Loan Considerations for Purchasing a Home
in Summit and Park Counties
For a simple and straightforward purchasing experience, it works best if home buyers begin their search being already prequalified for a loan.
Being prequalified avoids several issues that may arise during the purchase process.
First, if financing is going to be used for the home, the sellers (and listing agent) will want to see a prequalification letter attached to the purchase offer. If a prequalification letter is not attached to the offer, the sellers will typically want to see a provision in the purchase offer stating the buyers will supply a prequalification letter in an immediate time frame, such as 24 to 48 hours.
The second issue that prequalification avoids is buyers assuming they are more qualified than they are and shopping in a price range that’s either out of their financial range, or they are not qualified to purchase the home in the first place.
Finding Your Lender
Typically, a qualified real estate agent will have at least 3 or 4 lenders to recommend to potential home buyers.
It’s important to shop the loan, just like you would for a car, because interest rates, terms, and loan costs will vary.
Shopping multiple lenders in a similar time frame is typically seen as a one-time hard pull on a credit score; the financial institutions can see the buyer making numerous loan inquiries for the same loan and usually will not keep hitting the buyer’s credit score with hard pulls.
It is also vital when financing real estate in Summit or Park County that the lender is familiar with the area and has performed loans up here before. Without experience in the area, home purchases in this area can go awry because of the inexperience of a lender who is not familiar with this market.
Here are some things to ask a lender when searching for a real estate mortgage in Summit County:
Loan Type and Length
Interest Rate and Annual Percentage Rate
What happens to the locked interest rate for the loan if interest rates go down?
What the Lender Will Ask from You to Become Prequalified
Becoming prequalified is a simple process.
Prequalification for a mortgage is not as stringent as the actual loan approval; it’s a fast process, usually completed within 24 hours or less.
Prequalification is simply a loan officer conditionally qualifying the buyer in advance for a loan.
The prequalification is not an approval for a loan. It is an initial assessment of the buyer’s financial situation and whether they will qualify for a loan for a home up to a certain price range. The actual approval will come about during the loan underwriting process when the home is being purchased.
The loan officer will be asking for income from all sources and debt obligations.
They may also need to pull a credit report if the buyer has any of the following conditions:
Having any of these conditions doesn’t mean the buyer won't be prequalified. The loan officer needs to put the conditions into context before making a decision.
When the loan officer has done a preliminary review of the buyer’s eligibility, and the buyer is prequalified for a loan, the loan officer will issue a prequalification letter for the amount the buyer is prequalified for, or for the amount representing the price range of what the buyer is looking to purchase in below the maximum prequalification amount.
What Your Lender Will Ask From You During the Course of the Loan Process:
After the offer for a home is accepted and the home is under contract, the loan moves from being prequalified to becoming underwritten.
During the underwriting process, the lender will typically request these documents from the buyer:
Permission to pull credit history
Taxes going back two years
Income records such as W2s, pay stubs, proof of additional income
Bank statements, and if applicable, asset statements
Debts and liabilities
An outline of any gift monies to be used for the home purchase
It’s critical that the homebuyer provides the requested docs in a timely manner, and we will go more in this during the purchase process section of the guide.
Using the docs provided to the loan officer, the lender will compute the buyer’s Debt-to-Income ratio to determine if the buyer’s income ratio is enough to cover the cost of the home and other recurring debt.
Lenders and loan types will vary in determining the percentage of debt to income for the homebuyer.
It is not just the cost of the borrowed money that’s used in the formula for the Debt-to-Income ratio. The other factors in the formula are typically referred to as “PITI”.
At the time of writing, conventional loans are usually operating with a maximum of 36% of gross income to pay the PITI, and 43% total of gross income for the PITI, plus all other recurring debts like car payments, student loans, etc.
For example, if gross income is $6,000 a month, then the maximum PITI for the home would be $2,160 a month, and the remaining other maximum recurring payments amount would be $420. The total of these two are $2,580, which equals 43% of $6,000.
Typically, a financed real estate transaction in the area will take 5 – 6 weeks. Under 5 weeks is doable to complete the transaction, but challenging, with the most significant obstacle often being the appraisal process time frame.
Note – Loans can sometimes fail during the underwriting process because of innocent actions by the home buyer. While the home purchase is being completed by the loan underwriters, do not make any large purchases, or close any accounts.
Buyers having their prequalification in place before looking at homes to purchase will have a much smoother and simplified purchase process.
Please contact us for additional information, or with questions about purchasing a home in Summit or Park County.