Over 80% of Red Oak transactions involve a loan, so financing is a critical element in East Bay real estate.

 

And while financing the purchase of your East Bay home may seem like a daunting step, the right guidance and preparation can smooth out the process. Here are the key considerations that will come up along the way.

 

Determining how much you can spend on a home is about more than how your financial situation looks “on paper.” Start by outlining your budget, debts, credit, savings, etc. Make sure you understand and are comfortable with the impact of adding a mortgage payment to this mix.

 

This is a great time to check your credit scores (you have more than one) and take a close look at your credit reports. If you see any inaccuracies, take steps to clear them up. Begin gathering your financial data, like W-2s, tax returns, bank and investment statements.

 

This step should be completed before you begin your home search in earnest.

 

This is another area where your agent can help. Common types of home loans include fixed-rate and adjustable-rate mortgages (ARMs). With the higher interest rates currently in effect, it’s not unusual to consider an ARM (which has a lower initial rate) or a fixed rate loan followed by a refinance. The calculated risk is that interest rates will fall before long.

 

In a competitive market, the type of loan you specify in an offer may impact its attractiveness to a seller. For example, a government backed loan (like FHA or VA) could have more requirements for both the borrower and the property.

 

In addition to all of the important factors like rates and closing costs, who you choose as your lender can also affect the attractiveness of your offer. Lenders should have a solid local track record and a complete understanding of our unique area and market conditions. Going with a local lender often ensures this. We’re happy to help here, too.

 

Pre-qualification is usually the initial step. You provide basic financial information to the lender, then receive a rough estimate of the mortgage amount you may qualify for. You’ll even get a letter saying this. The lender may run a credit check, but won’t require income verification or other documentation. This is nice info for daydreams and internet searches, but without an actual pre-approval letter, it’s less likely your offer will rise to the top.

 

Pre-approval comes after a more detailed review and comprehensive assessment of your financial documents and credit history. You now have a more accurate loan amount and can demonstrate to sellers that you are a serious buyer and can consummate the purchase.

 

A fully underwritten pre-approval is the best option for homebuyers in a competitive market like the East Bay. The key difference compared to a standard pre-approval letter is that the mortgage lender performs the majority of the underwriting process before a homebuyer even makes an offer rather than after a purchase agreement is signed. As a result, the homebuyer appears even more prepared to the seller as they are fully approved for the loan amount and have the option of waiving a mortgage contingency in an effort to compete with other all-cash and non-contingent offers. This is also attractive to sellers as it typically enables the buyer to close on the transaction much faster than a traditionally pre-qualified buyer.

 

Work closely with your agent to find a house that meets your criteria then prepare and submit a winning offer! After your offer is accepted, it's time to formally apply for the mortgage loan. Your lender will provide you with a loan application package that outlines the required documentation, such as income verification, employment history, asset statements, and property details. These will allow them to calculate your debt-to-income ratio, which along with your credit history, helps assure your ability to repay the loan.

 

The lender will order an appraisal to assess the value of the property. In an active market, appraisers are quite busy which can lead to frustrating delays. An engaged agent may be able to support the appraiser with their knowledge of recent comparable sales.

 

Almost there, but this hoop can be particularly fraught! The mortgage industry has not forgotten the “Great Recession,” and requirements are more rigorous than in years past. The underwriter will thoroughly review your completed application and associated documentation.

 

By the way, this is not the time to buy a car, quit your job or co-sign your nephew's lease.

 

Even more intrusive documentation or clarification will probably be requested (it’s nothing personal, so expect it). Once the loan is approved, you’ll get a closing disclosure, review it carefully and speak up if there are questions. Then you’ll sign the final escrow documents. When you hear that the loan has funded, it means the lender has deposited the funds in the escrow account. The money is then dispersed, ownership is transferred and the escrow is closed. Pop the champagne!

 

Throughout this process, it's essential to stay in close communication with your lender, your agent, and any other professionals involved. With careful planning, diligent effort, and teamwork you'll be on your way to home ownership. If you’re considering a dive into this process and would like solid navigation, we’re here to help, contact us.