If it’s one thing both buyers and sellers hate about financing a home purchase is the time it takes to close.
The typical story starts with finding a home, falling in love, making an offer and then waiting…waiting…and more waiting for the loan to close before grabbing the keys to your new castle.
Annoying isn’t it?
Securing a mortgage is complex because it involves many moving parts like the lender, escrow, title, appraisers, and of course you the consumer. According to Ellie Mae, a loan software company, the average closing in September 2018 took 44 days! However, I’m here to tell you that it can be done much quicker and that you the buyer have the tools to make it happen.
1) Do Your Homework
I can’t stress enough how important it is to do proper research before visiting a real-estate agent or loan officer. Going to a home professional unprepared is akin to not studying for a test and hoping that the teacher allows it to be open book; you’ll be wasting your time flipping through the pages while others are finishing their test. Some good questions to consider are:
How much am I willing to spend on a monthly mortgage?
What is my Debt-to-Income ratio?
What program do I want to go with? FHA, VA, Conventional?
Can I afford closing costs? Do I qualify for down payment assistance? Can someone gift me the funds?
First of all, consider what you can realistically afford. Lenders use what is called a debt-to-income ratio to determine if you can afford your new mortgage. Basically they add up all of your debts such as minimum payments on credit cards, car payments, and finally the new monthly mortgage amount. They then divide this number by your gross income (including any tips, overtime, and bonuses if they are consistent) to get a DTI percentage. In most cases you don’t want to have a DTI over 43%.
That’s not all.
The second thing to consider is what program you want to apply for. FHA for example has a lower down payment requirement compared to conventional and better terms for first time home buyers. Research the guidelines of the program you are interested in because it will give you an idea of what you need to qualify.
Lastly, the service of securing a home loan isn’t free and you will need to pay for them before the loan closes. Therefor it is a good idea to have money in the bank or see if you qualify for a down payment assistance program. Another way to obtain funds to close is through a gift from a family member.
2) Prepare Materials
Proper documentation will be required to secure a loan. There is no way around this since the lender wants to make sure you won’t default on the property.
Why does this matter?
By having these documents ready before seeing a professional, you will save a lot of time and the processing staff will love you. There is nothing worse than piece mailing each document to the lender because they can’t move forward with the loan until each item is received; That means an underwriter won’t see the file until the paperwork is present and your approval will take longer.
Below is a general list of the items you should put together before visiting a lender:
Pay stubs from the last 2 months
W2’s or 1099’s for the last 2 years
Tax returns for the last 2 years
Bank Statements from the last 2 months
Identification; both drivers license and social security card
After applying for a loan with this documentation, the loan officer will give you a needs list of additional information processing may need.
3) Keep Good Communication
Good communication can mean the difference between saving a few days or weeks on loan closing time.
Look at it this way:
If a loan officer requests information and you get back to them 4 days later with it, then the loan approval has essentially been pushed back an additional 4 days!
Be vocal about what method of communication you prefer your lender to use whether it’s by phone, email or text message. Once you establish a good method of communication, it is important that you remain vigilant. It can save you precious time and help the loan close sooner.
For more information, ask for a free consultation with our team.