It's finally your time to buy a special dream home. You've saved for the down payment and are ready to start looking. Unless you plan to pay cash, one of the first steps in planning the purchase is to get pre-approved for the financing.
Navigating today's tighter lending guidelines can be daunting for even the most qualified borrowers. The key to a smooth process is to identify a mortgage professional early in the process who will help you prepare your financial documents in an organized fashion before a potential home is even selected.
"It's more important than ever to be prepared," said Tim Martin, senior loan officer for NE Moves Mortgage. "When an underwriter reviews bank statements, any large deposit (other than a payroll direct deposit) or any transfer into the account needs to be explained and documented."
Here are a few examples Martin offered:
Your account statement shows money transferred in. You would need to provide the statement for the account from which the funds were transferred so it can be matched up and show it was your money.
You received a gift from a family member to assist with the purchase. The gift donors need to sign gift forms and provide copies of their canceled checks or copies of their bank statements showing the transactions came from them.
ATM and teller deposits. Any type of ATM or teller deposits on your statement would need explanation.
Traditionally, when making an offer, the potential buyer writes a "good faith check" for 1 percent of the offer price. Upon signing a contract, a second deposit check is usually given for the balance of the down payment to equal a full 10 percent of selling price.
When contracts are signed, these checks are cashed, Martin said. "In order to confirm the deposits came from your accounts, you will need to supply an updated copy of your bank statement showing the funds coming out and copies of the checks."
He suggests writing those checks from your own checking account. "Avoid money orders, checks from other people, or other such instances that are not easily traceable," Martin said.
"If you plan to make the deposit using funds other than your checking account, consult with your loan officer first to understand how it will need to be documented."
Documents must be fairly current when the closing occurs. If your closing date is more than 60 days from the start of the process, it is very likely that updated bank statements and pay stubs may be requested before closing. Also, if you are moving money around for your down payment (selling stock, borrowing from a 401K, obtaining a gift), updated statements are required after the money is transferred to checking/savings to show its source and that it is available for closing
"Transfer money early if necessary," Martin said. "Keep all pay stubs, tax returns, bank statements and other such financial statements available while processing your mortgage."
All pages of a document must be present and must be legible in order for it to be acceptable. If the bank statement says "Page 1 of 9," send 9 pages. Make sure you name is on the statement and it includes a transaction history. Also, tax returns must include all schedules and should be signed, Martin said.
Every buyer's situation is unique. Regardless of the down payment, credit score, assets, or other financial strengths, expect to document the source of funds, reserves, and income for two years. Try to work with local professionals who know the marketplace. Seek the recommendations of your real estate agent and/or attorney when selecting a loan officer.
When all parties work together, the entire process can prove to be both painless and exciting.
Linda Skolnick's "Skolnick's Scoop" appears every other Friday. She is a Realtor with Coldwell Banker Riverside in Westport and can be reached by calling 203-246-0088 or by through her website, www.GoAskLinda.com.