First Time Home Buyer’s Guide – Recommended Tips Before Applying A Loan: Part 1

For this blog update, we will be giving a few tips that will help prepare a first time home buyer for the mortgage lending process. These tips are to help a first time buyer prepare for a very smooth process, with as few delays and obstacles as possible. 

The first time home buyer should make sure that they take care of all adverse credit items they can before engaging in the loan process.

Taking Care of Your Credit

One of the most important things the first time home buyer can take care of is their credit. Having a credit score of 640 and higher is very important, but making sure the first time home buyer’s credit is as clean as possible is also important. The lender will be taking into account any late payments, collections, and other forms of adverse credit that will show up on the first time home buyer’s credit report. If the first time home buyer has a majority of on-time payments, the creditor, upon request, may delete a late payment. This isn’t guaranteed but sometimes they may honor the request depending on credit-worthiness and history with that borrower. Any forms of adverse credit that is found on the first time home buyer’s credit report will need to be explained in detail. A qualified letter will need to cover the following aspects: What happened, how it was out of the first time home buyer’s control, and what steps they’ve taken to prevent future occurrences. As with all letters of explanation, this will need to be signed in pen and dated.

 

All large deposits in bank statements will need to be sourced if they are not payroll.

Getting Asset Documentation Together: Bank Statements and Paychecks

One of the possible slow-downs for the first time home buyer’s loan process can be documenting assets and funds for closing. The lender will require the most recent two months of bank statements for submission. Depending on loan program, the first time home buyer may need to provide all of the bank statements of the household, or just the bank statements needed to show the funds required for closing. One of the easiest things the first time home buyer can do is switch over from receiving paychecks to direct deposit, as these deposits will not need to be sourced. Remember, depending on the loan program, large deposits that are not payroll will need to be sourced to ensure there isn’t another income-source for the first time home buyer, or that this money is not from money-laundering. If the first time home buyer decides to stay with pay checks, an easy way to source the large deposits on the bank statements would be to collect them and send them with the bank statements, along with a letter of explanation that explains to the underwriter the source of these deposits. This letter of explanation should have any discrepancies in the pay checks written out and include the check dates responsible for each deposit for clarity. For example, if the first time buyer deposits a check for $731.31, the deposit into the bank account shows as $700.31, the first time home buyer will need to address why there is a difference. 

 

For the next part of this blog, we will be discussing about other asset documentation such as 401k documentation and what is needed for submission for those items.

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