PREPARATION

So you decided on buying a home or an investment property. Congratulations! Or maybe you decided that you want to refinance or take out a second mortgage. That’s great too. We are guessing that about 5 seconds after you made that decision the butterflies started fluttering in your stomach, right? We understand! Obtaining a mortgage or starting a loan process can be intimidating and exhausting. Let us help you figure out where to you start!

Build your 'Green File'

Start by digging for documents. Organizing and compiling all your pertinent financial documents into a 'green file' (think 'green' for money) is an absolute must for any potential borrower. Your green file is a resume or profile that will give lenders an idea of what kind of debtor you might be. The typical green file should contain:

• Financial statements
• Bank accounts
• Investment records
• Credit card information
• Auto loans
• Other indebtedness
• Recent pay stubs
• Tax returns for two years

Consider your Credit Rating

Another means by which lenders gauge your trustworthiness as a borrower is through your credit rating. Credit ratings tracks your credit history, which includes such crucial information as the number of your open loans and the punctuality of your payments.

• Treat your credit like gold. Credit ratings are important because they determine whether or not you will be approved for a loan and what your interest rate will be. Thus, you cannot take your credit rating seriously enough! We suggest checking your credit reports at least once a year or before making any major purchase to ensure the accuracy of the information.
• What the scores mean. Ratings usually vary between 400 and 800. Anything above 620 is good. If you exceed 680, you are considered premium. A premium interest rate may mean a lower interest rate on your mortgage and possibly special loan programs that give automatic loan approvals and other incentives.
• Determine your credit rating. You can do this by contacting a credit reporting agency such as Equifax, Experian or Trans Union. Above all, don't hesitate to consult with your lender if you need to improve your rating.

Prioritize your Costs and Savings

What we mean is that most people have a set amount of money saved for the down payment and the closing costs in acquiring a loan. They continue to bring income in each month that goes to bills and perhaps more savings. So when you are preparing to get a new mortgage there are many variables that must be considered in order to properly allocate those dollars in the most overall effective way as possible. You may need to refocus in a slightly different way than you have been. You must prioritize your money!

• Prioritize your costs.

Down payments, closing costs and additional expenses (such as surveys and inspections) should be at the top of your list because they are the most important in order to close. On the other hand, be sure to pay down the principal on your current revolving and high-interest rate debts, such as credit cards, because this will influence your credit rating and interest rate. So which will affect you more?



• Down Payment Savings vs. Short-Term Debt Reduction. This is tricky. The sooner you start the budgeting process for obtaining a mortgage the better. You probably have some options you haven’t thought of. Maybe you have a few credit card bills, a car payment, and some other debt. Let’s say the credit card bills can be paid off in 3 months with $1000 and the car payment can be paid off in 6 months with $3000. You have $28,000 saved for your down payment and closing costs on your first home. You plan on buying a $100,000 home that you want to put $20,000 down on so that you wave the mortgage insurance premium. You plan on using the other $5,000 for closing costs. Maybe you and your consultants (accountant, lender, Realtor) decide the best bang for your buck is to pay off the $1000 in credit cards and the $3000 balance on your car payment instead, in turn, saving you close to $400 in monthly bills. You could then ask the seller to pay for your closing costs. This could possibly help you qualify for more house, help you save more money to put down on your house reducing your payment further, or help you buy some great new furniture for your new place. You have choices. It may even improve your credit score and opening better financing options to you as well.
• Job Stability and Acquiring Debt before you buy. Lenders like stability. Instill confidence in your potential lender by avoiding any big, sudden moves both in your career and your finances. If that job change or big budget purchase absolutely cannot be postponed, check with your lender first and consider the consequences. Do not buy new cars, boats, and big ticket debt items before closing. This could cause you to not qualify for the loan. Wait until after you have closed on your home. Switching jobs at the wrong time has hindered the closing of many homes. Don’t fool yourself into thinking you are making more money so it will be okay. Lenders look at many factors in qualifying potential buyers. Consistency at the same job is one. Think carefully and ask questions before you make that career change.