Steps to Closing a Loan
Loans are not as complicated as you might think. Loans are straightforward once you understand how they work and what it takes to close an escrow. We call it THE 4 LEGS OF THE TABLE.
Think of it this way, if one of the legs of the table is weak, the likelihood of the table crashing down is pretty high. In that manner, loans are the same. If one of the principal areas is weak, the likelihood of your loan falling through is high as well.
THE 4 LEGS OF THE TABLE
INCOME
CREDIT
RESERVE
PROPERTY
INCOME
We need to be sure you are able to afford your mortgage payment without being at risk of losing your home to foreclosure.
A good rule of thumb is spending no more than half your gross income on your mortgage and other credit debts combined.
The remaining half of your gross income is meant to support your lifestyle, such as family outings, vacations, savings, etc.
There are program and property types that allow for higher debt or for the ability to use the property itself that you're buying to produce income. Ask us for more detailed information on how this works.
CREDIT
This part goes hand in hand with your income. While your credit FICO scores are a key part of this section, they are not the only thing we are looking at in regards to your credit qualifying.
We are also looking for how much you are currently required to pay for your credit cards, student loans, auto loans, etc. that we need to take into account as part of your monthly debt.
Your payment history is also a key factor to be considered. It is important to note that blemishes on your credit history such as collections or foreclosures are not necessarily deal killers. There are programs that are more forgiving than others in terms of credit.
There are a range of loan programs that are designed to get you back on track and build your credit into a top tier rating if need be.
We invite you to contact us to take a closer look at your credit. You may be surprised at the program we have available for you. Also, feel free to ask us about our reliable and professional credit repair referrals.
RESERVES
Reserves is another way of saying cash to close. Ideally the money you will be using to close has been in the bank with no large cash deposits for the past 60 days. If not, then some work may be required to track where the money has come from or perhaps wait until required time has passed.
If you are using gift funds to buy a primary home, then the rules are slightly different and there is a process that needs to be followed in order to reduce any unneeded steps or documentation.
When it comes to investment property, generally speaking gift funds are not allowed. We know, no fun there.
PROPERTY
The property you are buying has to be worth what they say it is and must be in habitable conditions. Frankly we aren’t concerned if it’s painted in a wild color schemed with bright polka dots (to each his own right?) but we do want to make sure if passes the health and welfare sniff test.
In short, all the windows and doors must be in good working order, the smoke detectors and Co2 detectors must be functional and the water heaters must be double strapped (California) to be approved.
So how do we make sure the home is up to par you ask? We have it appraised. Now, keep in mind, the appraisal is primarily meant to ensure the home is in habitable condition and is worth what it is being sold for. Truth be told, it is geared more towards the lenders benefit so we know the condition of the property it is we are lending on. It is not to be confused with a certified home inspection, which is optional and highly recommended. The certified home inspection is geared more towards the benefit of the home buyers themselves.
That’s about it. By making sure you understand how a loan works and what a lender looks for, you are better equipped to go forth into the wide world of home buying with both eyes open.