Easy 5 Steps To Buy A Home-Personal Finance Post

Today is the day where you will find these Easy 5 Steps To Buy a Home.

Buying a new home can be fun, but can be daunting at the same time. To make it more fun, know the steps to buy a house upfront before you go looking for that house you want to make a home. If you know these easy 5 steps to buy a home (from an underwriter)– you will have an advantage over those who have not prepared themselves. This post was updated 01-27-22

For your information

The documentation stated below will depend upon several things within your mortgage loan process. If your mortgage file is manually underwritten, the full documentation requirements are necessary to get to the final stage of approval.

Most lenders underwrite Fannie Mae or Freddie Mac underwriting guidelines. However, some will have a version of their own guidelines with a few changes to protect their interest in the loan. Example: FHA will allow a minimum credit score to 500; most lenders will limit their minimum credit score to 620.

Lenders use the automated underwriting system known as Desktop Underwriter (Fannie Mae) and Loan Prospector (Freddie Mac) if the loan criterion is within guidelines to do so.

When your loan is eligible for automated underwriting – the documentation requirements may be less. If you have all the documentation together it saves time and effort trying to find what you need when and if the lender requests it.

Pre-qualification

When you go to the lender for your pre-qualification (in person, online, email, etc.), the pertinent information from your application goes into the lender’s mortgage system.

The credit file used by the lender will grade how you have paid your credit obligations; your stated income, assets listed, and all application criteria. If you have all positive things within your credit report and have listed your income currently, the underwriting system will spill out the needed documentation based on the accurate information.

Often the documentation is less than stated below. However, if you have unknown issues/risk factors that are not listed on the application; the lender may need all of the information listed below.

Where to start… The Easy 5 Steps to Buy A Home

It is wise you research yourself first, and by this, it means; know everything about your employment/income history, credit, assets, and all finances.

This may be your specialty as you probably keep an up-to-date personal financial statement handy. If you do this, it will handily help you get to the information pertinent to your mortgage application in a timely manner.

Here are the Easy 5 Steps To Buying a Home

1. Employment/Income

Employment history for 24 months.
Income (salary), most recent. If you are on commissions, tips, bonuses, and other variable income, do you have a two-year history? Documentation is needed to prove the time received.
Salaried income – Paystubs for at least 2 – 3 months with consistent income and possibly verification of employment (VOE) obtained by the lender.
W-2’s for 2 years
Self-employment Income – 2 years 1040’s if Sole-Proprietor. If you are a Corporation (1120), S Corporation (the 1120S), or Partnership (1065) 2 years Business returns- with all schedules. A VOE may be ordered.
Bonus income needs to have a history. Evidenced with pay stubs, W-2’s, and 1040s requested. 2-year history is usually required.
Commission income needs a 24 months history, or at least 12 months’ history, in some situations. Paystubs, W-2 for 2 years, and 1040s for 2 years will be sufficient for this history.
Tip income must show history and have backup documentation. Paystubs, W-2s, and/or a VOE may be necessary.
Deductions on paystubs need explanations. If there is a deduction for child support on the paystubs, you will need to provide court documents for the amount and term. Divorce decree, legal separation, or court order is the needed documentation.

When child support is included as income, it must be continued for the next 3 years. A divorce decree, legal separation document, or court order can be proof of this income, and it must be consistent.

2. Assets

Bank statements for at least 60 days, however, if you have large deposits, you will need to show the money going in and out of your account. Documents for the origination of the large deposit. i.e. a secured loan for the down payment and possibly verification of loan from the institution.
Your bank statements will also help verify your net income if direct deposit.
If there are loan deposits (you have made a loan to pay part or all of your closing cost), you will need full documentation for that. It must be a secured loan to be eligible.
Any deposits or withdrawals must be consistent with payments that are normal for your history. Large withdrawals or deposits that is a bonus or other funds, each item will need backup documentation for proof.
Gift Letter and funds – Gift funds the easy way, is to have a gift letter from a relative and wait to provide the funds at the closing table, by certified check.
Funds received – If you have already received the gift funds you will need to verify the receipt of the funds. The deposit and documentation showing the funds withdrawn from the donor’s account are acceptable. *The lender will provide a gift letter, with the documentation needed.
Using 401K Vested Funds: You will need to provide the 401k-vested amount that is on your statement. The request to withdraw the funds, and a copy of the check for the amount stated and the deposit into your bank account.

3. Credit

The lender pulls the credit report with the pre-qualifying application. If there are any discrepancies, they are re-entered correctly and credit is re-issued.
Credit scores – the three major credit bureaus of Equifax, Experian, and Transunion will issue their credit score. Each bureau issues a score of the credit obligations for loans that lenders report. They are not usually the same. The MIDDLE credit score of these bureaus is the representative score and it is used by lenders, and by the underwriter for approval.
If your credit report has only two scores, the lower of the two scores is used.
When there are two applicants the lower of the two representative scores are used. This is why some applicants decide to be the only applicant on the loan if they can qualify by themselves.
Credit bureaus analyze how you have paid your credit obligations. The current balances to high balance… if all of the revolving charges are near or at a high balance, it will affect your score. How many accounts and how often you use your credit will be a part of the analysis. Judgments, collection, and court-ordered documents account will also be factored into your final credit score.

4. Debts

All active debts are on the application and this includes child support and alimony. It also includes loans or obligations that may not be on the credit report. The lender must verify all of the aforementioned debts.
If you have payroll deductions as stated above in #1, proof of this deduction needs verification for the remaining term of that debt. Divorce Decree, Court Order, or other acceptable verification. If you indicate less than 10 months remaining, you must provide a court order detailing and confirming that information.
If you are paying off a collection account, the terms and history need documentation, and have a good credit history, if not on the credit report. The payment will be in the debt to income ratios if 10 months or more are remaining. In some instances, collections are paid at closing, depending on reserves, and history of payments. *More analysis of debts to follow in another post.

5. Property

After you have pre-qualified for the mortgage loan, it will be time to start the process of looking for the perfect place to hang your hat.

Here are basic facts you need to consider when looking for that perfect house:

*Note – this could be named as #6- simply because this is a very important part of getting the right home. Making the right choices for the home is essential. It is important to stay within your budget.

Employ a Real Estate Agent. They are trained, qualified, and hold a license to help you make the right decisions. The Real Estate Agent will find the right property and know what to ask the seller of the property to make sure you are getting your money’s worth.
A Realtor will guide you to the right location for the sales price that you are limited to. You will know this once you are pre-qualified by adding back to your base loan amount the amount of your verified down payment. If you go out alone looking to find a 350K purchase price, and in an area/subdivision, that is restricted to property values of 700K to 850K or more, you are wasting your time.
After your interview with a Real Estate Agent, they will know the exact neighborhood, the right school district, the square footage, and all amenities that you desire and need.

Summary –

The above Easy 5 Steps to Buy A Home has some expectations from the lender…

Mortgage lending is very detailed. This is understandable and lenders do expect the applicant(s) to pay the mortgage debt within the signed legal documents. A borrower must be in good standing with his/her creditors; they need stable employment and income, and a down payment. The property must be acceptable collateral for the loan and in good condition.

With all of the above in mind, not any of is without necessity. The more you know upfront, the easier and quickest way of getting your loan approved to buy the house you want and deserve.

This post is part of the process as well and what you can expect from the underwriter.