First understand there are different types of lenders. Your bank, loan officers or mortgage brokers. There are also different loan types for you to consider. Ask questions and become informed, and see what kind of loan will work for you.
- FHA (Federal Housing Authority) – Requires a minimum 620 credit score. 3.5% down payment. Upfront funding fee plus a Mortgage Insurance Premium that stays for the life of the loan. The mortgage insurance premium remains part of your payment for the life of the loan. Previously the home had to be in move in condition no repairs, not even a little peeling paint anywhere. Recently they made a change to allow up to a $5000 repair escrow for cosmetics and minor repairs.
- FHA 203K– Requires a 650 credit score and still 3.5% down payment. Upfront funding fee plus a Mortgage Insurance Premium that stays for the life of the loan. Borrowers may finance the purchase price and lots repairs and updates with this loan.
- VA (Veterans Administration) – No money down, 100% financing for Veterans only. Seller has to agree to pay all buyers closing cost. Includes an upfront funding fee, financed on top of the loan, plus a Mortgage Insurance Premium monthly.
- Conventional – 5% down or more depending on credit score. Most lenders will allow minor cosmetic repair. They are mainly concerned with health and safety issues.Some lenders also offer remodeling money as part of the loan package. Private Mortgage Insurance premium will drop off the loan payment after a specified period of time or after a certain percentage of equity can be established. Check with individual lenders.
USDA (United States Department of Agriculture) For North West Indiana Steve Ballard 574-772-3066 x4
Purpose is to encourage Rural Development in targeted areas. No Money Down possible. Income limitations. USDA takes buyers over all circumstances into consideration, not just their credit score.
If you are looking to purchase a home that might need some repairs… be sure to disclose that to your lender so the loan they arrange for you will work for the property you desire to purchase.
Now once you have your financing in place and you have placed a home under contract. Do not do the following:
- Apply for any new credit cards
- Finance any new purchases like a car, furniture etc.
- Continue pay all your existing bills on time. Utilities, phone bills, rent etc.
I had a buyer once pre-approved, home under contract, home inspection and appraisal was all good, then the lender sent a notice rejecting the loan, because they sent a rent verification to the buyer’s current landlord who reported that they were past due on their rent. The buyer said they thought they would save the money for their new home. Fortunately, the Mortgage broker I recommended to them found another lender that didn’t require a rent verification and we closed the deal.
To tell you what you can qualify for a lender needs some information from you. Being Savvy is being prepared with all this information upfront before you call lenders, including your credit score. The first thing a loan off are going to want to do is pull your credit. If you are going to talk with / shop around to at least 3 lenders as you should, then you don’t want them all pulling your credit. You can own up to the fact that you are going to talk to at least lenders and you want a quote based on the credit score you tell them because you recently checked your credit and you can give them the score.
Once I was looking for an investor loan that would give me cash back after paying off my financial partner on several rentals. It required what is called a portfolio loan. A loan that is kept in house for the bank. They don’t sell the loan on the secondary market. Therefore, they make their own policies and rules. I found one shopping on the phone and made an appointment to meet with the loan officer. I came prepared with all the documentation I knew they would ask for as part of the application process, organized in a folder. Including details on the rentals I wanted to use as collateral for the loan. She was impressed with all the information I had organized, pulled my credit for herself and approved my loan right there on the spot. Only subject to title and an appraisal.
Documentation Typically Required by Lenders
- They will pull your credit report from all 3 credit bureaus, then they average your score.
- Last 2 years of tax returns and W-2’s.
- 2 pay stubs.
- 2 months of all bank statements.
- Current statements for retirement and investment accounts.
- Documents to show other sources of income (which could include a second job, overtime, commissions and bonuses, interest and dividend income, Social Security payments, VA and retirement benefits, alimony or child support).
Once you have a signed contract they need a copy of that, then the appraisal and title.
Next I will discuss loan terms.