I am often asked questions like, “How long will it take me to
get approved for a loan?” or “What does the time-line look like, from meeting
my agent, applying for a loan, making an offer and closing on the home?”
Questions regarding the process and time-line for buying a
home are very common, especially for first time home buyers, or for those who
haven’t bought a home in a few years.
The purpose of this blog post is to give a step by step
overview of the process, including both the lending timeline and the real
estate purchasing process. I hope to explain them concurrently so that those
interested can see how the loan application, appraisal, home search, offer,
title etc all fit together.
This topic will be covered in three parts, or three blog
posts.
Part One – Meeting your agent and loan officer
Sometimes my clients come to me after they have already met
with a loan officer. Sometimes it was their loan officer who referred them to
me (thanks!). Most often, however I meet with a prospective buyer, and during
that conversation I ask them “have you met with a loan officer, and have you
been pre-approved”.
The answer is typically “no, we haven’t. How does that
process work, what do we need, and do you know a good loan officer?”
So, let’s talk about the “pre-approval” process.
Getting pre-approved means that your loan officer is going
to speak with you about your financial needs and goals and discuss with you how
they fit with and relate to your home buying goals. Your loan officer will also
review with you your current financial situation and will then discuss with you
what type of loan you might be able to qualify for and in what amount. Your
loan officer should explain to you the pros and cons of different loans (FHA vs
Conventional for example) as well as different options for structuring the loan
(such as points, credit for interest rate chosen and so on).
During this phase, the loan officer is attempting to
determine your financial eligibility based on information you have verbally
provided. He or she will ask questions about your overall debt, your monthly
payments, your savings and assets and your credit history. You may be asked
questions like “Where will your down payment come from?” or “What type of
monthly payment can you afford?”
Once your loan officer has enough information they will run a
cursory application (this is a computer generated process) and you will be
given a “quote” for the interest rate that you would likely qualify for. The
loan officer may or may not decide to run your credit at this point. That will
probably depend on what documentation you have brought with you, we will get
into that in a minute.
Once this initial, cursory consultation is completed, you
should have a general understanding of your interest rate options, cost of the
loan and loan type that may best fit your needs. If you decide to move forward,
then it’s time to dig into the details.
Your loan officer has to verify every piece of information
being used in your loan. That means that if you told him you make x amount a
year, have x amount in savings and have x credit score, he needs to prove it on
paper. Some of these items may be requested BEFORE your loan officer runs your
credit and application for pre-approval. Below is a list of commonly requested
documentation that your loan officer may ask for;
- Most recent 30 days of pay stubs
- Two (2) years W2's (From All Employers)
- 1099’s if self employed or contracted etc
- Pension award letter (if applicable)
- Social Security award letter (if applicable)
- Two (2) years personal tax returns (including all pages and
schedules)
- Most recent bank statements (NOT ACCOUNT SUMMARY OR TRANSACTIONS
HISTORY) on all bank accounts (ALL PAGES of each month's statements, even if
the page is blank)
- Most recent IRA/401k/ Mutual Fund/ Brokerage Account statements
(ALL PAGES of each month's statements, even if the page is blank)
- Copy of current mortgage statements for all the homes that you
own
- If your real estate taxes, home owners insurance and/or
home owners association (HOA) dues are not part of your mortgage payments, then
we will need a copy of the last real estate tax bill, homeowners insurance bill
and most recent HOA statement.
- Copy of your Driver's License
- Copy of your Social Security Card
- Copy of your earnest money check AND a bank printout showing
when the check is cashed by the title company and clears your bank account
- Divorce Decree (if Applicable)
- Certificate of Eligibility (VA Loans only)
- DD214 Member 4 copy (VA Loans only)
Once your loan officer runs your credit and application, you
will either be pre-approved or declined.
If you are declined, your loan officer should be able to
tell you why. Don’t worry; this is a great way to determine your financial
strengths and weaknesses. Don’t give up, work with your loan officer and real
estate agent to determine a plan to get approved and buy a house! If you have
the assets but not the credit, you should seek out an agent with the knowledge
and skills to help you buy a home using “creative financing”. Yes, we can help
you with that!
Once you are pre-approved or (pre-qualified, depending on
the terms your loan officer and their bank/mortgage brokerage use) you can
present your pre-approval or pre-qualification letter to your agent. This tells
your agent that you are LIKELY to be approved for the loan. This way, your
agent knows that the time spent researching neighborhoods, valuating property,
scheduling appointments and showing you properties is time well spent. While
most agents would love to be able to show homes to everyone interested, there
just isn’t enough time in the day. In order to feel confident in putting that
much time and effort into you, we need to know that you are both serious, and
able to purchase a home. Getting pre-approved does just that.
At this point, your loan officer will submit the loan to
underwriting, with all the documentation included, and your agent will be
actively searching for and showing you homes that meet your criteria.
So what happens now?
NOTE: Just a quick work on choosing a loan officer. If you
already have an agent, ask your agent for a recommendation. Most agents have a
couple of loan officers they work with. Why do this? Your agent has likely gone
through this process many times already with the loan officer(s) that they use.
This means they already have a good working relationship and established strong
lines of communication. How well your loan officer and real estate agent work
together is a key element in getting you into a home and closing on time. Your
agent can also vouch for the loan officers technical knowledge of lending
(there is A LOT for a loan officer to know) but also for their customer
service, timeliness, communication, follow-up etc. If you are searching for a
loan officer on your own, then interview more than one. You need to feel
comfortable with your loan officer. It is essential that they communicate with
you and keep you in the loop.
