Mortgage Financing 101

LoCo kids are back in school and our seniors are having to jockey around class schedules for the second semester. When we were discussing elective choices the options were weightlifting, guitar, and underwater basket weaving (not really but you get the idea). Those sounded appealing when I was a senior, but as parents Heather and I were hoping for something to help prepare them for the road ahead. A personal finance class would be at the top of that list. We are giving them guidance, but many times our kids need to hear it from someone else.

So with that in mind we thought we would provide a little insight to the financial part of buying a home. We sat down with our good friend Steve Cowen of Bank of Charles Town and here’s what he had to say:

First things first, to qualify for a mortgage. every lender is going to ask for documentation about your finances. Count on needing two of the following:

• Most recent 30 day pay stubs
• Most recent 2 years W-2’s, 1099’s, K-1’s
• Most recent 2 years personal IRS Federal returns with all pages and schedules
• For self employed borrowers, most recent 2 years business Federal return and a current YTD profit & loss statement
• Most recent 2 month asset statements for checking, savings, investment, and retirement accounts
• Documentation to support past credit challenges

Now that you know what you can afford the next step is choosing what type of loan you’ll want. Trust me when I say just about everyone can qualify for some sort of loan program. The majority of our clients use either Conventional Financing, and FHA loan, or a VA loan, so let’s sort them out on a basic level :

Conventional Loans

• Typically require at least 5% down payment
• Bad credit affects interest rate more severely

FHA Loan

• 3.5% down payment
• Can only be used for primary residence
• Down payment and closing costs can be gifted

VA Loan

• Must have served in one of the 5 military branches
• 0% down payment
• No Mortgage insurance

A few more tips to help ensure a smooth final approval and closing:

• Don’t apply for new loans, credit cards, or lines of credit (No Kohl’s card to save 15% on that back to school purchase!)
• Don’t pay off your existing debt
• Don’t co-sign any loans
• Don’t change jobs, the way in which you are paid, or the number of hours you are working each week
• Stay current on your existing accounts
• Keep paper trails of all deposits
• Stay on top of any lender requests and submit all documents as soon as possible

Here’s the CYA portion of this post; I’m not a lender and didn’t stay in a Holiday Inn Express last night. What we do hope is this helps you understand the process a little better. If you’d like more info give Steve a call at 571-386-2038 or email him at scowen@mybct.com  (and please let him know we sent you)!

Cheers,
Mike