A large percentage of people when purchasing a home usually do so by obtaining financing. The common misconception is that you need at least 20% down on the home that you’re going to purchase. Even though this will obviously save you money on your mortgage, you can actually put down as little as 3.5% and still buy a home. Although I personally recommend putting down 5 or 10%, anywhere between 3.5% to 20% is completely acceptable.
Along with the misconception of needing 20%, most people are unfamiliar with the loan process in purchasing a home. There are a total of 5 steps; getting pre approved, submitting all of your financials when your offer is accepted, getting an appraisal, overcoming underwriter objections, funding the loan.
Getting Pre Approved: There are two main reasons why getting a pre approval is the first step. First reason is because you need an actual lender or mortgage broker to take a good look at where you stand financially, and tell you what price range you can qualify for. Second reason is because no seller will look at your offer without a pre-approval. Getting pre-approved is fairly simple, and I discuss it in detail in my
Submitting all of your financials when your offer is accepted: After your offer is accepted, you need to submit new and more detailed information to the lender processing your loan. Remember that getting pre-approved is a quick snapshot of your financial standing, now that you’re actually starting the full process the lender is going to need all the additional documentation that you didn’t give before.
Getting an appraisal: Along with you qualifying personally for a loan, the property also has to qualify. An appraiser is a third party individual who acts like the bank’s eyes and ears. The appraiser will look at the property that you’re buying and determine the value using other local and similar properties as a guideline. For example, if your offer on a property is for $400,000 and you plan on getting a loan for $360,000, then the appraised value of the property must STILL be at least $400,000! In other words, you can’t over bid on a property and try to get a loan for it. The bank uses the appraiser to make sure the house is worth what you’re paying for it.
Overcoming underwriter objections: After the lender has all of the documentation that they need, including the appraisal, they will submit a full package to the bank that will be approving your loan. The person who takes a look at your file with a microscope is called the underwriter. Their whole objective is to nitpick, and find any reason why you shouldn’t be given the loan from their bank. It is extremely common once the underwriter looks at your file, to ask for more financial paperwork, updated statements, and even ridiculous explanations. I once had a high income client with great credit have to write an explanation as to what happened with a $2000 deposit. It was actually transferred to a different account, and the underwriter just didn’t catch it… nonetheless, my client still had to explain it in writing.
Funding the loan: Once the underwriter has been completely satisfied, you will be asked to sign a huge stack of loan documents. After you sign these loan documents with a notary, your file is overnighted back to the bank. It is around this time, you will be asked to wire the rest of your down payment and shortly thereafter the bank will wire their funds as well. When the title or escrow company has all the funds from you and the bank, they will record the deed, and finally the home is all yours.
From start to finish, once you have an accepted offer, the whole loan process usually takes about 30-35 days. If you’re doing an FHA loan, the process may take 35-45 days. I discuss the differences in an FHA loan verses a conventional loan in my FHA Loan video. Now you have a better understanding, going in, what to expect throughout the loan process, so there are no big surprises… Now that’s good to know. 🙂
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