In the Market to Buy a House? Here's What to Expect.
A pre-qual is an estimate based off the information you provide, and tells you where you stand, including:
- Do you have enough money saved for a down payment?
- Do you have qualifying credit?
- What’s your debt-to-income ratio?
- Are there any factors you should work on before applying for a loan?
We’ll provide you with an estimated payment amount, term, and interest rate, and you can use this information to determine if you’re ready to buy a home.
To get pre-approved, you need to provide proof you can afford the loan. The bullets below help us understand your credit score, debt-to-income (DTI) ratio, employment history, and potential down payment options. When you apply, you’ll need the following:
- Paystubs covering the last 30 days of employment
- W-2s from all jobs over the past two years
- If you’re self-employed, tax returns for the last two years
- Bank statements for the last two months
- Investment statements for the last two months (if you’re using them for qualifying)
If you’re successful, you’ll receive a pre-approval letter you can bring when you look at houses. It shows sellers you’re already working with a lender and can borrow the funds needed to afford the home. Some sellers require you be pre-approved before showing you their home, so it can be a crucial first step.
Review and compare each estimate. Pay close attention to the annual percentage rate (APR), as well as how much of the total you’ll pay in five years along with the principal in the same timeframe.
Are you considering a forever home, or do you plan on moving in a few years? This is where loan terms become a factor. If you won’t be in the home for a long time, you may want to focus on lower closing costs versus a lower interest rate. Got your eyes on a forever home? In this case, the interest rate may be more important.
Looking at these types of numbers and options side-by-side will help you decide which loan’s right for you.
With a pre-approval in hand, you’re free to look at houses and place a bid. Pre-approvals are good for 60 – 90 days depending on the situation; if you don’t find a home within that time, you can have the pre-approval updated.
Once you’ve found a home, it’s time to choose a lender. When you sign a sales contract, you have a limited amount of time to close on the loan. Getting pre-approved before you shop potentially decreases the time it takes to get through underwriting, and could increase your chances of getting your offer accepted.
With a sales contract signed by all parties, the underwriter can formally start the underwriting process. If they’ve already assessed your personal financial situation, they may need additional information to clear up any conditions, but for the most part, they’re focusing on the property, and will order an appraisal and title work.
The appraisal tells the underwriter if the home is worth at least as much as you are borrowing. They base your loan-to-value amount on the appraised value, not the sales price you agreed to pay. For example, if the appraisal comes back at $250,000, but you agreed to pay $260,000, the lender will use $250,000 to come up with your loan amount. If the appraisal comes in low, you can either renegotiate the sales price with the seller, pay the difference in cash, or possibly cancel the sale.
The underwriter will also order title work. A title search shows the chain of ownership along with any liens on the property. Underwriters need a clean title for them to approve the property to exchange hands.
If the title is clean, you’ll be required to buy lender’s title insurance which protects the lender. You can also buy owner’s title insurance to protect yourself from any claims of ownership or liens in the future.
Before you’re ready to look at homes, a good first step is pre-qualification (or pre-qual). This step tells you how much you could afford and what terms you may get given your current circumstances. A pre-qual is an estimate based off the information you provide, and tells you where you stand, including:
- Do you have enough money saved for a down payment?
- Do you have qualifying credit?
- What’s your debt-to-income ratio?
- Are there any factors you should work on before applying for a loan?
We’ll provide you with an estimated payment amount, term, and interest rate, and you can use this information to determine if you’re ready to buy a home.
With all the pieces of the puzzle to put together, underwriters complete their job when they have the appraisal, title work, sales contract, and any information for outstanding conditions in your pre-approval letter.
It’s especially important during this time to keep your financial life status quo. Here are some tips to help you through the process.
- Don’t use credit cards: Racking up credit card debt can affect your debt-to-income ratio and your credit score. Avoid large purchases, even if they have to do with the home, until you close.
- Don’t change jobs: If you can help it, stay at your current job. Underwriters will reverify your income and employment right before the closing. Changing jobs can delay the closing or cause you to lose your approval.
- Don’t make large deposits or withdrawals: Your underwriter may ask for an updated bank statement if too much time passes between your pre-approval and closing. They do this to make sure you’re still receiving the same amount of income and you don’t have any large deposits or withdrawals. A large deposit they can’t relate to your income will raise a red flag and could further delay closing on your loan.
Closing happens after the underwriter clears all conditions on your loan as well as the property’s value and title. Once cleared, your loan gets sent to the title company and closing agent. You’ll receive a closing disclosure (CD) three days before your closing for you to review. Make sure the terms, rate, and costs are what you were told when you agreed to the loan.
Once you approve the CD, you’ll close with the seller, loan officer, closing agent, and possibly attorneys (in person or virtually). The closing agent will guide you through signing each document so you understand what you’re agreeing to, and before you know it, you’ll get the keys!
Ready to get started?
- Find a Wyndham loan officer,
- Request a rate quote, or
- Start an application!
