Congratulations!
OK 1st thing you want to do is determine how you
want to purchase the next home. Several options
A)
Cash
B)
Mortgage
C)
Borrow against assets
These
are but 3 most conventional options. The point is to have a financing plan in
place so you do not spend time looking for something you might not be able to
purchase.
When
you contact a mortgage professional there are a few things you want to make
sure of. Like any vendor relationship
get referrals from people you trust then do some checking on your own.
A)
They are a licensed lender
B)
The company the work for should have
reviews/ratings on various web sites
C)
Find out what fees are involved above and beyond
the amount borrowed and how long it will take to close a transaction once you
go under contract.
This
is as serious step as making the actual purchase. You will be providing the
selected mortgage company and individual with very sensitive financial
information and you need to know that the information is not going to be
disclosed to anyone outside the transaction.
Be prepared with 2 years of Tax returns, Debt information, all sources
of income verification. This is all used to calculate your debt to income ratio
which will be used to determine how much you will be able to borrow and the
terms of the loan.
The
company you choose will need to be able to conclude the transaction based on
the terms of the purchase agreement. So it is important to ask how long you
will need for the loan process to be completed and the loan funded.
This
is part of the contact that deals with ‘Time is of the essence”. If you are
financing any portion of the purchase the 1st time deadline is
usually the time negotiated in the contract to get financing approval. There are
several things associated with this 1st step all of them have to
happen in order for you to get approval for the mortgage
A)
You must make written application with a
mortgage company. This is when you are going to need all of the records that
will be needed to determine your ability to receive your loan. I strongly
suggest you ask your representative as soon as you talk to them a list of the
required documents. Each company has slightly different underwriting standards
so the things they require from you may vary.
1) Tax
Returns – They will pull what is called a tax transcript from the IRS. This
should be done very soon after you make application. This will verify that you
have submitted your tax return to the IRS and that the information matches the
copy of the return you provide them with. It is important to provided them with
the return tht matches what the IRS has on file. So if you submit an amended return
include it with what you provide the mortgage compay. Any discrepancies can
delay your loan approval considerably.
2)
The lender will pull your credit report (typically
you only need to provide them with permission to access the report on your
behalf) some people will pull credit reports on themselves within 6 months of
making a large purchase. One reason is to see what the score is and the other
reason is to see if there are any mistakes on the report. You would be
surprised what come people find on their reports and if you have a little time
to try and get them straightened out before a big purchase than it will help
the process along
If a lender finds something that if adversely affecting the
report rating, they can sometimes help fix the issue so this step is usually
taken very close to the application date as well. Some time fixes can take up
to a week or more depending on the reporting institution.
3)
The period from the application date to final
approval is typically referred to as the 3rd party Financing Option
period. This can be anywhere between 15-21 days typically but varies by lender.
Please make sure you ask your vender how long it will take them to get
financing approval. If you contract at 15 days and then find out you need 25
days then you put additional pressure on all parties and if the lender is
feeling rushed or cannot process the load application w/in the time line they
may reject it based on incomplete information.
4) Interest
rate – The lender is going to give you information on what the interest rate is
for loans on a given day (Yes it fluctuates daily). Once the lender feels good
with the information you provide and has a handle on the application process
they should begin to talk about “locking the interest rate”. What this means is
that they will offer to close your loan on the negotiated closing date based on
the “lock rate”. So if you apply and the rate os 4.5% and you see it inching up
to say 4.75% you will want to talk to the mortgage person to see if you can
keep it from floating on you. This is called “locking” and is an agreement by
both sides to close the transaction at a set rate. This option is available to
all consumers but you should be aware of what the economic conditions are. Most
lenders will only lock out so far (typically 30-45 Days) they are taking a risk
when they “Lock” so everyone has to be aware of what factors may influence the
rates either up or down.
5) Appraisal
– This is property appraisal and part of the approval process. In today’s fluid
real estate market this is a very important component of the whole process. The
financial entity you will be using is going to lend you money based on your
loan to value ratio(LTV). The term is commonly used by banks and building
societies to represent the ratio of the first mortgage
lien as a percentage
of the total appraised value of real
property.
For instance, if a consumer borrows $130,000 to
purchase a house worth $150,000, the LTV ratio is $130,000 to $150,000 or
$130,000/$150,000, or 87%. The remaining 13% represent the lender's haircut,
or amount at risk if the loan is defaulted on, all adding up to 100% and being
covered from the borrower's equity. The higher
the LTV ratio, the riskier the loan is for a lender.
Appraisals are responsible for more deals falling
apart in some markets than any other factor. Selling agents and buying agents will have
done their due diligence to make sure the home is being marketed at current
market price. Unfortunately appraisals are sometime behind the market values if
an area if very popular. It could be because they can only use data from homes
that are comparable to the subject property and if a particular neighborhood
has not had many homes for sale then they will need to expand outside the area
and adjust prices according to makeup of the other neighborhoods. Another determining
factor is what sale information is available to the appraiser. A home closing
w/in a week of the appraisal my not have the information in a place that can be
used to help determine value.
Having a knowledgeable
appraiser who is educated on a particular areas values and sale histories is
crucial but not always possible. As a result an appraisal may come in “Under
value” which will adversely affect the LTV ratio and may cause a loan to be
denied based on the lenders criteria. There are solutions to these issues but
they may well add delays to the closing of the transaction.
So as
you can see it is very important that everyone involved in the transaction is
active and aware what is going on during this initial financing option period. Everyone
from the agent(s) to the borrower needs to be actively updated and advised on
any delays or early acceptance so that the expectations of the contract can be
managed effectively. Make a note on your calendar for a reminder to check in
with the mortgage person at regular and short intervals and keep notes when
possible about the conversations so you have a clear understanding on where in
the process your loan application sits.
The
Agents do not need to know the personal financial particulars of your loan only
whether or not the criteria is being meet or if something is going to be a
factor in successfully making the contract close as per the contracted date.
So the
short story is: Make sure you are dealing with a competent, seasoned and
trusted lender when making a loan application. Talk to friends and your Realtor
and get referrals and PLEASE make sure you ask for references.
If
you should have any questions please do not hesitate to contact me anytime
Bob
Kenney, Realtor
