Whether you’re a veteran real estate investor or a first time homebuyer, you can expect to provide your loan officer with no shortage of documents. The lender is gathering information needed in order to get your loan file completed and sent over to the underwriting department for an approval. Knowing in advance what your loan officer is sure to ask for will help ensure a smooth closing.
Have You Ever Owned a Home Before?
This question does a couple of things. The first is to determine whether or not you’ve eligible for various loan programs designed to get someone into their first home. So-called ‘first time buyer’ programs are designed not just to get people into homes as easy as possible but to jump start the local real estate market. When you buy an existing home, the occupants will typically buy and move into another. As well, this gives the loan officer an idea of whether or not the person is somewhat familiar with the financing process.
Are You Self-Employed?
Again, the answer helps the loan officer to the right path. Lenders are required to determine if the borrower can afford the new mortgage payment and they do so by comparing monthly income with the future mortgage, including property taxes, insurance and mortgage insurance when needed. With an employee, this income information is straightforward as both year to date and monthly income is listed. Self-Employed borrowers need to provide other information which verifies income such as a YTD profit and loss statement, bank statements and the last two years of business tax returns. This income is averaged over the two year period to arrive at qualifying income.
How Is Your Credit?
This of course is a bit obvious but the difference here is how you view your personal credit compared to how a lender views it. Sometimes borrowers who have had a recent late payment on a credit card mistakenly assume their credit has been damaged. However, one or two late payments over the past couple of years won’t matter. In addition, late payments on a credit report are only reported if the payment was received more than 30 days past the due date. Someone who gets a bill on the 1st of the month and pays it on the 15th might consider that as a late payment when it’s not. At least in the lender’s eyes.
How Much Money Do You Have Available for the Transaction?
There’s a difference between how much money you have and how much you have available to close on a purchase. Your personal funds might have some reserved for other transactions such as simply going to the grocery store or making a car payment. How much you have available guides the loan officer toward your ideal loan options. Remember, there will be funds needed for your down payment but there will also be closing costs to consider. In addition, the lender wants to make sure you won’t be completely ‘tapped out’ and have some cash left over after closing. These funds are referred to as ‘cash reserves.’
When Do You Want to Close?
Is this a short term purchase that needs to close soon, such as 20-30 days or are you looking at buying and financing sometime down the road? This gives the loan officer the window needed to make sure you meet the contract date without fail. Many escrow periods are for 30 days but other transactions can take longer. Many long term transactions don’t yet have a property identified and are looking just to get a preapproval.
Have You Been Preapproved?
Getting a preapproval letter from your lender lets the sellers know you’re serious about this. A preapproval means you’ve already submitted a loan application along with needed documentation. The lender will also review a credit report. This answer will also alert the lender that you’ve submitted an application to another mortgage company. Remember, a preapproval isn’t the same as a prequalification. A prequalification can occur with a phone call but has no verification of the information provided.