The Buying Process
While no two transactions are identical, the process of buying a home typically follows similar paths.
There are actually three different timelines taking place during the buying process, I've separated each of
them, however they are running concurrently during most of the process.
Working With Your Lender
Selecting a Lender.
Lender selection can come from various sources, friends, colleagues, family, or a referral from me.
Once you have selected a lender to handle your loan, it's only natural that they will be the one
handling that part of the transaction. I have experience from the mortgage business and will be
available for questions regarding your loan; however I am not a loan officer.
Pre-Qualification vs. Pre-Approval.
There are two different levels of assurance of a loan. Pre-Qualification
is the least assured since it is typically based on a telephone conversation between you and your
lender relating to your finances. The loan officer can tell you or send you a letter stating what
you are pre-qualified for a certain dollar amount; however the
pre-qualification is contingent upon the verification of all the financial
information given verbally along with a review of your credit report. Pre-Approval
is the highest level of assurance since it is based on the review of actual bank statements,
W-2s, paycheck stubs, tax returns and your credit reports. The approval
is based solely on your credit worthiness, and does not take into consideration the property you
are purchasing. Typically your pre-approval is given in written form so
that it may accompany an offer you are submitting to a seller. Adjustments can be made to the
letter to fit the strategy being used from the "Making an Offer" step. Knowing
what you are pre-qualified for, or better yet, what you are approved for,
can dramatically help the "Identifying the Property to be Purchased" step above,
targeting the price range you should be looking at. Be sure that the amount you are qualified
for fits your monthly budget. Don't forget to include estimates for taxes, insurance, maintenance,
and homeowners' association dues, where applicable. Don't be afraid to adjust your loan amount
down to fit your monthly budget.
The Application.
Your lender will have a loan application that they will normally take over the telephone, or you
may be requested to complete one in writing, or online. They will also ask for documentation to
verify the information in the application. You should be prepared to give your lender a copy of:
- Most recent paycheck stubs covering a one-month time period.
- Bank statements for the last two months for each of your deposit accounts (checking, savings, credit union, money market, etc.)
- Salaried people - provide W-2 statements for the previous 2 years
- Self-Employed/Commissioned employees - provide signed completed tax returns for the past two years, personal and business with all attached schedules.
- A copy of the real estate sales contract (if applying after contract acceptance).
- Names and addresses or your landlords for the previous two years, if you have been renting.
- Copies of documents that may be pertinent to the transaction (ie. Divorce Decree, closing statements, lease agreements, etc.)
This list is not all-inclusive, but can be used as a guide to help you be prepared.
The Appraisal.
Just as your creditworthiness was approved above in the
"Pre-Approval vs. Pre-Qualification"
discussion, the property you intend to purchase must also be approved by the lender. The appraisal is
one of the steps involved in that approval. The appraisal is an estimate of the property's value at
a given time. If a property does not appraise for the contract sales price, there are remedies. Those
remedies will depend on the specific situation and how the contract was written. If this occurs,
we will work with this issue at that time. Typically my market knowledge is strong enough that I
will let you know in advance if I feel that there is going to be an appraisal issue. Depending on
the program your lender selects for you, there could be appraisal requirements. It is a good
idea to ask your lender if there is anything special that should, or should not be present in the
appraisal prior to selecting a property for purchase.
Underwriting.
One of the final stages of the loan process is underwriting. Your loan file is either reviewed by a
computer program (desktop underwriting) or by an actual person. The review is to make certain that
all the conditions and requirements of the lender have been met. Underwriting takes into consideration
you, the borrower, and the property being purchased. Due to the number of loan programs a lender can
offer a borrower, it is difficult to anticipate what issues may come up in the underwriting process,
but its important to understand that issues may arise and the quicker they can be resolved the sooner
the file gets to move through the process.
Papers Issued.
Once the file has been approved by underwriting the lender will issue loan documents, or papers, to
the title company. The title company will prepare the settlement statement which is one of the first
things reviewed in the "At Closing" step above.
Funding.
The last step of the financing process is when the lender sends the amount being borrowed to the
title company, in order for them to disburse funds to the appropriate parties.
See the "Possession" stage.
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