|GATHER YOUR FINANCIALS
You’ll need to gather any and all financial statements, bank accounts, investments, credit cards, auto loans, recent pay stubs and at least two years of tax returns.
Now is not a good time to make any large purchases or change careers. Lenders like to see stability so if you are considering any major changes it pays to meet with a lender to ask them how to proceed.
CHECK YOUR CREDIT RATING
Credit scores range from 400 to 800 and most lenders require at least a 620 to secure your financing (although each lender is different). Below is contact information for each of the 3 major credit reporting agencies to help you determine your rating. If you don’t quite make the 620 credit score, don’t fret! Your lender will be sure to guide you on how to improve it in the shortest amount of time.
SAVINGS & DEBT
Time to beef up your savings! Most loan programs require a down payment ranging anywhere from 1.5% to 20% of the sales price so you’ll want to make sure you have these funds accessible. In addition, there will be closing costs and some potential upfront fees (potentials costs for appraisal, home inspection and home owner’s insurance). You’ll want to consult with your lender to obtain a breakdown of these estimated costs.
|CHOOSING THE RIGHT LENDER
Lenders are in abundance these days and can be found through a variety of sources … be it ads around town, in the newspaper, on the internet, or even just word of mouth. As licensed REALTORS, we’ve had the privilege of getting to know local experts who have proven themselves to be competitive and capable even with the most difficult properties or poor credit. You’ll want to interview a couple lenders and consider the following criteria when making your final selection:
KNOW THE LINGO & THE NUMBERS
APR. APR stands for Annual Percentage Rate and is the sum total of all borrowing costs expressed as a percentage.
APPLICATION/PROCESSING FEE. This is a cost that is charged to cover the lender’s work to evaluate your ability to repay the loan. Some lenders will credit this back to you upon closing. Costs typically a couple hundred dollars but varies by lender.
APPRAISAL. An appraisal provides the lender with an assurance that the property will sell for at least the amount of money it is lending to the buyer for their mortgage. Costs typically range around $400-$500.
CREDIT REPORT. With your permission the lender will order a review of your outstanding loans and your repayment history from a third-party credit agency. Costs typically run between $35 and $50.
HOME INSPECTION. A home inspection is a process that takes about 4 hours to complete and is considered a necessary step by most Realtors and home buyers. A general home inspection involves having a licensed inspector visually examine the property both inside and out looking for any signs of damage, safety hazards or structural concerns. Costs typically range between $350 – $400.
POINTS. When mortgage companies are competing by offering lower interest rates, they may charge you a one-time pre-paid interest payment calculated as a percentage of the loan. Called “Points”, this may range from 0.25% to 2% of the loan balance and is usually paid up front. Points can be deductible so consult with your tax advisor.
PREPAYMENT PENALTIES. These vary widely so be sure you know in advance if your lender will charge a penalty if you refinance or sell and the certain period during which the penalties apply.
RADON GAS. Radon is a naturally occurring odorless, colorless gas that comes from the ground, is radioactive and can cause lung cancer. Radon is common in Wisconsin with 1 out of 10 homes having high levels of radon. Testing for radon is common when buying or selling a home and can be included as a contingency in your offer to purchase. Tests typically cost between $125 – $175 and can be completed by most licensed home inspectors. (Reference: www.dhs.wisconsin.gov/radon/index.htm )
There are several benefits to getting a pre-approval letter from a qualified lender prior to shopping for a home:
- You’ll know exactly how much real estate you can afford and what your monthly payments will be based on your purchase price, down payment, taxes and insurance.
- You’ll be ready to go when you find the right property and your offer will be more seriously considered by a seller, especially when there are other competing offers.
- It’s more efficient and it reduces the amount of time it will take your lender to fund your loan.
|There are standard forms to be completed when applying for a loan. Some lenders keep these on their website so you can fill them out and submit the forms online. The information will then need to be verified and used to qualify you for your loan so take the time to answer the questions accurately. You’ll also need to be prepared to provide comprehensive documentation to your lender for items that will impact your credit and finances, such as:
From there, your lender will have their analyst, usually called an “underwriter” crunch numbers and verify your documentation to confirm your ability repay the loan.
Stay in communication with your lender as there will be additional information required throughout the process. Once the lender has completed all of the necessary verification you will be granted the “Clear to Close” …which simply means…you’re officially approved! Congratulations!! You will set a time with the seller’s chosen title company to sign all necessary closing documents and have your lender officially send the funds for purchase.