Preparing for Your Real Estate Loan Application: A Comprehensive Guide
Hello, Garett Huber here with Compass. I hope this post finds you well and excited about your potential property purchase!
Today I was on the phone with a lender discussing the loan process when the subject came up concerning why lenders sometimes have trouble getting the loan processed in the timeliest manner. The lender explained that the challenge they face most of the time was due to the buyer needing help handing in items required when processing a loan.
I asked the lender if he would send me the standard list of things to help people be as prepared before they pursue making that first offer. To make the lending process as smooth as possible, I've compiled a list of items and tips to help you be best prepared. Let's dive in!
Note**These are items that a lender will require, and I am not at liberty to handle any of the below-mentioned paperwork. This is a list of things lenders will need, and I want to help you be as prepared as possible when we move forward with working on an offer process. Also, the date this blog is published only reflects items required at this date and time. Other lenders may require additional items or changes in regulatory rules may have occurred during or at the time this article was written. **
Important information for Borrowers
Pre-Closing Credit Check
It's important to note that a credit check will be carried out ten days before closing. This won't affect your credit score, but it will help the lender identify any new debts or inquiries that need to be considered when calculating your debt ratio. Therefore, try to avoid making additional purchases leading up to your closing.
Large Deposits Documentation
Any large deposits (more than your normal payroll check) must be documented to verify the source.
Financial Reserves
Most loan programs require verification of reserves after closing. Thus, providing two months of statements on 401K, IRAs, or other investment accounts will be beneficial.
Homeowner's Insurance
Please supply the contact information for your chosen homeowner's insurance agent at least two weeks before closing.
Contact Information
The lender will need contact information from all parties involved in the transaction, including the Realtor's and seller's information (if available).
Employment Verification
Verbal verification of employment is done a week before closing. If your company reports through a service, you may need to get a code for us to access your information. If you are self-employed, a statement from your accountant may be required.
Owner's Title Insurance
While optional, Owner's Title Insurance is recommended to protect you in case of a title issue. The cost of the Lender's coverage (which is not optional) will increase if you decide not to purchase the owner's coverage.
Document Quality
All documents should be clear and legible, unaltered, and complete. This includes all pages of any statement or document, even if blank.
Purchase Contract
The fully executed purchase contract must be clear, legible, and contain signatures from all parties involved. This includes all contract pages, addendums, initials from both the buyer and seller on any changes made to the initial contract, and a copy of the earnest money check.
The FHA Amendatory Clause and Real Estate Certification signed by the buyer, seller, and agents are also required for FHA loans.
Income Documentation
Your income documentation should include your most recent 30 days of pay, year-to-date earnings, your name, and your employer's name. If you have rental income, this must be documented by providing a 12-month lease agreement signed by the tenants and signed tax returns, including all schedules for the previous two years. For self-employment income, you must provide the last two years' personal and business tax returns.
Asset Documentation
Bank statements should clearly show the account holder's name, bank's name and address, account number, beginning and ending balance, and all credits and deductions for 60 days. All pages, even if they are blank, should be included.
Gift Funds and Sale of Personal Assets
Gift funds or the sale of a personal asset used as a source of funds for your loan should be appropriately documented.
Letters of Explanation
Letters of explanation will be required for name variations, employment variations or gaps, derogatory credit, address variations, credit inquiries, overdrafts, and non-paycheck deposits inconsistent with prior activity in your bank accounts. All letters should be signed and dated.
Sale of Departure Home
If you're selling a home, a fully executed CD (Closing Disclosure) for that property is generally sufficient. If your departure home is eligible for a corporate home sale program through your employer, you may provide any of the following documents in place of a fully executed CD:
- The corporate buyout agreement.
- An equity statement showing the amount and date of equity disbursement.
- A fully executed purchase agreement from a third party.
VA and FHA Loans
If you're obtaining an FHA loan or putting less than 10% down on a conventional loan, the corporate buyout agreement must be executed by the closing date on your new home. Any negative equity/loss on sale must be satisfied on an FHA loan before closing on the new home. For VA loans or if you're putting 10% or more down on a conventional loan, the closing on the new home may occur if the corporate buyout agreement won't be fully executed, given that you provide an unexecuted copy of the corporate buyout agreement with a signed letter of intent. If negative equity/loss on sale exists, sufficient assets must be sourced to cover the amount of the loss.
Letters of Explanation
In some instances, you may be asked to provide letters of explanation for certain situations like employment gaps, derogatory credit, address variations, credit inquiries, overdrafts, or non-paycheck deposits inconsistent with prior activity in your bank accounts. These letters must reference the specific instance and detail why it occurred and why it won't occur again. Remember to sign and date all letters of explanation.
Following these guidelines can significantly streamline your loan process and be better prepared when applying for a loan. As always, I'm here to guide you on this journey. If you have any questions or need further clarification, please get in touch with me at 850.830.1801.
Remember, the path to homeownership can be complex, but with the proper guidance and preparation, it becomes a much more manageable and enjoyable journey. So, here's to your future home!
