You completed the first step of buying your first house by getting your finances in order. Now it is time to pick the people you want to work with and get pre-qualified. This step will give you the lay of the land and let you know what is possible. When you complete this step you will know if you can borrow and what price range you qualify. Remember that the loan company will look at your gross income without considering your monthly expenses so they may tell you that you qualify for a price range higher than you can actually afford. This is why it is so important to go in after your finances are in order and you have considered what you can afford monthly.
Finding the right people to work with is so important. They can make the process so much easier on you! I found it helpful to tell everyone I worked with that this was my first time so they knew to explain everything to me and walked me through the process. I also wanted to work with people that cared about my goals and understood what I wanted. Don’t be afraid to ask questions before you meet to make sure you feel comfortable. I was fortunate that I had a close friend that bought a house right before me. I saw how good the group she worked with was and knew that I wanted to work with similar people. So, I started there! Getting recommendations from friends and family is a great place to start when picking a realtor and mortgage company. If you already have a realtor in mind ask if they can recommend a mortgage company. They have insight into companies that have done well for prior clients. If you do not have any recommendations start at credit unions and banks where you have savings or checking accounts.
Watch Out For These Things
- “Guaranteed Lowest Rates”- Read the fine print of these guarantees. I did not realize that lenders have different loans available to their company and the lender hopes you will not look other places to check the rates.
- Predatory Practices- Make sure they are not pitching you loans that don’t meet your needs. Understand all the fees and long-term costs of the loan before you choose.
- There is no such thing as a free lunch. Even if they say there are no closing costs, you need to realize those costs are probably built into your financing.
- Beware companies that reach out to you without you reaching out to them whether they contact you via phone, email or direct mail. These are predatory practices and you may not be getting the best loan available to you.
Truths About a Home Loan
- You Need Money to Borrow Money: There are fees associated with buying a house. These hidden fees add up throughout the process. My loan officer was great at informing me along the way, but I will be honest, it is hard to understand the black and white of what the fees will be as a new home buyer because there are so many terms and conditions and it is hard to know which costs are actual costs.
- Don’t Rob Peter to Pay Paul: You can’t borrow money to borrow money from the mortgage company. This means you can not take out a loan for the initial investment or put the initial investment on credit.
- Prove It!: There are no pinky promises or crossing your heart when buying a home. You need official documentation for everything!
After reaching out the loan officers they will tell you what documentation they need to pre-qualify. It was nice because they did all the approvals before I got to the consultation and we were able to spend the time going over different loan options and see what was possible. Below is the list of what documentation I needed to put together. Some companies might require more or less, but many of these are standard practices.
- Legible Copy of Driver’s License
- 3 Most Recent Paystubs
- All W-2’s and or 1099’s for 2013, 2014, and 2015 from all employers
- 2013 & 2014 Personal Federal Income Tax Returns (all pages), Complete with All Schedules
- Most Recent Two Months Worth of Bank Statements
- Most Recent Two Months or Quarterly Statement on all Savings, Asset & Investment Accounts and 401K accounts.
Your loan officer will be able to show you a loan analysis based on loan amount or cost of home. This is a close estimate of what your monthly payments will be. Here is an example of a loan analysis showing three types of loans and the fees associated for both. You will see an estimate of monthly costs based on the cost of the home being 140,000. This is helpful for you to decide if the budget you set for the home is reasonable and the monthly cost is affordable.
Now, the fun part starts! Time to go start looking for a home! You will be moving in no time.
How did your pre-qualification go when looking for a home? What advice can you offer? Tell us in the comments.