Currency Corner: Home Space
Buying a Home Part 2: Getting the Loan
By Sandy McCall
Last month our Currency Corner/ Home Space section featured an overview of the steps necessary to complete the due diligence tasks when purchasing a property. In our third, and final, piece in this series we will explore, with more detail, the loan process from prequalification or preapproval through closing.
As everyone knows, you must determine how you will pay for the property you will eventually choose and buy. You will want to begin and continue your home-buying venture with some confidence that it will actually happen. If you are lucky enough to have cash for your purchase, carry on and follow the suggestions that we made in the November and December issues on how to find a good real estate agent and how to walk through the due diligence process.
Most of us cannot pay cash for a property, so the next step is to choose a lender. Your real estate agent can recommend a lender who is experienced, competent and easy to work. You’ll need a lender who is a team player as all of the players in this process must work together and must communicate well with each other. You can certainly consider seeking out a lender recommendation from friends and family, although please remember that realtors generally have more practical, firsthand experience to share. Is the loan person you are considering someone who follows through and returns phone calls and emails? Is this loan person a team player who will communicate with the other players on your behalf?
As a part of collecting information for this piece, I talked with Leah Tove, Loan Originator for Envoy Mortgage Ltd. If you have further questions, you can reach her at 828-299-2085 or at firstname.lastname@example.org.
If you are contemplating using a national lender that you have heard about online or in advertisements because they advertise very low rates, use caution. Many out of state or national lenders may be licensed in North Carolina, but they often do not know what is customary in Western North Carolina. In the end you might be jumping through unnecessary hoops or paying for things that are not necessary in our area. Personally, I would much prefer to have a local person who I can talk with easily.
One of the questions I am asked repeatedly as a realtor is, “what is the difference between a mortgage broker, mortgage lender or loan officer?”
Leah helps us answer these questions: “Traditionally, people who take applications for mortgages have been called Loan Officers … I prefer to use the term Loan Originator. With the new Dodd-Frank rules and State and National licensing regulations, we are referred to as Mortgage Loan Originators (MLO). You might also see Home Loan Consultant or Mortgage Advisor or other names. We don’t have a registered name like Realtor®.”
“A mortgage broker is [just] what the term implies. It’s a company or loan originator who takes a mortgage application, gathers all the borrower documentation to verify what’s on the application, then ‘brokers’ the loan [by] sending it to an investor … The broker chooses the investor based on things like lowest rate, ease of process or some other criteria. The investor has underwriters who underwrite and approve the loan and then give the money for the loan.
“A mortgage banker, like Envoy Mortgage, has loan originators who take the application, gather the documentation and instead of sending to an investor we have underwriters in our company. So we can underwrite the loan and close the loan in our own name. Sometimes we keep the loan and service it (collect the monthly payments) and sometimes we sell the loan to investors like Chase Manhattan, BB & T, SunTrust or other large investors.”
You have many choices when it comes to choosing a lender, but I want to emphasis how important it is to choose a person/company who is reliable and has experience in the loan industry. Leah says, “we all have great rates, so what differentiates us is our service.”
So now that you have an idea about who you might choose to deal with, we will move on to getting a prequalification or pre-approval from the lender so that you can really start the process of buying a home.
Pre-qualification should be a relatively painless process when you are working with a reputable lender who takes the time to talk with you. Acquiring pre-qualification involves talking with the lender, telling them what you wish to accomplish and after the lender gathers information from you over the phone, they will determine whether they can write a pre-qualification letter or whether a pre-approval is actually necessary to move forward. A pre-approval letter requires that you apply for the loan.
Many questions may come up when you attempt to get pre-qualified or pre-approved, i.e. what are your credit scores, do you have good credit or do you have any credit at all. Leah reminds us that “it is not good if you have charged the limit and then you pay it off each month. Yourlender can give [you] advice before [you] start looking at [property]. The lender might say you should pay this off, fix your credit, fix your insufficient funds [before you apply for a loan].” You will have to document your credit with black and white information. It is important to give the lender exactly what they ask for because even when you think it is silly, it is necessary to have everything in order to get your loan approved. It is not your lender who is asking for this information; it is required by the other parties involved in approving your loan. We don’t want to be surprised during the process and we don’t want to waste time, so it is very important that you, as the buyer, do your part. And also be cautious about gathering information from online websites, as the info may not be correct.
Buyers might wonder what type of information they will be required to produce when applying for a loan. Leah chuckles and says, “We want ‘Everything including blood samples!!’” Not really, but sometimes it seems that way. You will need to produce, in a very timely fashion, your completed loan application, a copy of your driver’s license and social security card, thirty days of your most recent pay stubs, two months worth of bank statements from your asset accounts. If you have been gifted money for your purchase, you will have to submit a paper trail to prove how much money you received and where the money came from. Sometimes you will have to prove the rent you have paid and produce cancelled rent checks. And you may be asked for other items not mentioned here. And with loans like VA financing, you will have to provide additional information beyond what is mentioned here.
One of the comments that I hear often from buyers is that they think it is quite ridiculous when asked to send the lender a copy of a bank statement, and the buyer leaves out the last page, which is blank anyway. Then their lender insists that the entire document be sent. Keep in mind that when the lender, underwriter or investor receives a bank statement that clearly says it contains 5 pages and you only send 4 pages, everyone will wonder what was on that last page. You are the only one that can “see” that it is blank. So send all pages, there IS a reason for it!
Leah also reminds us that the buyer must be completely honest when answering questions. If you are not honest, they will find out and then you will look bad. And it could hold up the process or cause you not to be approved for the loan.
Part of the process for approval on your loan is having the property appraised. Things are not as they used to be! The appraisal should be completed before your due diligence period is up. Appraisers must be chosen by following the HVCC (home valuation code of conduct). This is a national rule that regulates how appraisers are chosen. The appraiser cannot be chosen by your lender, by you or anyone else except an independent company set up for this purpose. Your lender cannot even contact the appraiser.
The lender may also ask you how much you want your monthly payments to be. If you are preapproved for $200,000 and you only want to spend $150,000, that’s your choice. Even if you don’t think you will qualify for a mortgage, you might be surprised, so go through the process and find out for sure.
I imagine you understand now that it is really important to choose a lender and get pre-qualified or pre-approved before your realtor starts looking for property on your behalf. And when you do find the property that you will make an offer on, you will need either a pre-qualification or pre-approval letter to submit with your offer that is not older than 30 days. So it is best to be prepared!
So now you and your realtor have found a property that you are going to make an offer on and you now have a pre-qualification or preapproval letter in hand to submit with your offer … the negotiations begin. As soon as the property is under contract, order (your realtor can do this for you) things like inspections and surveys that you have decided on and immediately apply for your mortgage. Your due diligence states that you must be relatively sure that you can get your loan and that means you have to apply and the lender must get an appraisal before your due diligence period is up. It will take a minimum of 30-45 days to close on your property from the time you get it under contract.
Happy house hunting!
Sandy McCall is the owner of Southern Life Realty. Contact her at 828-273-9755 or sandy@SouthernLifeRealty.com.