LOAN LOGISTICS
The financial road to homeownership
Unless you are paying cash, qualifying for a home loan is a big piece of the homeownership puzzle and can be a challenge in today’s marketplace.
Luckily, industry professionals will guide you over hurdles that may arise during the process.
“One of the first steps the borrower would need to take to qualify is to submit a loan application and pay for the credit report up front,” said Angela Walker, assistant vice president of mortgage lending for Houston Federal Credit Union (NMLS ID#1873003). “They would be required to provide a letter of explanation for any recent inquiries on their credit report and possibly explain any recent derogatory credit issues. If the borrower has multiple jobs in the last two years, this would also need to be explained.”
It’s important to get preapproved/prequalified for a mortgage loan as well before submitting an offer on a home. After this step, the lender knows what types of programs the buyer qualifies for and the terms, which can make the offer more attractive to the seller and be important in a hot housing market like the one currently in the Houston area.
“Before getting preapproved, don’t search for a home,” said Realtor Aaron Lathan of United Real Estate.
Why? Realtors don’t want a client to “fall in love” with a home they might not be able to afford, which can start a home search off on a negative note. After all, you want the process to be as positive as possible throughout.
“Be patient and work within the confines of your budget, decide on your must-haves and be willing to adjust them to the market. Don’t be unrealistic,” Lathan said, adding that buyers should ask themselves about their goal. Are they looking for a forever home, or one that they might eventually turn into a rental? That would affect the home search.
Qualifying is composed of several factors.
“Lenders qualify borrowers based on four main components — income, credit, assets and property collateral. The underwriter will look at each area and follow guidelines to determine if the borrower will qualify,” said Walker.
In the prequalification process, lenders take a close look at a buyer’s credit history, credit score, annual income/length of employment, and debt-to-income ratio, which is total monthly debts to monthly pre-tax income.
Lenders also look at how much money is available for a down payment and any closing costs. The buyer should also have enough money left over to be able to save for a “rainy day.”
After the prequalification step, a loan officer will send the prospective buyer a list of what’s needed, including recent pay stubs, bank statements, tax returns, W-2s, and other items. And don’t forget the loan interest rate, which of course impacts the monthly mortgage payment. When the lender is determining what rate to offer, the amount of the down payment, credit scores, loan program, terms of the loan, and the sales price are considered.
If buyers have questions during the home-loan process, Lathan said it’s wise to talk to a Realtor. ■