What documents do I need to get pre-approved for a loan?
In most cases, you’ll need to provide:
- Most recent two pay stubs from your job. Make sure they show gross, net, and year-to-date earnings
- W-2s and federal tax returns (personal & business, if applicable) for the last two years
- All pages of a recent bank statement, showing where any down payment funds would be coming from
- Photo ID
- Divorce Decree, if applicable
How can I qualify for a larger amount?
Lowering monthly payment obligations (i.e., Care payments, Credit Card debt, Student Debt) is one way. Another is to beef up your down payment funds. Lastly, increasing the qualifying income goes a very long way. To wit: getting a raise, a higher-paying job, or having someone co-sign with you all help. A lower interest rate will also do wonders.
What are the general qualifications to receive a mortgage?
Earn money and manage it well. Generally speaking, your monthly income needs to be at least 2.5x the anticipated monthly house payment and the credit score needs to be above 620 FICO. The new house payment plus all other monthly debt obligations (including child support/alimony but excluding utilities and extraneous insurance) will need to stay under 36%-55%, depending on the loan program.
How long Does it usually take to get a Mortgage?
While the law says you need to wait at least seven business days from the time you sign the initial application documents, generally speaking, it takes two to four weeks from start to finish. I have closed a number of loans in seven business days though.
How can I raise my credit score, and why is it even so bad in the first place?
The best thing to do is to pay down or pay off completely your debts, particularly credit card balances. Ensure that your monthly credit card statement balance is under 50% of the card limit. Less than 30% is better, and less than 10% is best. Current balance-to-credit limit ratios accounts for 30% of your total credit score. 35% of your credit score is derived from your demonstrated ability to make payments on time. Late payments affect your score according to recency. If you’re currently behind, that will hurt a lot. Time heals all wounds, and one isolated late payment will largely go unnoticed after 12 months. However, if another late payment gets registered at any time in the next seven years, it will go find it’s buddy and together they’ll drag down your score even more. Because a mortgage is a really long-term agreement, mortgage credit reports dig deep into payment patterns. So do your best to make your payments within 30 days of the due date to avoid trouble. If you want to be the star of the class, pay off the balance before your statement is even issued. And unless you’re being charged an exorbitant annual fee or you have a personal vendetta against the bank, never ever close your credit card accounts, ever–especially when they are paid off. Doing so will lower your available credit ratio and drop your score. Credit can be kind of tricky so reach out and let’s talk through your scenario.
How much down payment do I need?
Generally speaking, the thresholds are 0%, 3%, 3.5%, 5%, 10%, 15%, and 20% down. Or more if you want to show off or especially if you want a lower monthly payment. The required down payment will depend on the geographic location of the home, type of loan, your credit history, the value of the home, and your documented income.
What are closing costs, and how much should I expect them to be?
Closing Costs include lender fees, title fees, third-party fees, and prepaid escrows. For most scenarios, those hard costs are between $2,800 and $4,200, with the escrows coming in between $1,500 and $3,500. Sometimes the lender (me) can pay them and sometimes the seller is willing to hook you up.
Should I choose a fixed-rate or an adjustable-rate mortgage?
That depends; do you feel lucky? Historically speaking, the adjustable (or variable) rate loans will have a lower start rate than the traditional 15, 20, or 30 year fixed rates. But that’s just the start rate, and it will change depending on how it’s set up. Most ARMs are fixed for the first 3, 5, 7, or 10 years. If you’re certain that you will only need your loan for the initial fixed period, adjustable rates can be a great tool to save you a lot of money. Perhaps you’re certain that interest rates will go down in the future and you want to play the market. Or if you just like the thrill of living on the edge, that’s cool too; to each their own.
Should I "lock" my interest rate?
Probably. Locking your rate makes sure that the terms reflected on the initial Loan Estimate will carry over to the Closing Disclosure and beyond. Locking ensures that if rates go up tomorrow or next week, you won’t be affected by those higher rates like the unlucky speculators who thought they knew better than the robots on Wall Street. Besides, if you lock and then interest rates drop dramatically before closing you can usually “float down” to a lower rate. So locking is generally a smart practice. Having said that, you can lock in for 15, 30, 45, 60, 90, 120, etc. days and your loan needs to close before the rate lock expiry. In a rising rate environment, the shorter the duration of the rate lock, the lower the interest rate with its relative price will be. Contrarily, if the quants’ algorithms postulate that interest rates are moving downward, you’ll be able to get a 60 or even a 90 day lock for the same price/rate as a 30 day.
What type of mortgage is best for me?
Depending on cash flow, credit history, and property type, we offer a wide variety of loan products to meet your specific requirements and fulfill your hopes and dreams.
What are discount points, and should I pay them?
Discount Points are a monetary tool used to raise or lower the interest rate you pay on the loan. One point is equal to 1% of the loan amount and, generally speaking, equates to 0.25% change in the Note rate. This means that you get your money back from investing points after a period of four years. Sometimes it’s more and sometimes it’s less. The sooner the payback, the more the proposition pencils. You may need to have a lower rate to qualify for the home you really want. In such a case, it makes a lot of sense. If you think that rates will be much lower next year than they are this year, then paying extra right now isn’t the smartest idea because you could refinance down to the lower rate in the future—many times for free.
Similarly, accepting a rate that’s ¼% higher will give you a lender credit for 1% of the loan amount. That credit is used to significantly reduce closing costs, and in most instances can get you a “no cost loan”. So when you hear that term, that’s how it happens. You are now smarter than you were 30 seconds ago.
Should I get a 15-year or 30-year term loan?
That depends on your goals. A 30-year loan will net you a lower monthly payment. A 15-year loan will pay off twice as fast for only about 28% more per month. But on a house, that 28% can be a lot. Your monthly cash flow, debt-to-income qualifications, your personal budget, goals, and whatever else you plan to do with your money will all come into play in this decision. It gets even more complicated because the interest rate on 15 year loans are almost always lower than 30 year rates. I will say that you can always send extra in on your monthly payment, but you can’t send less than the amount owed. It’s not unheard of to pay off a 30 year loan in 12 years, nor is it uncommon for a 15 year loan to be refinanced back to a 30 year loan when those payments become burdensome. Thinking through future possibilities is prudent.
What is a pre-qualification?
Pre-Qualification terminology varies from person to person and bank to bank. The unwritten definition of pre-qualification is when you tell your lender your monthly income and monthly debts, and maybe even show a credit report to see how much you can qualify for.
What is a pre-approval?
Pre-Approval takes the pre-qualification to the next level. Income and asset documents are provided to the lender (that’s me) who will also run a credit report. Your scenario will be submitted through an automated underwriting system to generate a six-page approval. Hence the term “pre-approval”. If buying a home is imminent, or if there are questionable circumstances surrounding your situation, a pre-approval may include getting your mess of a file in front of a real-life underwriter who will render an opinion and provide further guidance to make sure all kinks are worked out ahead of time and you have peace of mind about financing really going through before making an offer on a home.
What is an escrow account?
An escrow account is a savings account that the lender administers and it’s used to pay for the property taxes and homeowners insurance for your home. Funds are deposited into the account at closing and part of your monthly house payment is added to the escrow account each month. Each year as the homeowners insurance premium and property taxes come due, the lender will siphon the necessary funds from the account and send them to the respective parties. It is important to understand that these two premiums have the propensity to adjust each year, and those adjustments are usually made upward since your home will generally increase in value each year. When the cumulative fluctuations are enough to require it, your monthly mortgage payment will be modified to accommodate the fluctuating premiums and protect the lender’s ability to make those payments on your behalf. Escrow accounts are regulated by law; the lender cannot earn any interest on them, charge superfluous fees, nor allow the balance to drop below nor rise above the set limitations.
Will my monthly payments change during the loan term?
Providing that your interest rate is fixed, that portion will remain the same each and every month until the loan is paid in full. As the loan balance decreases, less interest accrues, providing for a commensurately larger portion of that fixed payment to be applied toward reducing the outstanding balance of the loan. If your loan has mortgage insurance, that payment amount will drop by a few dollars every single year until it too disappears. The only variable component then of a fixed rate mortgage payment is the fluctuation in escrows. Check out the FAQ about that topic where I use some really big words.
How long does it take to get approved?
If you get me all the documentation needed, it will usually only take me an uninterrupted 45 minutes to go through and issue you a pre-approval letter. Given the constant bombardment of phone calls, emails, office interruption, etc., you can realistically plan on just a few regular banking hours. By then I’ll either send you a pre-approval letter or convey what additional information will be required to make such a thing possible.
What if I lost my W2’s?
You are an irresponsible person with poor organizational skills who should seriously reconsider this whole idea about buying a home. Just kidding. You can ask your tax preparer, employer (and former employers), and any other responsible adult with whom you have had a relationship with over the last few years to help you out. Your HR department is required to keep them on file for four years and your accountant has to keep them for three. Your mom and your roommate are under no such mandate.
Can I get a mortgage if I have filed for divorce but it has not been finalized?
No you can’t. Sorry. Divorce sucks. Moreover, you can’t get a mortgage if you are in the middle of any other legal proceeding either, excepting perhaps that invitation you received on a postcard to participate in a class action lawsuit for all the pain and suffering you went through because of that one thing. Man that was hard too. Hope you get a big payout.
How long do I need to wait after my bankruptcy was discharged before buying a home?
Well, if you fell into a bunch of cash after the bankruptcy and don’t need a loan, you can buy something immediately. Congratulations: you have successfully worked the system! If you need a loan of any sort, you’ll need to wait at least a year. A good loan can be had after two years. While you are waiting for those two years to lapse, get a couple of credit cards to re-establish your credit rating. No matter what anyone else has told you, your credit score won’t get better on its own; you need to be proactive. Yes the interest rate on those cards will make you want to blow chunks, so do yourself a favor and don’t charge more than you can pay off that same month. That way you won’t have to pay any interest at all. Maybe get a small car loan and pay it off. Then save your money and plan on having enough for a 3.5% down payment when those two years have elapsed.