STEPS IN BUYING A FAIRFAX HOME -- PART 1 -- GETTING PRE-APPROVAL
Many people make the mistake of looking for a Fairfax home to buy, then going to their mortgage lender or broker and applying for a mortgage. What one should really do first is go to a lender and see how much you can afford to buy.
The process to get prequalified takes only about 15-30 minutes. You can call a good lender, Bank of America for example, and give him or her the information about your finances over the phone. You give your income, debts, assets, monthly payments you must pay, and your lender will run a credit check to see what you look like financially. After taking your info and checking your credit, he'll get your FICO score (Fair Issac Corporation) which lenders use to determine: if you can get the loan, your interest rate, and what loan programs you can qualify for. Your FICO score is determined by your length of credit history, your payback history on credit cards and car payments, and by the amount you owe on your credit cards compared to your credit limit. You should try to have your credit card balance, the amount you owe, under 50% of your limit. Over 50% will lower your score. Late payments and maxed out credit cards will lower your FICO score.
These days Fairfax lenders are more strict than they were a year ago in 2007, so they will check your financials carefully. A good score will be over 680, and the higher the better. The highest score you can get is 850. Lenders will also look at your "debt to income ratio," also called your "total debt ratio." This ratio compares how much money you have to pay out every month, compared to how much you take in every month.
Remember, your FICO score determines if you can get the loan, and determines interest rate and mortgage program type. Your "debt to income ratio" determines how much money you can borrow.
In summary, you must get a good, solid pre-approval letter, then go shopping for your home. When you have a signed and ratified contract in hand, your real estate agent then faxes it to your lender and he starts to process your loan. The lender will then ask you for your "supporting documents." One or two years of W-2's, 2 months of pay stubs, and bank statements for 2 months. In other words, all your supporting documents to back up your claims you made in your first telephone call with the lender. This is why it is important to be honest with your lender during the first call because sooner or later, you will have to back up your claims about the $85,000 a year income you are making and how much you have in savings for your $40,000 down payment. It is important to know that you don't hide any skeletons when talking about your monthly payments you must make. Some men have been known to hide the fact that they are making spousal payments and child support payments, and this comes out during the buying process to the surprise of his new wife.
Also, it is very important that once you get your pre-approval, that you don't do anything to change your credit history or credit report from the time of your pre-approval interview, to the time of your settlement. Don't be late on any monthly payments, don't apply for credit for anything because this will lower your score as an "inquiry," and don't buy any big ticket items during this two month period. The mortgage underwriters will do a final credit check as your loan package reaches it final approval stage.
The length of time it takes for your loan approval, the time the loan underwriters check all your supporting documents, can be done quickly, as fast as one week, but usually takes 2 to 4 weeks to complete normally.
In the next blog, I'll talk about how to search for a home and what you can expecting while "home shopping."