Most lender asks you to provide very personal documents, just to give you a loan. The documents assist the lender decide if the value of the property. As compared to your annual salary, allows you to repay the loan. This process benefits you too by ensuring salary (step one) can manage payments associated to the property.
Lenders have specialized staff that work on processing and underwriting (approving) your loan. You may have regular income from sources other than employment, such as child support, alimony, or rental income. If you rely on this income, the lender needs proof this income can reasonably be expected to continue in the future at the same level.
It’s common for home buyers to have deposits in their bank records, especially when transferring money between accounts in preparation for a home purchase. Lenders are generally required to verify the source of your income and down payment funds. Requirements vary, so ask your lender what documentation you need.
If some of your down payment funds are a gift, ask your loan officer whether the (gift funds) are allowed with the loan you’ve chosen. Your lender, real estate agent, and even your Loan Estimate form(s) talk about your “cash to close” or the amount of money you need to bring to closing. The money you bring to closing typically needs to be as a cashier’s check or wire transfer from a bank.
By law, a person must have 1-5% of the sale price as a down payment.
Example: $100,000 sale price = $1,000 – $5,000. Down payment. This depends on a few factors. How am I buying this property? Here are a few categories of homeownership: veteran, first-time buyer, investment, second home other than primary or conventional buyer. All the buyer categories change with the amount down.
Closing cost: Traditional closing cost range is (3-5%) using the same equation. The law has changed, stating a seller cannot pay all closing for the buyer. In many regions the seller can only contribute a max of 3%.
Math Equation to determine gross income limits (front & backend debt)
$51,000 (annual Income) X 29% (front end debt) = $24,790.00 amount of annual debt
Divide 51k (12) months = $4250 per month.
Divide by the same 29% to determine the monthly expense of the gross amount of a mortgage payment = $1,232.50.
$1,232.50 this is the monthly mortgage a person can afford without debt.
Same monthly (gross) salary $1,232.50 x 49% (back debt). The back-end debt with include all fix debt. These debts are paid without flexibility.
$1,232.50 x 49% = $603.92. If your buyer’s debt is 49% or $628.58.
Try these simple exercises before you meet with a lender for pre-qualification. By doing so, you give yourself an understanding of your debt-to-income ratio.
HOW TO SUBMIT A REQUEST FOR A LOAN TO A LENDER? WHAT TO DO NOW?
Gather your documents!
- You will need a minimum of 2 years of employment history. This does not mean at the same job. This means consecutive. Two years of tax returns will support this item.
- Months bank statements
- The lender will pull a current copy of your credit report.
- In many municipalities, they may require a few years of release from bankruptcy.
- Exception – none of the documents may be required. Should you choose to borrow from a Hard Money lender.
Your traditional lender is not in the business of owning property. THEY ARE IN THE BUSINESS TO LOAN YOU MONEY; SO, THEY CAN MAKE MONEY. In my experience, traditional lenders have a stringent process with the increased foreclosure rate of homeownership. To include builders and rehabbers alike, borrowers have walked away from projects leaving many lenders holding the bag, so to speak.
This is especially true if the investor or builder determines while under the construction the project is not as profitable as projected. The risk to lend on an investment property has made traditional lenders afraid of the investment. Now, there the nontraditional Hard Money Lender. Their interest rates are higher because the relaxed yet stringent loan process. So, do your research. There are plenty of traditional lenders with an appetite to review and fund these types of deals.