Welcome to another edition of the obtaining a mortgage series here at Green Panda Treehouse. If you feel that you’re ready to purchase a home after last weeks post, then you will surely be prepared for today’s article.

Part 2: Get your documents together before you apply for a mortgage.

Your income documents.

You may feel that you earn a decent income, but you need to prove this to the bank. Nobody will ever take your word for something when it comes to dealing with hundreds of thousands of dollars. Before you can begin the mortgage application process, you must find your income documents that you’ll need to bring to the bank. Now I know that this section will seem boring at first glance. However, after the credit crunch of late-2008 this is simply the reality. Lenders are going to be much more meticulous with documents. You’re really going to have to prove that you’ll be able to make your mortgage payments, by having a sufficient income.

There will likely be two types of an income that you could earn:

Standard.

Most of us will just need to bring in the standard documents that are employer provides us with every year around tax season. This is solid proof of your current income. Anyone that is willing to loan you any amount of money will want to see this because it’s proof that you DO earn an income and it shows exactly how much money you make.

Self-employed.

This is where things might become a bit more complicating. As a self-employed entrepreneur you might have a more challenging time proving your income. The reason here is fairly self-explanatory. As an entrepreneur your income fluctuates. The lenders needs to be extremely positive that you’ll be able to make your mortgage payments, even when you experience a lean month with your business. You’re going to have to perhaps show contracts, accounting documents, sales, or a solid savings account, as proof of your income here.

Your assets/savings.

How much are you exactly worth? Do you own a car? Do you have any retirement accounts?

The lender is going to want to see documents showing how much money you have in all of your various different accounts. The best option is print off all of your account balances. From your online savings account to your retirement accounts. The reason for this is that you need to prove that you’ll have enough savings to survive if you were to lose your job or experience any financial setbacks.

A few tips on documents.

Take accountability.

This would be the perfect opportunity to see where your finances stand. You might realize that you have more savings than you originally thought you did. On the other hand, you could also realize that your financial system is a mess. Either way, you need to hold yourself accountable. If you decide that you’re not ready for a mortgage then you could use this as a wake up call to make necessary changes. If you decide to make changes today, you could be ready to purchase a home by this time next year.

Find lost information.

It’s easy to lose basic information. Find out what documents you’ve lost over time and make sure that you retrieve them. You might have to call your bank up and anyone else you deal with to make sure that you have all of your financial information available to you. This can also be a good opportunity to shred old or useless documents so that you can protect your privacy.

Are you still ready to apply for a mortgage? Stay tuned for next week.

Part 1: Are you ready to purchase a home?

(photo credit: Claire L. Evans)

Welcome to a brand spankin’ new series here at Green Panda Treehouse! This series will teach you the basics behind obtaining a mortgage for the very first time. Each Thursday we will cover a different topic on the basics of going for your first mortgage. Once we complete the discussion on mortgages we will move on to other personal finance essentials.

Part 1: Are you ready to purchase a home?

Before you even step foot into a bank you need to ensure that you’re ready to apply for a mortgage. Before you decide if you’re ready for a mortgage you need to ensure that you’re even ready to invest in real estate. Below are three questions that you must consider as you decide if you’re ready to purchase a home:

Do you have the savings?

This is not an option these days. You need lots of money saved up for a mortgage down-payment plus the million other expenses that will come along. It’s a common recommendation that you have about 20-25% (of the home value) saved up as a down-payment for your first home purchase. This number is what banks are usually comfortable with when it comes to loaning you money for a mortgage. Not only will this help you with your bank, but it will allow you to sleep better at night knowing that you’re not losing all of your money to interest payments.

Once you have the savings for a mortgage down payment you must begin to factor in all of the other costs involved in the process. A down payment is really just the beginning. Then you must factor in the basic costs for your home purchase:

1. Lawyer fees.
2. Real estate agent costs.
3. Land transfer taxes.
4. Basic maintenance.

Once the essentials are covered you then should consider saving up for some of the following expenses related to your first home:

1. Property taxes.
2. Home maintenance.
3. Increased consumption.
4. New furniture.

Once you’ve read over this list and check marked most of the items, you can then truly understand if you have enough savings to even apply for a mortgage.

Do you have steady work?

How steady is your current job? Times have long changed since our grandparents and parents started their careers. It’s now extremely rare to hear of someone that has been with the same company for 30 plus years in a cushy job with a standard daily routine. It seems like these days we all want to switch jobs and even careers on an annual basis. You don’t want to feel stuck at a job or stress about losing your job because you’re stuck with a hefty mortgage. Before you even consider a mortgage you must assess your current job to see if you’ll even be able to make your mortgage payments 7 months down the road.

Have you considered where you want to live?

You need to have a specific area in mind first where you want to live. Do you plan on living close to your current job? Do you want to live near your parents? Maybe you want to live downtown to enjoy the unique lifestyle. These are all options that you need to explore before you decide to go in to apply for a mortgage.

You then need to consider what type of property you’re looking for (and can afford!). Most young college graduates will start off with a condo. It’s easy to maintain and it perfectly suits our lifestyle as a  young person. Plus who wants to shovel snow every day for 4 months (Canadians know what I’m talking about)? On the other hand you could be in your mid-20s and expecting a child with your partner. Then you may be considering a town house or a cozy bungalow. No matter what side of the fence you fall on, you need to clearly know what type of a property you’re looking for before you can think about a mortgage.

If you feel that you’re not ready to purchase a home yet than that’s cool. Sometimes the best investment is the one that you don’t make.

If you think that you’re ready to obtain a mortgage then stay tuned for next week!

(photo credit: Ruth l)

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If you’re considering buying a house in the next few years, it may seem like the process is overwhelming. Having recently bought a house, we know it’s completely doable and there are some thing you can do to increase your chances of getting a great deal on a mortgage.

Aim for a Sizable Down Payment

The days of getting a house for no money down are gone. If you want a competitive rate for your future house, show your lender that you’re serious with a big down payment. Can you put down 20% (or more) for the house? If not, what’s the most you can put down?

Having a larger down payment, you’re probably aware means you’ll have a smaller mortgage payment. That’s going be a big help for your monthly cash flow, which I’ll discuss in a moment.

Besides making your down payment, you should still have a buffer for your emergencies. Don’t completely drain your savings account. You might think this is overkill, but if you buy a house, please know that you’re not suddenly immune to layoffs.

Have an Enviable Cash Flow

You need to prepare yourself for having a mortgage by having a solid history of positive cash flow. Your lending will look over your finances with a fine toothed comb. They will want to know if you’re able to pay this mortgage. If you can keep your total housing costs (not just mortgage) under 30%, you’ll look more promising to lenders.

My recent experience has been that banks aren’t as conservative as you think. It’s best to run your own numbers and make sure you’re comfortable with the new mortgage payments and other home owner costs. We looked at homes $50,000-$70000 less than what the bank thought we could afford.

When you step up and show that you’re in control of your cash flow,you’re giving yourself a bit of leverage. You can shop around to find the best deal.

Hunt for Your Mortgage

Now you have a great down payment and you’ve optimized your cash flow and you’re ready to go house hunting. There are several sources for getting a loan and not all of them are equal. Be aware and ask questions on any fees associated with getting a mortgage through them.

• Commercial Banks
• Credit Unions
• Mortgage Brokers
• Online Lenders

Comparing your options is a great way for you to find the lowest interest rate and fees.

Your Thoughts on Getting a Mortgage

If you’re on the hunt for a house, what steps have you’ve done to prepare? If you bought a house, how did you get a great deal on your mortgage?

Today we’re supposed to close on our house. I’m cautiously ooptimistic about it since we had the closing delayed last minutes before. I thought it might be interesting to keep a diary of the day, both as a personal record for us (it’s our first house!) and a reference for any readers buying a house.

Pre-Closing Jitters

5ish am: I’m awake, but I stay in bed because I know I should getting some sleep. I can’t sleep, though, and I’m running through my head everything that we have to do today for closing. We have to do the final walk through at 8:30am, get our certified check, and then go to the settlement office.

6:44 am: I wake up and head to the bathroom to put in my contacts and start getting ready.

6:54am: My husband is still asleep, so I go ahead and start writing this blog post to pass the time.

7:26am: Husband is up and taking a shower while I’m reviewing the HUD-1 settlement statement for the the dozenth time since yesterday. I wanted to make sure that nothing went against the Good Faith Estimate we were given before.

7:52am: We leave to get coffee and go for the final walk through.

8:13am: We’re waiting in line at Starbucks. I’m worrying that we’ll be late since it is packed in the place, but the line runs like a well oiled machine and we get our coffee (tall and venti bold coffee with room) quickly. I realize that I put way to much sugar in my coffee when it’s easier to just batch open 6 packets of sugar in the raw. Oh well. We head to the house.

Final Walk Through and Getting the Certified Check

8:27am: We arrive at our future place and meet with Ryan to go through and check to see if all the items we requested fixed are done. We start at the top floor and work our way down. The place looks great and the stove that had scratches has been replaced. We go through the list and initial that they did all the work they said they would.

We review the builder’s warranty with the place and thank Ryan for his help. We call our real estate agent (he’s coming from out of town) to tell him the place looks good. We head over to Wachovia to get our certified check.

9:05am: Another surprise: no line at the bank. We give the information to the teller and we’re given the check.

9:18am: It seems like we’re ahead of schedule and debate whether to get there early or just drive around. We both agree to head to the lawyer’s office. We arrive and meet up with our real estate agent. The lawyer is ready in a few minutes and all of us get started with the closing.

Settlement Appointment

9:28am: In case you weren’t aware, there is a lot of paperwork that comes with a house. The lawyer is explaining the papers as we read them. I admit we should’ve been reading more slowly, but we were overwhelmed with all the information. Paperwork covered:

• The Contract
• The Loan
• Deed of Trust
• Homeowner’s warranty
• Homeowner’s insurance
• Termite certificate
• Title insurance

10:50am We’re home soaking in being ‘home loaners’. We call family and some friends to let them know of the good news. Funny thing, we mentioned we’ll use the tax credit to pay down our mortgage and the consensus is ‘why? ‘ My answer: We want to pay mortgage early and we have no high interest debt.

Some people are surprised about not having credit card debt or a car loan. Guess we’re not normal.

Reviewing all the Paperwork

8:00 pm: Spending time reviewing the paperwork from closing. It all looks good and I don’t see anything different than what was agreed upon.  In case you’re curious we have a  30-year fixed rate FHA mortgage with a 5% interest rate. Since it’s fixed, our interest rate will remain the same the entire life of the mortgage.

Your Take

How did your closing/settlement go with your house?