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Read this week's AJC article |
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PROPER PREPARATION CAN SPEED LOAN APPLICATION & AVOID PROBLEMS
With long-term home loan interest rates at such low levels, lenders are
protecting themselves from the risk of possible rate hikes by offering
"rate locks" of no more than thirty days. In other words, when you call
a lender and say "I want a loan," the lender will quote you a rate that
is good only for a 30-day period.
After that time period, you will be subject to market rate conditions
at the time you are ready to finalize your purchase, a day known as
closing or "settlement."
Because we are currently near the bottom of a 40-year interest rate
cycle, it is unlikely that rates will get any lower than they are right
now. So today's buyer is well advised to prepare for the day of loan
application, in order to make sure that the process goes as quickly as
possible from the beginning.
The lender will require that you gather information from four major areas of your financial life:
* YOUR INCOME
The lender needs to satisfy themselves that you have the ongoing
capacity to afford the monthly payments, so they will want
documentation of your regular sources of income.
These would include tax returns for at least the past two years, and
copies of W2 forms from your employers. Also, recent pay stubs will
verify that you are still employed and that your income is steady.
Don't forget to include guaranteed annual bonuses or recent raises in
your information.
If you have self-employment income, your tax return becomes your proof
of payment. But you will also be asked for a current "profit &
loss" statement as well as a balance sheet for the business.
Likewise, if you have additional income from sources such as
commissions or income from interest or investments, you will need
documentation of these as well. And don't let the lender fail to
consider ongoing income from sources like social security or income
from hobby activities.
* YOUR DEBTS
After documenting all your sources of income, the lender will want to
know about all your continuing monthly debt repayment obligations, also
known as your "debt load."
Begin by gathering all your credit card statements for the past three
months, then include information about student loans, installment
loans, auto loans, and even contingent obligations such as cosigned
credit cards or notes. Also, if you have leased appliances or
furniture, you will need to let your lender know.
For each of these obligations, the lender will need statements
including account number and creditor contact information. Also, if you
are required to pay alimony or child support, the lender will need to
verify the amount of the monthly obligation.
And some loan programs do not consider any monthly obligation with less
than six months remaining on the payment schedule, so tell your loan
officer if any debt is nearly satisfied.
Finally, the lender must verify your current rental history or your
present mortgage payment history, so gather that information as well. A
mortgage statement or a copy of your rental agreement is typically
required.
* YOUR ASSETS
Mortgage lenders even want to know about all the financial assets you
have tucked away, and they will need documentation of each, so plan on
providing at least three monthly statements for all your bank and
savings accounts, your brokerage accounts, your retirement accounts,
and any substantial investments you may have.
For example, if you inherited a one-half interest in the family farm in
the mountains, then the lender will want information about that
property and what is owed against it for your financial statement.
Likewise, if you owned a valuable collection of silver coins or had an
interest in the family business, that would count as an asset, and the
lender would want to know all about it.
* YOUR PURCHASE
Before the loan application can proceed, the lender needs to know that
you have a house currently under a valid contract, and will need a
signed copy of the purchase and sale agreement.
Because most sellers of residential real estate require a cash earnest
money deposit, and because you plan to use that earnest money as part
of the purchase price of the house, the lender will need a copy of the
cancelled check proving that what you paid was from personal funds, not
a loan or a gift.
Likewise, the lender will ask about the source of funds you plan to tap
for the down payment at the settlement table. Banks are very touchy
about the source of the down payment, because fraudulent seller
kickbacks can be disguised as previously received large down payments.
In addition, the lender wants to make sure you didn't borrow any
portion of your downpayment, which might increase your monthly debt
load and change your future financial picture.
Know that some loan programs welcome family gifts for down payments
while others prohibit them. Allowable gifts will require a letter from
the giver stating that the sum is a gift "with no expectation of
repayment."
Different lenders and different loan programs will require different
documentation, so always ask your lender if there is anything else they
need.
Having copies of all these documents in your possession will greatly
accelerate your loan application process, and make it much more likely
that you can close within the thirty days allotted.
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 John Adams Described as "Atlanta's most trusted voice in real estate," John Adams is a leading expert and consultant on issues of home ownership in the southeast United States.
He can be heard weekly on News-Talk Radio 920amWGKA starting at noon. He also has a weekly real estate column in The Sunday Atlanta Journal & Constitution..
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The May series of Seminars is entitled "Short Sales, Subject To's and Bank REO Sales... How You Can Beat the Real Estate Market Like A Drum in 2008!"
In all the years I have been investing in real estate, I have never seen opportunity like this. The moon is in the seventh house and Jupiter is aligned with Mars, and for the next 12 to 18 months, you have a window of opportunity to buy quality investment houses at discounts that were simply unheard of a couple of years back.
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