Working with Great Lenders – Easier than You Might Think

One of the daunting parts of buying a first home is working with a lender.  However, it doesn’t have to be.  In this article, we will discuss the basics of what a lender looks for, assuming you work a job that pays you a regular wage (not self-employed) and the basic documentation needed to get started.

Let’s start with Credit, Capacity, and Collateral.

• Credit: Your credit score is important but doesn’t need to be as high as you might think. Depending on the loan program, you can have a credit score as low as 580!
• Capacity: This includes your monthly obligations and income.  Keep in mind, everything is based on a month-to-month   So, you may have student loans totaling over $50,000, but lenders only look at the $200/month payment.  Regarding the money you make, keep in mind it is your gross income before tax withholdings.
• Collateral: That would be the property you are purchasing.

From there, the lender looks at what is called a Debt-to-Income ratio.  Typically, it is in the 43% range, but some programs go higher.  That means you could have maximum monthly debt, between the purchase of the home and your existing debt, of $430 per $1,000 that you make.

In terms of paperwork to submit, typically they will ask for the following to get started:

• Last two years of W-2
• Last two month’s bank/stock/retirement statements
• Two most recent pay stubs

In terms of working with lenders, here are a few tips on what to expect:

• Get the info to them as quickly as possible. The less down time means they can process it that much sooner.
• They may ask for the same documentation repeatedly, even after you have already given it to them. My advice, don’t argue, just send it to them again.
• Make sure your Realtor® is staying on top of the lender so that nothing gets through the cracks. This is extremely important because not all loan officers are created equal, and no one is perfect.

The best move you can make is to get the lender everything upfront, even before you have identified a property. This way, they can hit the ground running once under contract.  As with everything, I strongly recommend speaking with your CPA and/or financial adviser and a well-qualified loan officer before making any moves.