The kids are back in school and you now have time to work on preparing for a loan to buy or refinance your home. Once you complete this assignment you will be in a much better position to secure a loan.
1. Find an experienced, local mortgage professional. The days of being able to get away with bending the rules or submitting incomplete files are long over. For the most part this is for the best, but you want to make sure that the loan officer you are working with knows the current guidelines.
2. Check your credit. Repair if necessary. You should be able to get a free credit report after completing step 1 above. Make sure this includes all three credit bureaus and has your credit scores. You can go to www.annualcreditreport.com and get a free copy of your credit report once a year. This report will NOT contain your credit scores, but you can get them for a fee. It is best to have your loan officer provide you with a copy of the credit report.
Your credit report may be perfect. Congratulations! Or, it may need a little, or a lot of work. For this reason you want to start this part of the process as soon as you are thinking of a loan. Your mortgage professional can offer guidance on how to fix any errors and repair negative entries.
New rules have actually made it easier for borrowers who have had a bankruptcy and a foreclosure to buy a home. Check to see if the new rules apply to you.
3. Check your options for down payment. Can you get a VA loan with no money down? A 3% down conventional loan? Borrow from your 401k? Get a gift from a relative? See what options you have available. Or you can go old school and save up money for the down payment and closing costs. In any event, you should have a plan when you finish this step.
4. Find out what you can realistically afford, and also what you want to afford. At first glance these may seem to be the same thing. However, though related, “can afford” and “want to afford” are different things. The most common scenario that I see is that someone can afford, say, a $400,000 house as a maximum, and the first house they want to put an offer in on is $450,000! There may be some adjustments we can make to help potential buyers qualify for more, such as paying down debt. But usually they will need to continue their house hunt.
Less common is the borrower who qualifies for a $400,000 loan and writes an offer on a $350,000 home. This doesn’t happen often, but it does happen. The borrower has decided what they want to budget for a house payment and sticks to a purchase price that meets the payment number.
5. Now and only now do you talk to your experienced, local real estate professional. Tell them that you have completed assignments 1 through 4 and are pre-approved to buy a home . . . and they will fall in love with you!
The good news is that for some of you completing your home work can be done in one day. Others may take a bit longer. Some, a lot longer. If you work hard you will make progress over time and eventually graduate into that home, or refinance an existing loan into the loan of your dreams.
Call me or your mortgage professional if you have any questions.
John Yeager is the Valley Center Branch Manager for Summit Mortgage, NMLS #219612.