Real Estate Questions Answered Here
by Art Santellen, REALTOR®
Note: This is the 3rd installment of a special series of 11 columns I'm writing to teach you evening you need to know about buying a home and getting yourself ready to buy a home.
You will remember that I mentioned that the poor think about real estate differently than the rich. I also mentioned that most poor people fail to have the "ganas' needed to buy a home. I shared with you ~e 12 steps needed to buy a home and I started by giving you some tips to help you find a Realtor. Last week I began a discussion of the second step, mortgage loan pre qualification. This week I finish up my thoughts on getting loan prequalified and tell you about step #3 - Loan pre-approval.
Step #2 - Loan Pre-qualification (continued)
The mortgage loan officer will want to know how much you earn. You can tell them how much you earn per hour, per week, or per month. But ~e best way is to tell them how much you made LAST year using the figures off you income tax return. Since you're going to have to show them your tax returns for the last two or three years, you may as well start all this by locating your tax returns.
The basic rule is that you have to be on the job for at least two years. Or, be able to show an employment record going back two years. If you were in school for same of that time, you need to show that your course o£ study was somehow related to the job you now have. For example, if you were in college and took a class on, say, business administration and today you work at McDonald's. .. Then your education is related to your present occupation. If you wore in college and took just one class in basket weaving and today you work as a computer programmer.... Then your education is related to your present occupation. Yes, loan officers will accept almost anything to help you get your home loan.
It's better if your jobs are related. For example, a couple of years ago you worked for Sears, then got a job at JC Penney, and now you work at Dillard's. This is good.
On the other hand, if you started out as a computer programmer at Microsoft then went to sales at Computer City, "d now you sell hand-held games on the street corner, this is NOT good.
A couple quick bullets:
Overtime does NO! count. In order for overtime income to count, your boss must be willing to sign a letter that says you're going to work overtime for the foreseeable future. AND, you most provide pay stubs that you've been getting overtime (regularly) over the past year. Part-time jobs do NOT count, unless you work at least 30 hours per week. Getting a new job does NOT count if you are still on probation. You know, job probation, not jail probation.
Receiving child support DOES count; but only if you can prove you've been getting child support for the last couple of years, AND you're going to keep getting child support for the next couple of years, AND it's court ordered. You can use your boyfriend's, girlfriend's, parents', or buddy's income only if they are also going on the tittle with you.
The lender is also going to want to know the total amount you pay every month on the debts you have. The following debts do NOT count: rent, utilities, insurance, cable TV, and the phone bill. The following debts DO count. credit cards, car payments, personal loans, home loans, medical bills, student loans, child support payments, spousal support payments, payments to the IRS, department store credit cards, gasoline credit cards, and other payment to creditors which show up on your credit report.
The lender will want to know how much money you have set-aside for the down payment and closing costs. You can have this money (about $2,000 to $S,000) in savings or checking accounts. You can have this money in IRA's, 401k's, mutual funds, stock market, or other investments. You can even have this money in a tomato sauce can buried in the back yard or stuffed under your mattress You can get the money (as a gift) from parents, relatives, friends and strangers BUT only under certain strict rules.
You CANNOT borrow this money or get a cash advance on your credit cards from an ATM machine.
You CAN sell personal property, like your car, to raise the money you'll need to buy a home.
Step #3 - Loan Pre-Approval
A home loan consists of two parts: determining the value of the house you want to buy and determining your ability to pay the loan. Getting loan pre-approved is half the battle. It's like shopping for a home with a blank check in your wallet. I keep telling my clients that the real work in buying a home is getting ~e home loan. Since buying a home can be such an emotional event for most people, it's nice to get the worst part over first.
A lender will verify everything you put in your loan application. Yes, your employer will be called to substantiate the amount you said you earned. Your bank will be sent a letter asking them to verify your savings and checking account balances. But the nastiest part of this nasty business is reviewing your credit report.
If you've been reading my columns, you already know about credit scores (FICO scores). You also know that the higher the score, the better your chance of getting the home loan. Everyone, who wants to buy a home, even those of us with bad credit can buy a home.
Here are my four deal killers.
1. You owe the IRS lots of money.
2. You're in default of your child support obligation.
3. You're in default of your student loan.
4. It's been less than 2 years since you declared bankruptcy.
Here are my six deal nightmares, but not deal killers:
1. You bounced lots of checks.
2. You have one or more accounts in collection.
3. You have one or more judgments recorded against you.
4. You just purchased a car.
5. You have medical bills you thought your insurance company would pay.
6. You joined a health club or gym and haven't used their services or paid their bill.
Loan pre-approval means the lender has verified your income, your debts, your saving, and your credit is either OK, or it's been fixed/explained. It also means you can start looking at homes with the secure knowledge that you can buy any home in your price range.
Next week, I'll explain step #4 - Drive-by House Shopping
Art Santellen is a Realtor® with Heritage Realtors in Colorado Springs. If you have a question you'd like answered, please send them to:
Art Santellen care of HispaniaNews
PO Box 15116
Colorado Springs, CO 80935.
You may also send your question directly to Art via email at ASantellen@hotmail.com.