Wouldn’t be nice if real estate was simply about houses? It sure would make my job a lot more fun. Real estate is about money, honey. Before you get ready to cruise open houses you need to get your financial affairs in order.
"I spend more time processing loans now than ever in my 20 year career. I'm tasked with a lot of petty details as I drive agents and their clients bananas." These words were said in a recent finance course offered by a lender in my office.
After the near collapse of the housing market in the last 5 years, lending guidelines have become stricter than ever. At the same time rents have skyrocked due to the influx of tenants into the market who once upon a time would be qualified to purchase a home. With interest rates at historic lows, it makes more sense than ever in the Baltimore area to own your own home. As your agent I want to make that happen for you. First things first, I need to get you prequalified with a lender. You're going to have to document your CIA; credit, income, and assets.
What's your credit score? A score of 740+ offers the best rates for conventional loans. Conventional loans will not get approved under a 620 credit score. In fact if your credit score is under 600 these days you are almost out of options for a mortgage. If you need to improve your score, (and there is no shame in that!) many lenders offer counciling for buyers to help put them on the right track. A valuable website that helps consumers understand their credit score is myfico.com.
Be prepared to document your gross monthly income. If you work on commission be able to show your base commission and bonus individually. You'll need 2 years of documented employment information, although some lenders can get away with one year. Business owners who are self employed and don't have a 1099 or W2 statement should have a "profit and loss" statement prepared. Underwriting guidelines have changed, large downpayments no longer offset short employment history. Trust fund baby? You'll want to document those dividends and interests however in most cases high assests can not offset a lack of income.
Assets (and liabilities)
What is the source of your downpayment and closing costs? FHA loans are designed to minimize out-of-pocket expenses if you're concerned about the coming up with funds. Your lender is going to need a lot of financial details; bank names, balance, value of your stocks, bonds, mutual funds, and net worth of your business owned if applicable. Student loans? Are they deferred or in repayment status? Credit cards? Alimony? Child support? Car loans? Think of this as a financial physical to see what kind of shape you're in.
Now, once you've gotten that prequalification. It's time to go house hunting! Keep in mind during this process you should essentially freeze your financial affairs - especially if you are a borderline applicant. You don't want to undermine you're own approval. Did you first consult a company like Lending Tree? Did you know that they won't stop running your credit until you tell them to? You'll want to nip that in the bud. You want to set the loan on the correct path in the beginning so the lender and their underwriter (the person who'll review and ultimately issue the approval on your loan) are on the same page. These days I can not stress enough that borrowers need to work with seasoned loan originators who know what they are doing.
What is all of this hassle about? Well there is a good chance that your lender sells 100% of the loans they originate. You'll see this documented in writing at the settlement table. Most lenders are in fact brokers, middle-men in the transaction. If they can't sell your loan on the open market, they'll have to buy them back. They are making your mortgage into something that can be sold to someone else. Real estate is about money, honey.
I know all of this can be daunting. If there wasn't a new home as a result of the hassle it would never be worth it. Don't give up if you can't make it happen all at once. Get with an agent like me that has the resources to help you.
Broker / Owner Guerilla Realty and
Vice President Tranzon Fox Auctions
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