Foundation for a Successful Mortgage

A top ten list

Okay it is time and you are considering a move, here’s what you need to do NOW to prepare for smooth financing.

1. Get Organized – Gather and keep every piece of financial information for the two months leading up to buying a house. That means pay stubs, bank statements for savings, checking and investment accounts, W-2s, tax returns for the previous two years, canceled rent checks or any mortgage or property tax statements for other property you own. It’s best to maintain a PDF copy of these items, much easier to share with your mortgage broker.
2. Gift Money? – Get it early. If a family member is gifting some or all your down payment, make sure it’s deposited in your bank account more than two months before you apply for a mortgage. That way, the bank won’t need to source the large deposit. Otherwise, the gift-giver will need to sign a gift letter, stating that the money is indeed a gift and not a loan.
3. Maintain Your Credit Profile – In the months leading to your home purchase, avoid changing your credit obligations, especially between preapproval and the closing of your mortgage. The reason? It could hurt your credit score in a way that would raise the rate and fees related to your loan or, at worst, keep you from qualifying altogether. Don’t close or open any credit cards. Keep balances on your credit cards within normal range so it won’t mess with your debt-to-income ratio, a key factor in determining mortgage rates. And don’t buy a new car. The car company doesn’t care if you have a house, but your mortgage lender cares if you have a big car payment.
4. Don’t Move Money Around – In the months leading up to your home purchase, keep your hands off your finances. That means no cashing in investments from stocks, retirement accounts or CDs. Otherwise, you will create a huge headache for yourself as you try to show the bank the paper trail of where that money came from. In a similar vein, avoid paying off debts with savings because that could cause your lender to worry about how you will pay for closing costs.
5. Prepare to Write Letters – Lenders these days scrutinize every corner of your financial life, and if something looks funny, even just a little bit, they will want to know why. That means you will have to write letters explaining the oddity. For example, they may want a letter explaining why a credit card issuer pulled your credit three months ago when you applied for a store credit card. Or, why Grandpa gave you a check for $500 around Christmas. Lenders also may want you to explain why you changed jobs a few months ago or why you moved around several times in the past year. Don’t fight it, it’s best to just write them, send them and move on.
6. Get a Thorough Pre-Approval –  Okay this one should be a no-brainer, but you would be surprised how many buyers believe it’s okay to look for their new home without a solid pre-approval.  That’s like shopping without a wallet. The Market is very competitive right now; your offer will be more attractive to a seller with pre-approval in hand.  It also puts you ahead of the process when you finally go into contract and could help you close faster.
7. Pre-Approval vs. Pre-Qualified – While we’re on the subject of mortgage pre-approval, please do not confuse pre-qualified with pre-approved.  When you’re pre-qualified, the lender is simply giving you an estimate about how much you can borrow based on information you’ve provided.  When you’re pre-approved, the lender has verified everything you’ve provided and is offering to lend you up to a given amount at current interest rates.
8. Communicate and Be Honest with Your Realtor – Your Realtor is a licensed professional, but she can’t read your mind.  Tell her what your specific needs and desires are. Do you have to move by a certain date? Are there any financial issues to overcome? Would you consider a fixer-upper? Could one of your relatives be living with you one day? Are you expecting? Are schools important? The more information you can provide, the better you will be served.
9. Save and Save Some More – That about sums it up. No seriously, consider curbing any and all unnecessary spending, which includes your daily trip to Starbucks.
10. Be Excited – Purchasing a home is an exciting time, something that only happens a very few times in your life. You are in the driver’s seat, start thinking about what you want and what your partner wants. Make your own top ten list of needs and wants in your new home – and share it with your Realtor. Together you will make an informed decision, and yes, an exciting one.