You can find the perfect property in the perfect location but unless you are ready to act you will probably miss your window to make an offer. Thinking that you are ready to buy and actually having a prequalification in hand are two very different things. The preapproval process may sound easy enough but there are often numerous minor items that can derail your approval. Before you look at any properties you need to have everything associated with your financing in line and in order. You never know when the right property will come along and if you are looking to buy you should make sure you are ready to act in a moment’s notice.
Prepare To Buy
Loan approval is based on four main sets of criteria: credit, income, down payment and assets. You can be strong in three of those areas but if you are weak in the fourth it could affect your approval. If you haven’t checked your credit score in some time you should find out where you stand before you begin the process. Your credit score is the basis for everything else you do with your loan application. This number can change from month to month based on the amount of debt you are holding and if you are delinquent on any accounts. If you know that your score is weak you should prepare to put more money down on the loan. Conversely if your score is strong there may be programs that allow you to put less money down. Everything on your loan approval starts with your credit score.
A Good Credit Score Isn’t Enough
A strong credit score is not enough. Even borrowers with perfect credit can have trouble finding a loan if they are self-employed or don’t show all of the income they receive. Your tax returns will hold the key to figuring out just what income you can use. Be prepared to have at least two years of the full tax returns ready if you are self-employed. If you receive a W2 you will need to have your last two paystubs in addition to two years of taxes. All of the paperwork can seem overwhelming and at times unnecessary but it is required for loan approval. Making income and documenting it may be two different things for self-employed borrowers.
If you are looking to buy you need to put your down payment money in an existing bank account as soon as possible. Most loan programs require the money to be in an account for at least 60 days prior to closing. If you are taking money out of a stock account or 401K you should do before you start looking for a property. It is also worth noting that in addition to the down payment you will need money for closing costs and property taxes. The lender may hold six months of taxes in the escrow account which could be several thousand dollars you will need at closing.
Closing a loan is much more difficult in today’s lending environment than in years past. It is important that you have all of your documentation ready and you know your numbers before you start your home search. The perfect home will often go to those buyers who are most prepared.