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Chris Adams

Chris Adams
Legendary Realty LLC
251-367-7430

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Legendary Realty Blog: Resources

Importance of Inspection

As a buyer, you are entitled to know exactly what you are getting. Don’t take anything for granted, not even what you see or what the seller or listing agent tell you. A professional home inspection is something you MUST do, whether you are buying an existing home or a new one. An inspection is an opportunity to have an expert look closely at the property you are considering purchasing and getting both an oral and written opinion as to its condition.

Beforehand, make sure the report will be done by a professional organization, such as a local trade organization or a national trade organization such as ASHI (American Society of Home Inspection). Not only should you never skip an inspection, but also you should be present with the inspector during the inspection. This gives you a chance to ask questions about the property and get answers that are not biased. In addition, the oral comments are typically more revealing and detailed than what you will find on the written report. Once the inspection is complete, review the inspection report carefully.

You have to demand an inspection when you present your offer. It must be written in as a contingency. If you do not approve the inspection report, then do not buy the home. Most real estate contracts automatically provide an inspection contingency.

Your Savings and Down Payment

Your First Step Toward Buying a Home

When preparing to buy a home, the first thing many homebuyers do is look at the real estate ads in newspapers, magazines and listings on the Internet. Some potential buyers read how-to articles like this one. The next thing you should do - before you call on an ad, before you talk to a REALTOR®, before you shop for interest rates - is look at your savings.

Why?

Because determining how much money you have available for down payment and closing costs affects almost every aspect of buying a home - including how you write your purchase offer, the loan programs you qualify for, and shopping for interest rates.

Mortgage Programs

If you only have enough available for a minimum down payment, your choices of loan program will be limited to only a few types of mortgages. If someone is giving you a gift for all or part of the down payment, your options are also limited. If you have enough for the down payment, but need the lender or seller to cover all or part of your closing costs, this further limits your options. If you borrow all or a portion of the down payment from your 401K or retirement plan, different loan programs have different rules on how you qualify.

Of course, if you have enough for a large down payment, then you have lots of choices.

Your loan choices include such varied programs as conventional fixed rate loans, adjustable rate mortgages, buydowns, VA, FHA, graduated payment mortgages and all the varieties of each.

Shopping for Rates

A very important reason you need to have at least some idea of your down payment is for shopping for interest rates. Some loan programs charge a slightly higher interest rate for minimal down payments. Plus, the interest rates for different loan programs are not the same. For example, conventional, VA, and FHA all offer fixed rate loans. However, the rates vary from one program to another.

If you shop lenders by phone, the loan officer will be able to tell you which programs fit and quote your rates accordingly. However, if you are shopping on the Internet, you have to develop some idea of your loan program on your own.

Writing Your Offer

Another reason you need to have a clue about your down payment is because it affects how you write your offer to purchase a home. Not only are you required to put your down payment information in the offer, but also different loan programs have different rules that also affect how you write your offer. This is especially important when dealing with FHA and VA loans.

If you are asking the seller to pay all or part of your closing costs, you have to be certain your loan program allows what you are asking. For smaller down payments, lenders allow the seller to pay less closing costs than for larger down payments. Some loan programs will allow a seller to pay certain types of costs, but not others.

Finally, your down payment also affects your ability to qualify for a loan. When you make a small down payment, lenders are fairly strict about having you conform to their underwriting guidelines. For larger down payments, they will tend to make allowances or exceptions to the rules.

Conclusion

As you can see, the down payment affects every choice you make when you buy a home. Although you should look at ads, familiarize yourself with neighborhoods, learn about prices, and read as much as you can - when you get ready to take action - the first thing you should do is figure out how much money you have available for the purchase.

Items You Need When Applying For a Loan

Have These Items Ready When You Apply For a Loan

It used to be that lenders mailed out verifications to employers, banks, mortgage companies, and so on, in order to verify the data supplied by borrowers. Nowadays, the interest is often in speed and getting answers quickly so alternate documentation has become more widely used. Alternate documentation means that underwriting answers can be obtained with information supplied directly from the borrower instead of waiting around for verifications to come back in the mail.

The following is required for most standardized loans as part of alternate documentation processing. Items may differ according to whether your loan is a conforming (Fannie Mae or Freddie Mac), non-conforming (jumbo) loan, government loan, or a portfolio loan.

Verifications are still mailed out, but usually as part of quality control procedures.

These are the things you need to supply to your lender to get a quick approval using alternate documentation

Income Items

  • W2 forms for the last two years
  • Pay stubs covering a 30 day period
  • Federal tax returns (1040s) for the last two years, if:
    • you are self-employed
    • earn more than 25% of your income from commissions or bonuses
    • own rental property
    • or are in a career where you are likely to take non-reimbursed business expenses
  • Year-to-Date Profit and Loss Statement (for self employed)
  • Corporate or partnership tax returns (if applicable)
  • Pension Award letter (for retired individuals)
  • Social Security Award letters (for those on Social Security)

Asset Items

  • Bank statements for previous two months (sometimes three) on all accounts. All pages.
  • Statements for two months on all stocks, mutual funds, bonds, etc.
  • Copy of most recent 401K statement (or other retirement assets)
  • Explanations for any large deposits and source of those funds
  • Copy of HUD1 Settlement Statement on recent sales of homes
  • Copy of Estimated HUD1 Settlement Statement if a previous home is for sale, but not yet closed
  • Gift letter (if some of the funds come as a gift from a family member)
  • Gifts can also require:
    • Verification of donor’s ability to make the gift (bank statement)
    • Copy of the check used to make the gift
    • Copy of the deposit receipt showing the funds deposited into bank account or escrow

Credit Items

  • Landlord’s name, address, and phone number (for verification of rental)
  • Explanations for any of the following items that may appear on your credit report:
    • Late payments
    • Credit inquiries in the last 90 days
    • Charge-offs
    • Collections
    • Judgments
    • Liens
  • Copy of bankruptcy papers if you have filed bankruptcy within the last seven years

Other

  • Copy of purchase agreement (if you have already made an offer)
  • To document receipt of child support (if you desire to show it as income)
    • Copy of Divorce Settlement (to show the amount)
    • Copies of twelve months canceled checks to document actual receipt of fund

FHA Loans

  • Copy of Social Security Card (or other documentation of social security number)
  • Copy of Driver’s license

VA Loans

  • Copy of DD214

Refinances

  • Copy of Note on existing loan
  • Copy of HUD1 Settlement Statement on existing loan
  • Name, address, phone number, loan number of existing loan/lender
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