How to Get an Easy Mortgage Loan...
Many clients ask me the same question: How can I get better prepared to go smoothly through the loan approval process with a lender?
Great question! And one that merits consideration, given than an increasing percentage of real estate transactions are falling through because of financing problems (mostly at underwriting stage).
So, how can you get better prepared to avoid nasty suprises and unsavory delays?
Get Organized - lenders usually ask for the same documents that you will have to show over and over, update and verify:
- Last two years' federal tax returns. Include detail forms in addition to the 1040 if you are self-employed.
- If you are a salaried employee - last2 years' W-2's and last 3 pay stubs.
- If you are self-employed, a year-to-date Profit & Loss statement for your business.
- Three months bank statements for all checking, savings or investment accounts.
- Recent copies of stock brokerage or IRA/401K accounts.
- A copy of divorce decree, if applicable.
- If refinancing with a cash-out, a letter explaining what you intend to do with the money.
Ask the Lender to PRE-APPROVE you, with VERIFICATION of Documents
There is a lot of confusion between the terms "pre-approved" and "pre-qualified". The way I understand it, is that a pre-qualification is just an unsubstantiated estimation of whether you could qualify for a loan, if everything you say turns out to be true. This is not worth the paper it's written on these days.
You will need to obtain a solid pre-approval, which means submitting your information to an underwriter (automated or manual) and verifying all your documents. It means that the lender will pull your credit report, verify your employment and income history, and verify your assets and liabilities. A solid pre-approval will give a buyer an extra edge and leverage with sellers, because the financing uncertainty is greatly reduced.
Also, a pre-approval lets you know HOW MUCH you would qualify for, and estimate your MONTHLY PAYMENTS so that you feel comfortable moving forward.
Once You Find and Negotiate a Home - Submit a Formal Application to the Lender
You can change your mind on which lender you want to use up to the last minute, provided the lender has enough time to go through underwriting, order the appraisal, approve the loan and send the documents to the closing attorney. However, most lenders will ask for a commitment from you in the form of an appraisal, or processing fee, to prevent you from wasting their time.
Together with the deed documents for the property transfer, the closing attorney will ask you to "close" the loan by signing the note (which states the terms of your loan), and the mortgage (which puts the property up as collateral for the loan, in case you default). You will need to bring any required closing costs & downpayment (your REALTOR should give yo uan exact amount the day before the closing) in the form of a cashier's check or wire transfer into the attorney's account.