Thursday, August 10, 2017

Before you buy a house

(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.

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