The Spring Home Buying Market is here and while the temperatures are cold the real estate market is hot throughout Greater Boston. A common complaint most home buyers have is the lack of inventory. There are reports of lines out the door at open houses with many listings going under agreement after the first open house with multiple offers. If you are not armed with a pre-approval letter before you start your home search, you could be scrambling to get your paperwork to your mortgage advisor over the weekend before final and best offers are due by Sunday night.
In order to avoid the weekend fire drill you want to make sure you are prepared and properly pre-approved before you start your home search. A pre-approval means that you have spoken to a mortgage advisor / professional and have provided them at a minimum your income and asset documentation. Your mortgage advisor needs to complete a credit analysis and have a sense of your ideal monthly mortgage payment and down payment amount.
Here are some tips and required paperwork needed in order to be pre-approved and prepared to make an offer:
1) Monthly Budget
Just because you are pre-approved for a certain loan amount, doesn’t mean you should buy at your maximum qualified purchase price. Most lenders are able to qualify a buyer up to 43% - 45% of their gross monthly income towards total debt. This includes principal, interest, taxes, condominium fees and or home owners insurance and minimum monthly payments listed on your credit report. Lenders do not take into consideration other monthly debts such as utilities, cable, cell phone bills, etc. Your mortgage advisor should work backwards based on your ideal mortgage payment to show you what your target purchase price should be.
2) Employment and income documentation
You need to be prepared to provide your mortgage advisor at a minimum your most recent paystubs, last 2 years of W2’s and last 2 years of Federal Tax Returns.
3) Asset documentation
Make sure you have at least your last 2 months of asset statements. This includes: checking, savings, retirement, etc. Your lender will need to review where your down payment is coming from and any reserves that are required for your loan approval. If you are receiving a gift from a family member, make sure your lender knows this before you start your search. They will be able to advise on how to properly document your gift in order to ensure these funds can be used for qualifying assets.
4) Property type
Your final loan approval will depend on the property you are buying. The down payment and loan approval could be different depending on the property type you are buying. For instance, if you are buying a condo, not only do you have to qualify for financing, but so does the condo association.
Bottom line is with the hot Greater Boston Spring Market, you want to make sure you are in a position to make an offer as soon as you see the right home. Without having a pre-approval letter in hand, you will be scrambling at the last minute and may miss out on your next home.