Mary Anne
Walser, Realtor & Attorney, 404-277-3527, maryannesellshomes@gmail.com
Tony was a first time homebuyer. He balked at my requirement that
buyers be prequalified by a lender before we go out looking at property. “I
don’t want to share my personal financial information,” he said. “Well,” I
laughed, “welcome to the world of mortgage lending.” Not only your personal
financial information, but lots of information that you think would not even be
relevant to the purchase of property must be shared with strangers (the
mortgage banker and staff).
I always prepare buyers for the fact that they will be asked for a
LOT of information. I joke that the lender will even ask them for their third
grade report card (being particularly interested in their math scores). A
recent buyer – Mia – called me up laughing one day. “You remember when you said
they’d ask for my third grade report card? Well, you were almost right. The
lender wants my college transcripts!” Now, Mia was well out of college and
fully ensconced in her current job for at least two years. But this is just an
illustration that there is no telling what the lender is going to ask to see. The
best I can do for you is prepare you so you aren’t surprised. Get together
everything that the lender will likely need (see the list below), but then be
ready that they may ask for much much more. Like your third grade report card.
Here are some of the documents you should have ready for your
lender:
- W-2 forms from the previous two years, if you collect a paycheck.
- Profit and loss statements or 1099 forms, if you own a business or are an independent contractor.
- Recent paycheck stubs.
- Most recent federal tax return, and possibly the last two tax returns.
- A complete list of your debts, such as credit cards, student loans, car loans and child support payments, along with minimum monthly payments and balances.
- List of assets, including bank statements, mutual fund statements, real estate and automobile titles, brokerage statements and records of other investments or assets.
- Canceled checks for your rent or mortgage payments.
This is by no means an exhaustive list. If you have had credit
problems or a complicated work history, be prepared to produce even more
documents. And the requests just keep coming, sometimes right up to and on the
day of closing. The lender may also pull your credit report again right before
closing. That’s why we tell you not to make major purchases between loan
application and close. WAIT to buy your new furniture and a new car. Big
purchases on credit might disqualify you for the loan because they disrupt your
income/debt ratio.
So why the need for all this information, borrower laid bare before
the mortgage altar? Remember that the lender is giving you a great deal of
money to purchase a home. Back in 2006-2008, they were giving money much much
too freely. Back then there were even what were called “stated income loans,”
where the bank would pull your credit score, ask you what your income was
(without any verification requirement) and give you a loan based solely on your
credit and what you claimed that you made. You can see where lots of borrowers
got into trouble with this. I personally saw real estate agents who I knew did
not make a lot of money purchasing huge houses, thinking that they’d be able to
resell them at a profit. When the homes didn’t resell, they defaulted. This
happened with borrowers of all professions on a national scale – hence the
mortgage meltdown.
So now things have tightened up quite a bit, and the documentation
requirements are once again onerous. There’s a person called the “underwriter”
who you may label the “undertaker” before all is said and done. Your loan
officer gathers the preliminary information from you, then hands the file over
to the underwriter, whose job it is to “underwrite” the loan. This means that
they make sure it conforms with the relevant guidelines and that it is a loan
that is likely to be repaid. They require any and all relevant documentation
(and some that certainly seems irrelevant) to satisfy the lender that you have
the ability to and will repay the loan.
So call a lender and be prepared for the onslaught of requests. Now,
let’s talk about the types of lenders. You can call a direct mortgage lender or
a mortgage broker – the difference is that a direct lender is lending you money
they control. A mortgage broker is shopping around for a loan and is lending
you someone else’s money. So a direct lender will usually have more control
over the process (through the underwriter, in particular) and the mortgage
broker can shop around, but will not have a lot of control over the loan once
they choose one for you. I have favorite direct mortgage lenders AND favorite
mortgage brokers (call me if you want a referral!) It is just a matter of
finding someone experienced and fair.
Most of my buyer/borrowers these days do a 30-year conventional
loan, twenty percent down. Interest rates are still so low – I definitely do
NOT recommend doing an ARM (“Adjustable Rate Mortgage”). With an ARM, you have
a fixed rate for some period of years – three, five or seven – and then when
the ARM expires the interest rate resets to a formula based upon the prevailing
rates at the time. Since interest rates are SO low now and likely to rise, you
would be better off just signing up for one continuous interest rate over
years. What if you think you will move before the ARM expires? The ARM rate is
generally lower than the conventional loan rate, so that is tempting. But
consider that you may change your mind about moving OR about selling. When I
purchased my first home, I used a seven-year ARM, convinced that I would move
before the seven years were up. I didn’t! But rates were lower at the seven
year mark and I refinanced to a 15 year loan instead. And I still own that
property (now as a rental). If rates had gone UP, I would have been quite sorry
that I had chosen an ARM instead of a fixed rate mortgage.
Find a lender you know and trust, and sit down with them and talk
through the wonderful world of mortgage lending and what is best for you. Then let’s
go find your home!
Mary Anne Walser is a licensed attorney and full-time REALTOR,
serving buyers and sellers in all areas of Metro Atlanta. Her knowledge of
residential real estate and her legal expertise allow her to offer great value
to her clients. Mary Anne is a member of the Atlanta Board of Realtors, the
Georgia Association of Realtors, the State Bar of Georgia and the Georgia
Association of Women Lawyers. Contact Mary Anne at 404-277-3527, or via email: maryannesellshomes@gmail.com.
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