This is a great time to buy a home but a very bad time for speculative real estate investments. The challenge is getting financed. For those with perfect credit, consistent job history and low debt to income ratio it may not be such a hard task. For those of us that don’t fall into that perfect world we will need a little help.
You will need down payment and closing cost. Usually you’re looking at twenty to thirty percent of total sales value. For example if you want to buy a home that cost hundred thousand ($100,000) then you will need to come up with twenty thousand ($20,000) for down payment or thirty thousand ($30,000). You will need to figure in another 10% percent for closing cost. This down payment example is your worst case scenario sometimes you may pay 5% percent or 10% percent down but be prepared for 20% to 30% percent down payment especially if your credit is not so great.
You will need to have a mortgage broker or your banker run a credit check. It’s a good principal to make sure you don’t open any additional lines of credit for the duration of the home buying process. Based on your credit and income you will pre-qualify for what ever available program your bank may have. Bye the way based on what shows up on your credit the loan process could come to a stop right here. If that does happen try to fix the problem and then try again. I don’t recommend you run your own credit simply because most bankers and brokers credit systems are far different than what you will find on the Internet.
Make sure all your documents are organized. Depending on your bank and the programs that you qualify for you will need certain financial documents. Here is some of the basic information you will usually need.
1. Copy of driver license and social security card
2. Two most recent pay stubs
3. Last two years of tax returns
4. Bank may also require last 2 to 3 months of bank statements
5. You will need to consider what Insurance company will carry your home owner policy.
6. If you receive social security benefits are any type of pension you will need the initial reward letter.
Your broker will receive a pre-conditional approval after paperwork has been submitted to the banks underwriting department. The bank will require these conditions to be met before the loan can close. Your broker or bank processing department will handle these stipulations. If they need any further information to meet these requirements then you will be contacted.
The process does not usually go as easy as it may sound. There are all kinds of problems that can come up. The key is to be patient and remain as flexible as possible. As a borrower you need to complete the entire bank requirements. The faster you get your part done the quicker the process will go. Also of equal important is effective communication from all parties involved. When every requirement has been completed there will be a date and time set for closing between you the title company and your bank or broker.
There are alternative methods of financing such as a lease purchase. This type of financing will require you to put down a 5% to 7% percent down payment of the agreed upon sales price. Usually the lease portion will be for a year. The amortization should be like a regular fixed mortgage with your down payment and monthly payment counting toward the final sales price. Please contact a real estate attorney for advice before getting into one of these deals. Many times all the leverage is in the favor of the seller. If possible also looking to have the lease purchase recorded in your city records just as a regular mortgage.
Another method of financing is owner financing. If a seller owns his home outright then they may choice to do owner financing. You need to treat this type of financing just like any other loan. Please make sure you have a real estate attorney handle all the paperwork. The process will be pretty much the same with the exception of the owner setting up the terms and conditions instead of the bank.
There are many good opportunity available to the prospective home owner in this current market but preparation is the key to a successful buying experience.