The following questions are just a few that my friend and lender extraordinaire Laura Fournier of Equity Resources, Inc., has taken the time to answer for my buyers in the past.
What items does a prospective buyer need to bring to the initial lender meeting?
There is no requirement for the buyer to supply documentation for the lender to take a loan application. However, the more information the buyer brings the better the results of the loan interview. It is best to bring along the following documents so the lender can have a fairly complete picture of the borrower’s financial situation:
If there is any self-employment, 1099’s, side businesses, rental properties or more than 25% commission income please provide last two years of Federal tax returns w/ ALL schedules. If no self-employment, please provide just pages 1 and 2 of the Federal tax return. FEDERAL ONLY PLEASE
Last 2 years W2’s and/or 1099s
Two most recent pay stubs
Property owners: Copy of the most recent mortgage statement, property tax bill and home owner’s insurance declaration page for each property owned
For any account to be used as part of the transaction: Two most recent bank statements for your primary checking, savings, retirement and investment accounts – include ALL numbered pages for each month’s statement
This will get us started, other documentation will most likely be needed as we progress through the process.
What credit score is best to get approved for a loan?
For most mortgage lenders and mortgage brokers, the minimum credit score to obtain a loan for a buyer is 580. Banks and Credit Unions tend to need a minimum credit score of 640 or above. The higher the credit score, the more loan options are available, the better the rate and the lower the cost of the mortgage insurance (MI). It is best to have a score of 680 or above to be eligible for most all programs available but a score of 740 or above provides best combo of Rate, Price and MI cost.
How much savings does the lender require?
Many first-time home buyer loan programs do not require any reserves (savings after settlement has taken place) left over in the buyer’s account, these would include FHA and VA loans. Some conventional loan programs also do not require any reserves either but this is not across the board as with FHA and VA. On the conventional side, the lender has to review the entire loan package and know the guidelines to determine if underwriting will require reserves or not. When reserves are required on a Fannie Mae or Freddie Mac loan, it is usually 2 months of the principal, interest, taxes and insurance (PITI). If the borrower also has a rental property, there can be an additional requirement of 6 months PITI reserves based on the rental property payment.
Can you explain the different types of loans and what I need to do to qualify?
FHA is a government backed loan and requires 3.5% of the sales price from the buyer for the down payment. As part of the contract negotiation, the seller can pay some or all of the closing costs. FHA loans also allow the buyer to use Community loan programs which assist with the down payment. In addition, a family member can gift the buyer the down payment requirement. Underwriting for this loan product is the most liberal and flexible of any of the programs available which is why this program has been around for 60+ years.
VA is another government program specifically for eligible members of the Military. There is no down payment and no monthly mortgage insurance. The buyer needs their DD214 or for Active Duty their Military Contract so the Certificate of Eligibility can be obtained from the Veterans Administration. This is the best loan product which our military men and women have earned. The minimum credit score is 620. Underwriting can be very flexible and when negotiated in the contract, the seller can pay all the closing costs.
Conventional Fannie and Freddie loans: these loans require a minimum of 3% down payment for 1st time buyers or 5% and more for non-first -time buyers. The minimum credit score is 620 but higher scores receive much better pricing and mortgage insurance options. Conventional loans are preferred by most real estate agents as the appraisal isn’t as strict and in general the buyer has higher credit scores.
As always, I can’t stress enough how important it is to consult with a lender as soon as possible if you are considering purchasing a home.