If you’re getting ready to purchase your first home and started a bit of research already, you might be a slight victim of information overload. You will soon discover there are many moving parts to purchasing a home. There are various services needed in order to get your home loan approved to keep the loan in compliance with both industry regulations and loan approval requirements. However, if you just stick to the basics and work with your loan officer, it really isn’t all that scary after all. Here are five things that will help you along the way.
Credit. This is one of the primary areas your mortgage company will review. Once you submit a loan application to a loan officer, the loan officer will, with your permission, pull a credit report as well as request credit scores. There are three main credit agencies and each provides its own three digit credit score based upon the information in its database. Scores range from 300 to 850 and the minimum score required for most 100% financing programs is 620. The lender will ignore the highest and lowest score and use the middle one. If there is more than one borrower on the application, the lender uses the lowest middle score.
Income and Employment. Lenders ask there be at least two years of employment. Income will be verified by looking at your most recent pay stubs that cover a 30-day period. You can also expect to provide two years of W2 forms, so you should start gathering those as well. Self-employed borrowers will be asked to send in the most recent two years of federal income tax returns, both personal and business.
Cash to Close. Most loans ask for a down payment, and all loans have closing costs. As we mentioned, there are several services needed such as an appraisal and settlement charges and others. Your loan officer will provide you upon request a Loan Estimate which will itemize potential charges along with how much you’ll need for a down payment. To make sure there are enough funds to close, your lender asks for recent bank statements.
Loan Choices. You’ll speak with your loan officer about the types of loans available, but most loans issued are conventional or government-backed FHA, USDA, VA loans with fixed loan term. The longer the term, the lower the monthly payment. There are also variable rate loans offered as “hybrids” which simply means it first looks like a fixed rate and later changing into a variable or adjustable rate (ARM) 5/1 hybrid for example means the rate is fixed for five years before turning into a variable rate that can adjust once per year.
Property. As a first time buyer, your first purchase will be a primary residence, which means you intend to live there. A primary residence also has slightly lower rates compared to someone buying a rental property or vacation home. The lender will also review the property and approve it as well, making sure the home is in good condition and is similar to other homes in the area.
Please be sure to visit our website to learn more about each loan program. Call us anytime above, or submit the Quick Request Form on this page for assistance.