(Reading time: under 5 minutes)
You’re
going to buy a home. Maybe it’s your first home, or maybe the second or third.
Either way, the excitement of looking for a new place never passes.
Precisely
because we don’t want you to lose that joy, this month we’re going to explain
the importance of doing things right, because there are key aspects that can
help you before you even apply for the loan preapproval, and some that will
help you after; aspects that, if handled incorrectly, can derail your mortgage
application and home purchase.
Things that can get you a better loan deal. |
Before you start: things to do
My first
advice is to obtain your credit report, which you can do for free once a year
through Annual Credit Report.
Examine
your report and make sure that there are no accounts open that you thought were
closed, that all balances are correct on your loans, and that there aren’t any
accounts or bills unpaid, nor bills that don’t belong to you.
If you have
many credit cards with 0 balance but still open, consider closing some of them; every line of credit
(that’s what credit cards are) that is open is considered a potential loan
balance and therefore it counts as a debt even if you own nothing on it, and it
will affect the debt ratio that the Credit Union uses to evaluate your loan
application.
These few
steps, when taken 2-3 months before applying for your home loan, can help bring
your credit score up in a jiffy, which will lead to better loan conditions.
Make a
savings plan that includes how much you can use for the down payment and
closing
Annual Credit Report is the only agency authorized by the federal government to provide free credit reports. |
costs. If you plan on buying a larger home, make a budget for the
furniture you’ll need to purchase, from the most needful items to those that can
wait to be purchased over time after you’ve moved in. Same thing applies to
home appliances and lighting, because they can add up.
Your
savings plan should include any IRA, retirement fund, or pension plan qualified
withdrawals that you plan to use for the purchase; be sure to make these
withdrawals (and keep documentation for your loan application, as you will be
asked for it) before you apply. And speaking of documents, here are some that
you will need to complete your loan approval: your tax returns for the past 2
years, your last 2 months’ worth of paystubs, a copy of your ID, the statements
of those savings and investments I mentioned, and any title to other properties
you own, with the latest statements showing the balances you owe on any loans
for them.
Finally,
two small but key details that would help you before applying. First, I’d
recommend
Knowing what you owe and being up date on all your debts will help during your loan evaluation. |
that you familiarize yourself with the vocabulary that is used during
the process of homebuying and mortgage application, because when your loan
officer asks you certain questions or for certain items, explains steps, or
asks for documents, it’s best to be informed. While our loan officer at the
Credit Union is always ready to explain any terms or elements of the process,
taking the initiative to read a little will make the process smoother.
The second
thing that will be a huge help to you, is to have a trustworthy real estate
agent to help you. OAS FCU has an alliance with HomeAdvantage, a real estate
agent network that can provide you an agent that speaks your native language
and will advise you on the best areas, the best search methods and everything
you’ll need to find just what you wanted. Even nicer, they provide a rebate
based on the purchase price, that you can put to use on closing costs or
anything you like.
Things that can give you trouble with your loan application and approval process. |
Before you start: things you should not do
There are a
series of things that can cause trouble with your loan application.
First and
foremost, it’s bad to borrow funds for the closing costs or down payment before
applying for the loan, or to have money for the down payment and closing costs
without being able to explain where the money came from. If you can’t explain
where you got the money, it’s unlikely they will approve your loan. If you have
relatives that are giving you money for the down payment, that’s legal and
tax-free -up to a certain amount but you need to be sure what is acceptable.
Changing
jobs. OAS FCU and any reputable lender wants to know that a person requesting a
30-year loan has stable employment. The first months in most people’s jobs are
a probation period, for the company and for the worker and, if it doesn’t work
out, the income you list on any loan application may vanish in the future.
Getting new
loans. When a person or persons’ obligations are under evaluation for a home
You must have your taxes up to date, and copies of your two last tax filings. |
loan, a debt ratio analysis is performed where they deduct how much of
His/her/their income goes to paying debts. The more you owe, the higher your
debt ratio, and the less house you will be able to afford (and lower likelihood
of loan approval).
But you
shouldn’t close all accounts or credit cards either, especially if they have
small balances, unless you’re able to explain how you had the funds to pay them
off. The idea is that if used your savings to pay off loans that you were
already paying each month with no problems, that savings is money you could
have used for the down payment instead, but now you’ve gone and used it up.
And just a
personal piece of advice to end here, I would not go home shopping before knowing
what I could afford, or without having a preapproval. It’s sad to get your mind
set on a certain property only to have it sold out from under you while you
wait for the loan, or finding out later that you could not afford it.
Next week,
we’ll take about making sure your loan preapproval becomes an actual approval,
so that you can go and get the home you wanted.
No comments :
Post a Comment