRA cannot put the disputed information back in your file unless the credit card company verifies its accuracy and completeness, and the CRA gives you a written notice that includes the name, address, and phone number of the credit card company.
7. In addition to the CRA, you should also write to the credit card company about the error. Again, include copies of documents that support your dispute. If you are correct — meaning the information you disputed is found inaccurate — the credit card company cannot use it again. Further, at your request, the CRA must send notices of corrections to anyone who received your report in the past six months.
WHAT IS BUILDING YOUR DOWN PAYMENT?
Building Your Down Payment
Many borrowers qualify for a loan, but they can’t afford a large down payment. Here’s where to get started
Tighten your belt and save.
Look for ways to trim your expenditures to put away money for a down payment. There are bank programs through which some of your take-home pay is automatically transferred into savings every pay period. You could look into some big expenses in your budget that you can give up, or reduce, at least temporarily. For example, you might move into less expensive housing, or stay local for your family vacation.
Sell things you do not really need and get a part-time job.
Try to find an additional job. This can be rough, but the temporary trial can provide your down payment money. In addition, you can put together an exhaustive list of things you can sell. Unworn gold jewelry can bring a good amount from local jewelry stores. You may have desirable items you can sell on an auction website, or household goods for a garage or tag sale. Also, you might want to consider selling any investments you hold.
Tap into your retirement funds.
Explore the details for your individual plan. Many people get down payment money from withdrawing what they need from their Individual Retirement Accounts or borrowing from their 401(k) plans. Be sure you understand the tax consequences, your obligation for repayment, and possible early withdrawal penalties.
Ask for assistance from generous family members.
Many homebuyers are often fortunate enough to get help with their down payment assistance from giving family members who are eager to help get them in their own home. Your family members may be willing to help you reach the milestone of owning your first home.
Contact housing finance agencies.
These agencies offer provisional mortgage loan programs to low and moderate-income borrowers, buyers interested in renovating a house in a particular part of the city, and other groups as specified by the agency. With the help of this type of agency, you probably will receive a below market interest rate, down payment help and other incentives. These types of agencies may assist eligible homebuyers with a reduced interest rate, get you your down payment, and offer other assistance. The primary purpose of non-profit housing finance agencies is build up residence ownership in certain places.
Research no-down and low-down mortgage loans.
Federal Housing Administration (FHA) loansThe Federal Housing Administration (FHA), which functions as part of the U.S. Department of Housing and Urban Development (HUD), plays an important role in assisting low to moderate-income Americans qualify for mortgage loans. An office of the U.S. Department of Housing and Urban Development (HUD), FHA (Federal Housing Administration) helps individuals get FHA helps first-time homebuyers and others who would not be able to qualify for a conventional mortgage by themselves, by providing mortgage insurance to private lenders. Interest rates for an FHA loan usually feature the going interest rate, while the down payment with an FHA loan is lower than those of conventional loans. Closing costs might be included in the mortgage, while the down payment might be as low as 3 percent of the total amount.
VA mortgagesVA loans are backed by the Department of Veterans Affairs. Service persons and veterans can qualify for a VA loan, which usually offers a reasonable interest rate, no down payment, and minimal closing costs. While the mortgage loans are not actually provided by the VA, the department certifies applicants by providing eligibility certificates.
Piggy-back loansYou may fund a down payment using a second mortgage that closes along with the first. Generally the first mortgage covers 80% of the purchase amount and the “piggyback” funds 10%. In contrast to the traditional 20 percent down payment, the buyer will just have to cover the remaining 10 percent.
Carry-Back loansIn the option of the seller “carrying back a second mortgage,” the seller loans you part of his or her equity. The buyer finances most of the purchase price through a traditional mortgage program and borrows the remainder from the seller. Often, this form of second mortgage has a higher rate of interest.
No matter your strategy of getting together your down payment, the thrill of reaching the goal of owning your own home will be just as great!
WHAT IS DOWN PAYMENT FUNDING ALTERNATIVES?
Down payment funding alternatives
For many buyers, especially first-time buyers, saving up the funds for the down payment can be a seemingly insurmountable hurdle to home ownership. This doesn’t have to be the case. As your mortgage broker, I can help you find creative ways to come up with your down payment.
Using a gift for your down payment
One way to fund a down payment is by using a gift. For many loan programs, a gift may be used for a portion or all of the required down payment. Money given as a gift for a down payment can’t come from anyone. Family members are the usual source. And sometimes an employer may also be acceptable. If this is an option open to you, please let me know. I can help you determine which loan programs accept gift funds for down payments and who may give the gift. I’ll also supply the gift letter that the person giving the gift is required to sign. The gift letter states that the funds are a gift and will not be paid back.
Down payment assistance charities
If a willing and able family member is not available, buyers now have the option of turning to a non-profit for down payment assistance.
Caution should be taken when searching for a down payment assistance charity (aka down payment assistance program). There are many reputable organizations providing buyer assistance, but there are dubious ones as well. You may want to research the charity with the Home Gift Providers Association (HGPA) (http://www.downpaymentalliance.org/) before making a commitment.
Generally, a down payment assistance charity will give the buyer money for a down payment that does not have to be repaid. The seller will contribute an equal sum to the charity at closing or soon after. The seller will also pay an administration fee to the charity. Sounds good, right?
This can be a good option for buyers who don’t have other means of securing a down payment. However, you should be aware that this means of funding the down payment may inflate the selling price of the house. You’ll want to consult with your real estate professional about how such a program may affect the selling price.
Zero down mortgage loans
Service persons and veterans can qualify for a VA Loan that requires no down payment. VA Loans are guaranteed by the U.S. Department of Veterans Affairs. In addition to no down payment, these loans usually offer a competitive fixed interest rate and limited closing costs. While the VA does not issue the loans, it does issue a certificate of eligibility required to apply for a VA loan.
There are also private sector alternatives that offer 100% financing of the home purchase price. Let me help you find the down payment and mortgage alternative that’s right for you.
WHAT IS VERIFYING YOUR DOWN PAYMENT,
CLOSING COST, ASSETS, INCOME AND DEBTS?
Verifying Your Down Payment, Closing Costs, Assets, Income and Debts
A critical step in the mortgage loan application process is to verify the sources for your down payment, closing costs and assets, as well as documenting income and debts. The lender uses this step to determine your qualifications as a borrower.
Down Payment & Closing Costs
Documenting that the down payment comes from your savings and that you will have savings and/or assets over and above the down payment gives the lender confidence in your strength as a borrower and your ability to repay the loan.
Take extra care to document the sources for any monies to be used for the down payment or closing costs
Use my Application Checklist to gather the documentation requested by most lenders.
Acceptable Down Payment & Closing Costs Sources
Cash in a bank account
Mutual funds / stocks / IRA / 401(K)
Proceeds from the sale of another property
Gift from an immediate relative
Collect information about your personal assets that add to your net worth and help to prove your credit worthiness.
Common Assets Considered in a Mortgage Loan Application
Stocks, bonds, mutual funds, 401(K) and retirement accounts
Personal property estimate – cars, boats, antiques, jewelry, etc.
Other real estate or property
Income and Employment
The lender will want to confirm your current gross income and have evidence of stable employment. Documentation requirements vary depending upon a number of factors – including the source of income (hourly, salary, salary + bonuses, salary + commission, commission, self-employed, etc.).
Your lender will want to review a list of all your current debts. This along with your credit report will provide the lender with a snapshot of your obligations. The lender will want to confirm that you will not be overextended when the mortgage payment is added to your current debt load.
WHAT IS DON'T TRIP YOURSELF UP WHILE BUYING A HOME?
Don’t Trip Yourself up While Buying a Home
What’s more fun than buying a bunch of new stuff to adorn your new home? Not much. But making big-ticket purchases before closing could be trouble. It’s wise to remember that until your keys are in hand, your lender is watching your accounts very closely. Below you’ll find a list of actions to stay away from during this crucial time of your home purchase.
Don’t make expensive purchases.
You may be itching to order that new entertainment center for the soon-to-be-yours den, but it’s best to stay away from making large buys like furniture, appliances, jewelry, or vacations until closing. Your credit numbers could change suddenly if you make a huge purchase using credit cards. Using cash to purchase big items can also be an issue: most lending institutions look at your cash on hand when approving your mortgage.
Don’t get a new job.
Your recent career history should show consistency. Getting a new job before you apply for a loan may not affect your approval at all. However, finding a new job in the middle of your approval process may affect whether or not you are approved.
Don’t switch your accounts to a new bank or move around your money.
Bank statements from the last two or three months for all of your accounts (savings, checking, money market, and others) will likely be studied as the lending institution considers your application. To detect fraud, lenders require a clear and consistent picture of how you earn your money and where additional money comes from. Changing banks or transferring funds to another account – even if its only to consolidate funds – may make it difficult for the lender to verify your funds.
Your good faith money does not belong to the seller: it is actually yours until the sale closes. Although your FSBO seller might not realize this, your earnest money should be applied to the buyer’s closing expenses. Find an attorney or other neutral person who is able to hang on to the deposit or place it in a trust account until you close. Your purchase contract should document who keeps the earnest funds if the home purchase does not go through.
WHAT IS THE VALUE OF YOUR HOME?
What’s the value of your home?
This tool uses data from the Freddie Mac House Price Index (FMHPI) to estimate the value of your home considering the appreciation rate for your metropolitan area. While the number it comes up with may not be the actual or appraised value of your property, it can be a useful tool to size up fluctuations and trends in your market which affect your home’s value.
Let me help with all your home marketing decisions, including determining the best asking price. I know the particulars of your neighborhood and the values of homes. I can show you what your property may really be worth. For more information, you can contact me through my site or e-mail me.