Okay, you've found that dream house, now how do you get it? Few people can afford to pay cash so somewhere, somehow you have to get financing. Be prepared BEFORE you talk to a lender. Also, plan on talking to more than one lender. There are so many financing plans, interest rates and options available today that you really should do your homework, even before you start looking for a new home.
Be prepared with the following information:
Phew! That may not even be a complete list! Click on any of the above categories for more information. Anything you can think of that will demonstrate your ability to repay the mortgage can help convince a lender to make the loan. Realize that virtually all lenders have a scoring system to make the decision whether to lend you money or not. Do not omit vital information, like "forget" to mention a loan. If the lender's computer "thinks" you are trying to hide debts, you will almost automatically be denied credit. Be honest!
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So, if you are looking at a $50,000 home, figure $2,500 for the 5% down and another $2,500 for closing costs. Ask your agent for a rough estimate of the closing costs. Remember, sometimes closing costs are negotiable and you might be able to make a deal in your offer to purchase by convincing the seller to pay more or even all the closing costs. You may pay a little higher price for the house, and your down payment may be $100 or so more, but it requires LESS up-front cash.
Your best source of down payment and closing costs is from your savings account, or equity from the sale of your presently owned home. Your worst source is to say you have it under your mattress at home, or to have a savings account that was just opened for the full amount a few days ago. The lender will want to know WHERE that money came from, and see documentation backing it up. Bank statements showing the last year's balances, steadily growing, will convince the stingiest lender that you have been diligently saving for this moment! A cash bonus from your employer is another good source--it shows your worth in more ways than one!
For people just starting out, sometimes a parent or "rich" relative will make a gift to you for the down payment. Be prepared with a convincing gift letter clearly showing that it is a gift that does not have to be repaid, and is signed and dated by the donor.
The more you can put down in funds from a good source, the more likely the lender will approve your loan. Also, the lower the loan amount the lower your monthly payments will be.
If you are self-employed, be prepared for a more grueling experience. Your foundation documentation will be your last 2-5 years' worth of income tax statements (see below), preferably signed by a CPA. You may also be required to show your current year's budget, income and expense statements to date, and just about anything else a lender can dream of. Unless you have a soundly established business with an outstanding reputation in the area, you may have a difficult time convincing the lender that you are a sound risk.
Of course, if you are fortunate enough to have a guaranteed source of income, e.g., trust fund, inheritance, lottery winnings, retirement, etc., bring the documentation proving that.
Your checking account statements for at least the last two months should be available and, if you use your checking account as your savings account, bring the last year's worth of statements. Other bank account records could include Christmas Savings, Investment Savings, Vacation Savings or any other specialized savings account vehicle.
However, if you have unexplained gaps in employment and discontinuity from one job to the next, e.g., going to lower paying positions, you had better be prepared with a good and believeable story to explain it. Being fired (as opposed to laid off) by two or more different employers in the past few years is not a good indication of your income earning stability.
Be ready with the following specific information (for each employer in the past three years): Employer's name, address, phone number; your supervisor's name; your position; your hourly/weekly/monthly pay; reason for leaving (if your current employer has not been your only employer for at least two years).
If you currently rent your present residence, have the landlord's name and address available, and the monthly rent payment. Know whether the utilities are included in the rent and, if so, which utilities.
You could own and/or rent more than one property. Have all the information available for your non-principal residence as well.
For FHA, contact an authorized FHA lender as soon as possible to determine qualitications and any special documentation needed.
If you own your present home, that's probably your biggest asset. If you do not have a reasonable estimate of its value, ask your real estate broker (you probably have it on the market and/or have an offer on it--the value is somewhere between your asking price and the offer amount).
Vehicle(s): If you do not have a reasonable estimate of its(their) current value, a local car dealer may help. But, your mortgage lender probably also makes car loans and can help you determine their book value.
Boat, Motor Home, Camping Trailer, etc. Although these depreciate even faster than cars, they do have a value. If you aren't aware of market values, your local dealers should be able to help. Again, your mortgage lender may also make loans on these and should be able to help you determine a fair value.
Savings, Trusts, Inheritances, etc., have been discussed above. Any other major asset that is marketable should be listed along with its current value. Furniture and appliances should not be considered, but if you have some personal item of stong value list it.
4/30/99 updated Saturday, November 20, 1999