refinancing your home | documents needed

Tips for Buying and/or Refinancing

If you're like most people, purchasing a home is the biggest investment and one of the most stressful endeavors you will ever make. Because of the numerous factors to consider when purchasing a home, it's important to prepare as best you can. You will find a list below of suggested steps to follow in purchasing or refinancing your home. By trying to follow these steps it can help create a successful and more enjoyable experience. Since your home could cost you 20 to 50 percent of your gross income, it's important to do your homework, do research, and above all ask questions so that you understand the process carefully.

Purchasing Your Home

1. Looking for a home. As a potential buyer competing for a property, you'll have a better chance of getting your offer accepted by being as prepared as possible. It helps to put yourself in the mind set of the seller when exploring these scenarios.

Neither pre-qualified nor pre-approved
Pre-qualified
Pre-approved

Imagine you're a seller in receipt of multiple offers to purchase your property. A complete stranger (buyer) is going to put an offer on the table and is asking you to take your property off the market for at least the next two to three weeks while they apply for a mortgage. Now if you were the seller, what type of buyer would you be more inclined to want to deal with?

Neither pre-qualified nor pre-approved Buyer

This buyer has no evidence that they can afford to purchase your property. You may wonder how serious can they be since they have not at least been pre-qualified. Are they just tire kickers? Are they just wishful thinkers?

Pre-qualified

This buyer has met with a mortgage broker (or lender) and discussed their situation. The buyer has told the broker gross income figures, monthly expenses, and any assets or liabilities they currently have. The broker may or may not have seen their credit report. This buyer would then provide you with a letter from the broker stating that based on verbal income and expense numbers, given by the buyer(s), this is the amount they would be able to afford.

Pre-approved

This buyer has either sat down or talked with a broker and filled out a complete application, provided a broker with current pay stubs, w-2's to verify income, shown bank statements to verify assets, and signed an authorization form to allow their credit to be pulled. At this time the broker is able to submit an application to a Lender for a pre-approval letter, or commitment letter. This process already gives the Lender much of the paperwork they will need to complete the mortgage. This buyer will probably be able to close quickly. This buyer would then be able to provide you with a letter (pre-approval certificate) from the lender. As a seller this is as close as you can come to being certain that this buyer can close.

I am sure from the above scenarios; you can see that being pre-approved affords you the best chance of getting your offer accepted. This can be very critical in a situation where a seller may have multiple offers.

2. Making verbal agreements. If you're asked to sign a document containing instructions contrary to your verbal agreements--don't! For example, the seller verbally agrees to include the washer and dryer, or the lawn mower, or snow blower, into the sale, but the Purchase and Sale contract excludes it. The written contract will override the verbal contract. Some states require that contracts for the sale of real property be in writing. Do not expect oral agreements to be enforceable.
3. Choosing a lender just for the lowest rate. While the rate is important, consider the total cost of your loan including, loan fees, discount and origination points. When receiving a quote from a lender or broker, insist that discount points (charged by the lender to reduce the interest rate) be separate from origination points (charged for services rendered in originating the loan).

The cost of the mortgage shouldn't be your only consideration. Have confidence that the company you select is reputable and will deliver the loan with the terms and costs they promised. If in the final hours of the transaction you determine that the lender has suddenly increased their profit margin at your expense, you won't have time to start again with a different lender. Ask family and friends for referrals. Interview prospective mortgage companies.
4. Ask for a Good Faith Estimate. Within 3 business days after the broker or lender receives your loan application, you must receive a written statement of fees associated with the transaction. This is both the law and the best way to determine what you'll pay for your loan. Bring the Good Faith Estimate (GFE) with you when you sign loan documents. You should not be expected to pay fees which are substantially different from those contained in your GFE.
5. Obtain a rate lock in writing. When a mortgage company tells you they have locked your rate, get a written statement detailing the interest rate, the length of the rate lock, and program details.
6. Professional inspections. It is very important that you get property, roof and termite inspections. All this is usually done by a professional Home Inspector. Inspection reports are great negotiating tools when asking the seller to make needed repairs. When a professional inspector recommends that certain repairs be done, the seller is more likely to agree to do them. If the seller agrees to make repairs, have the repairs inspected prior to close of escrow. DO NOT ASSUME that everything was done as promised.
7. Home insurance. Start shopping for insurance as soon as you have an accepted offer. Most Lenders require 12 months of pre paid insurance. Do not wait until the last minute to get insurance as you may run out of time.
8. Signing documents. Whenever possible, review in advance the documents you'll be signing. It's unlikely that you'll have sufficient time to read all the documents during the closing appointment.
9. Allow and expect delays in the transaction. In a perfect world, all real estate transactions close on time. In the world we live in, transactions are often delayed a week or more.

top

Refinancing your home

1. Refinancing with your existing lender? Your current lender may not have the best rates and programs. There is a general misconception that it is easier to work with your current lender. In most cases, your current lender will require all the same documentation as any other company. This is because most loans are sold on the secondary market and have to be approved independently. Even if you have made all your mortgage payments on time, your existing lender will still have to verify your assets, liabilities, income, employment, etc. all over again. They will also require a whole new appraisal, just like a new company will.
2. Do a break-even analysis. Determine the total cost to refinance, and then calculate how much you will save every month. Divide the total cost by the monthly savings to find the number of months you will have to stay in the property to break even. Example: if your transaction costs $2000 and you save $100/month, divide 2000/100 = 20 months. In this case you'd refinance if you planned to stay in your home for at least 20 months.

Note: If you are switching from an adjustable to a fixed loan or from a 30-year loan to a 15-year loan, the analysis becomes much more complex.

3. Get a written good-faith estimate of closing costs.
4. Paying for an appraisal when you think your home value may be too low. Most brokers and Lenders require that you pay the appraiser directly. Do not waste your money on a full appraisal if you are not sure of the value of your home.
5. Using the tax-assessor's value as the market value of your home. Mortgage companies do not use a tax-assessor's value to determine the value of property. They use an appraisal which may be very different from the assessed value. The appraisal is based on like property that has sold in your neighborhood over the last 6 months to a year.
6. Signing your loan documents without reviewing them. Unlike a purchase which funds the same day you close, a refinance has a cooling off period. This normally lasts 3 business days and affords you the opportunity to look over and read all the documents you signed and ask any questions that may come up. You also have the right to cancel your mortgage before the 3 day deadline.
7. Provide documents to your mortgage company in a timely manner. When your mortgage company asks you for additional documents, provide them immediately. They are doing what's necessary to get your loan approved and closed. Delays in providing documents can result in delays which may cost you to lose your rate lock.
8. Get a rate lock in writing. When a mortgage company tells you they have locked your rate, ask them for a copy. The rate lock letter should include the interest rate, the length of the rate lock and details about the program.
9. Getting a second mortgage before you refinance your first mortgage. Many mortgage companies look at the combined loan amounts (i.e., the first loan plus the second) when refinancing the first mortgage. If you plan on refinancing your first loan, check with your mortgage company to find out if getting a second will cause your refinance transaction to be turned down.

top

Documents Needed for Your Loan

Buying or Refinancing Your Home

1. If you are salaried: provide two years W-2 and one month of pay stubs, OR if you are self-employed: provide two years tax returns and a YTD profit and loss statement.
2. If you own rental property, please provide rental agreements and two years tax returns.
3. If you wish to speed up the approval process, please also provide three months bank statements for each bank, stock and mutual fund account.
4. Provide recent copies of any stock brokerage or IRA/401K accounts that you may have.
5. If you are requesting a cash out refinance please provide a letter explaining what you plan to do with the proceeds.
6. If you are consolidating debt, please provide copies of most recent statements for correct payoff amounts.
7. Provide copy of Homeowners Insurance, (declaration page only)
8. Provide a copy of divorce decree if applicable.
9. If you are NOT a US citizen, provide us with a copy of your green card (front & back), or if you are NOT a permanent resident provide us with your H-1 or L-1 visa.

top