How to get a loan for your new home or property
In today’s market, there are multiple options for financing your property purchase or investment project. Whether you’re planning on buying your first home, moving up to a hilltop mansion, or constructing your next multi-family complex, funding is one critical element of the process. The pendulum has swung far from the days of loose regulations and sketchy verification. The banking sector is still recovering from the subprime fiasco and its adverse impact on the economy and the rules have changed. These days, there are fewer opportunities for easy money, but there are opportunities, including several federal programs to help first time buyers. More documentation may be required, but it’s certainly worth the effort to take advantage of interest rates which continue to hover around all-time lows.
In order to verify the assets cash buyers say they have or the loan amount borrowers they think they can afford, it’s now standard practice for sellers to request documentation.
Before you meet your lender
Take a half hour to think about your short and long-term financial objectives so you can explain them and they have the best opportunity to guide you toward the financing most appropriate for your current situation.
The pre-approval process
A pre-approval letter from a lender is typically required as part of the offer to purchase. That’s the best place to begin. Not all pre-approvals are created equal. Pre-approval letters can be issued under different conditions, depending on the lender. Some lenders simply run a credit check and then write the letter. This type of “pre-approval” should be termed a pre-qualification rather than a pre-approval, because a true pre-approval should give everyone in the transaction a sense of confidence that this transaction will be successful. That’s not possible without verification of the facts. A pre-approval which only requires a credit check or a phone call to generally discuss financials has great potential to fail because the financial claims have not been adequately documented. For cash sales or large down-payments, the seller typically requests a copy of a bank statement showing adequate funds. Sensitive information can be redacted from the document. Only the lender’s information, the buyer’s name, and a sufficient account balance are needed. Although, this process may seem burdensome, it not only installs confidence in the process, it also makes the entire buying process more efficient.
The best pre-approval is when the borrower has been approved without conditions. Removal of conditions takes place in the lender underwritten department. Borrowers who have been completed this process are considered underwritten, which is almost as good as cash.
Collect all your financial documents
It is strongly recommend that the financing aspect of the purchase be addressed before proceeding past the internet shopping and driving around neighborhoods phase. When you’re confident you’re ready to make your move, gather all your financial documents for the past two years (W2s, Income Tax Returns, and investment accounts), as well as paystubs and bank statements for the past two months, and talk to a Senior Loan Officer in the bank, credit union, or mortgage company of your choice. And remember, a true pre-approval means you have the documentation which proves you are financially ready to buy so insist on a review of your documents, not just a conversation. Including your pre-approval or proof of funds in your offer, will make your offer much more competitive when sellers begin reviewing the details.