bluecollardollar: on buying a home

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I chuckle at the scene in a recent commercial for FannieMae Corporation. An older gentlemen looking wedding weary and a young man, looking much the same are sitting talking at a nearly empty reception hall. The older guy asks if he is saving a down payment for a house. The younger guy answers that he has gotten started. With that the older guy wants to know if he has checked his credit. Quizzically, the younger guy says no. "Whaddaya think your buyin'," the old guy says, "a loaf of bread?"

There is so much to the purchase of a home that the BCD has decided to spend the month of June building you a home buyers guide. Because home buying is more than buying a loaf of bread.

First things first.

And by that I mean the money. Any body can give you a loan preQualification. This is nothing more than a snapshot opinion based on a few provided facts about your finances. It's a ballpark figure that is nothing more than a ballpark figure. You can use it to hunt down some housing prices, but is no indication of your real ability to borrow that money.

This is also the first place you can find out whether your house hunting is premature. If you don't have your credit in check and there is a possible problem, the preQualification would be worthless. What you will need is preApproval.

PreApproval is nothing more than the first committed step by you towards your home purchase. It is the proverbial walking through the front door. This is where the first separation comes. The PreApproval process involves an actual credit check. It is accompanied by the actual loan application. This is where the problems will first arise. Go into this process as a partner rather than a customer. Full disclosure of your financial life is absolutely necessary to get the loan. The lender, and the loan originator want to give you the best rate. They also want someone who would be able to pay back the loan. For this, make sure you have a good clean slate going in.

If you have credit problems, now is the time to address them

After that, it's all about preparation.

Employment history is the first thing you should begin to gather. You will need to assemble your tax returns for the previous two years AND you last thirty days worth of pay stubs. This doesn't exclude the self-employed worker either. For this you need to assemble a profit and loss statement for the current year. This process will probably require some written explanations from you if you have had work history interruptions of your business has had up and down years. Copies of contracts and any documentation you think might be necessary should be brought to the originator at this point.

You will also have to show how you will provide for the down payment and how much you actually have. Statements from banks, mutual funds. 401(k) loans or by borrowing against what property you already own.

And bring everything you can think of that would be considered a recent statement on your credit. Any statements on loans, credit cards, even ones that you pay off every month.

Note: Every credit card you own that has no balance on it is considered a potential loan. The ability to borrow money from these lenders is taken under very serious consideration by the loan guy. Cancel as many as you need, keeping one, or two at the max, both with no balances.

But you may not be finished jumping through hoops. If for any reason late payments turn up on any of the reports run by the originator of the loan, an explanation, sometimes a good one with documentation will be required. Remember, we are talking about lending an incredible amount of money and if you were to do it, you would want to make darned sure that the borrower would repay, on time, and in full.

Even with problems, your preApproval may go through with "conditions". These will need to be satisfied as quickly as you can. These "conditions", while temporary are not given good and favorable looks from sellers.

At this point, everything looks pretty good for you. The lender things you are a good risk and he offers you the option of locking in your interest rate. Be aware of what the market of this types of rate is. You will not be able to predict the direction, so don't waste your time trying. But if you have a feeling one way or the other, you might want to act on it. But don't wait to long to "lock". If the rate is good and you are comfortable with the house payment that he has suggested, it night be smart at this point to take the plunge. Sometimes, and for a fee, the lender might give you a possible rate adjustment. But for a fee. And this is only the beginning...

bluecollardollar: from the blog