October 19, 2017

Home buying process

Today’s post is going to be a brief summary of what to expect when applying for a loan.  The idea is to break it down so that the process doesn’t seem so daunting. It’s really not that difficult. If you are working with a good mortgage professional, someone with fantastic attention to detail and access to a wide range of loan solutions (let’s say… me for example – hint, hint), then the loan process should be pain free.

By the way, this is going to be primarily geared towards the purchase of a property. Refinances aren’t much different and a purchase has a couple of extra moving parts, so this example should generally cover both.)

The most important concept to grasp, and a great place to start is with the idea that, these days, lenders are just as concerned with the house qualifying as they are with you qualifying. As you get out there and start looking, hopefully with a good qualified real estate agent, you’ll find that many listings limit the type of financing they’ll accept offers with.

For example: you might see a listing that announces “Cash only”, or “Conventional financing only – No FHA buyers”, etc.  This may be the case for a variety of reasons.  It’s possible the property isn’t in the best condition, so the sellers may be worried it won’t pass an FHA Appraisal inspection. (FHA loan guidelines can be more particular about the condition of a property than Conventional loan guidelines).  It also could be that the seller is worried that an FHA or VA loan (government loans) will take longer to process, and they may be weary of that because they want to sell quickly or with less hassle.  This is where it pays to have a good real estate agent and lender on your side. All mortgage companies are NOT necessarily created equal.  If you have a capable mortgage professional on your team, you should be able to get to closing on a government loan just as quickly and efficiently as a conventional loan. Finally, if the unit is in a condominium, the building project itself must already be pre-approved by the Federal Housing Administration (FHA). If it’s not, and you only qualify with FHA financing, then your best bet is to move on to a pre-approved condo. Your lender can get you a list of pre-approved FHA condo’s.

Step 1. With this concept in mind, we can move on to the process.  The first step is to determine with your lender exactly what, and how much you qualify for.  You’ll need three things to do this correctly; First, your most recent 30 days pay stubs. Second, your most recent two years of work history in the form of tax returns and year end statements (w2’s, 1099’s etc.).  Three, your most recent two months of bank statements (where you will be taking your down payment from).

A quick note about the 2 yr work history: don’t be discouraged if you were a student for 23 of the last 24 months, or if you took the last 23 months off to raise your first born.  The idea is, you need to be gainfully employed at the time of application, and you need to be able to explain what’s been going on for the last two years.  So a birth certificate for child, or college transcripts are completely sufficient in most cases, so long as you are currently employed full time. (For more accurate and detailed information on this step, please contact me directly at 858-349-4842).

Step 2. Now that you’re pre-qualified, it’s time to start making offers. Take full advantage of that qualified agent you should be working with at this point. Why anyone would try to do this on their own, I’ll never understand. I promise you this, as a buyer, you save nothing by trying to go about this on your own. Get an agent. Interview at least two. I can recommend some very good ones if you’d like.

Step 3. You’re offer has been accepted! Woohoo! High five’s all around! Now it’s time to order your home inspections and appraisal. Your lender and agent will help you order all of these and they’ll do all the work for you.  You will likely be expected at this point to write a check for a small portion of your down payment to Escrow called an Earnest Money Deposit. Next you will read and sign several stacks of paper (that were created by numerous attorneys over several years for the sole purpose of killing trees). Just kidding, most of these initial disclosures explain important things about the property you’re buying and other things like loan terms, or instructions for how you plan on holding title, etc.

Step 4. Once your appraisal and other home inspections are in, we have all the info needed to make a final decision to move forward. It’s at this point that your lender (me) gets all your paperwork and inspections organized and submitted to the underwriter for final approval. While your loan is being underwritten you’ll want to get a couple of quotes for home insurance so you can provide us with the policy you choose.

Step 5. Signing your loan documents occurs once your application receives final approval from the underwriter. We (the lender) provide closing documents for you to sign with a notary. Don’t worry, we provide the notary too.

Step 6. Closing is the final step and actually occurs in two parts, usually over two days.

I’m often amused by cable TV shows that portray home buyers signing their closing documents and immediately being handed a set of keys to their new home.

It doesn’t always happen that way in real life.  In fact, it might be two or three days between signing your documents and receiving your keys. First, your signed documents have to be reviewed by your lender for accuracy and completion (usually a day or two after you sign), then the loan can fund. Funding simply means the lender wire transfers the money (or loan amount) to the title company.  Once title receives the funds, they record your deed with the county. In California, recording almost always occurs the day after funding, not the same day, and never the same day you sign your docs with the notary. But when the loan finally records, that’s when you get your keys.

Often times the loan officer, and the real estate agent have two different definitions when it comes to the term closing.  The real estate agent definition is the accurate one.  Closing is when your deed gets recorded with the county – the day you get your keys. Many loan officers will say you are closing the day you sign your documents with the notary, but as I described above, that is not the day you get your keys. I make this clarification only to set the proper expectation.

I hope this was helpful!  I welcome your questions and feedback.

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