You’ve decided the time has come to stop making your landlord rich and buy your own home.
Congratulations! Becoming a homeowner in Seattle, WA is one of the best things you can do for your family’s security. Home ownership is the way people of ordinary means can build wealth and limit the increasing costs of housing.
You’ve talked with your loan officer to prepare. You know that sellers won’t look seriously at any buyer’s offer unless they have been pre-approved by a lender, so you have a full preapproval done. You are ready to find your perfect house.
Success! After spending several weekends viewing properties in your area, you found THE house for you and your family. You made an offer—and the seller accepted your offer. You’re off to the races!
Now that you have a “live” deal, a specific process has begun. Knowing what is going to happen is important, along with what to do—and what not to do.
As you were looking for a home to buy, your loan application had “TBD” in the address space: property To Be Determined. At that stage, your application is a “credit inquiry.” Once you identify a property, however, its status changes to an “Official Application.” The lender must send you a legal document called a Loan Estimate (LE) within three days. The LE contains the lender’s best estimate of the costs of your loan: title and escrow fees, appraisal, document preparation, recording and notary, underwriting and processing; in short, all the costs involved in your purchase. The LE will give you a very good idea of the amount of cash you’ll have to come up with at closing.
Some of the costs, such as prorated interest, are estimated, but most of the listed costs and fees cannot change without good reason. Because of this, the lender will get exact fees from the title and escrow company. This is not a place for guessing. Additionally, in many states Owner’s Title Insurance is a seller paid fee; however, the government regulators require your lender to include this fee on your Loan Estimate. This does not mean you have to pay this unless you and the seller negotiated otherwise.
You will receive an email to retrieve and electronically sign your LE. This document is time sensitive, so you should review and sign it promptly. If you have any questions about the numbers or the fees listed, call your loan officer immediately.
You should have an understanding with your loan officer whether you want to lock in your interest rate at that stage of the process. Locking means that you will be guaranteed the rate you agreed on, regardless of what might happen in the market. If you did not lock at this stage, you will receive another LE when you tell your loan officer to lock.
When you submitted your initial application—technically a “credit inquiry” if you did not identify a property—you gave your loan officer some essential documents. Among these are bank statements and pay stubs. If much time elapsed between your initial application and finding a property, you’ll have to update some of your documents, such as pay stubs and bank statements.
Large deposits appearing on any of your bank statements must be identified and “paper trailed” if they are not listed as payroll or other clearly identified sources. If you had a garage sale and collected $1,500 cash, you’ll have to find a way to document where the money came from. This may be difficult for some kinds of deposits. In those cases, the underwriter can elect to disregard those unidentified funds. That could mean that you would have to come up with other properly documented funds.
If you transfer money from one account to another, as from savings to checking, you will have to document that account as well. You’ll typically have to provide two months’ statements. If there are unidentified cash deposits on those statements, you’ll have to deal with them as well. You can see how this could be a “can of worms” if you have large cash deposits to any of your accounts. You should avoid making large cash deposits if at all possible unless you can document them. You should also avoid transferring money between accounts unless absolutely necessary. Every dollar used in your purchase will have to be documented and paper trailed.
Your Seattle loan officer may ask you for routine “letters of explanation.” The most common example is credit inquiries appearing on your credit report. Lenders want to know that there is no undisclosed debt that could affect a borrower’s ability to repay the loan. If you had applied for other financing two months before applying for your mortgage, you would write that you did not accept the account that was offered (assuming that was the case) and that you have incurred no new debt as a result of the inquiries.
You should not allow anyone else to run your credit for any reason. The lender will order a “credit refresh” immediately before closing to be sure there were no new accounts established. You’ll have to explain any new inquiries.
It should go without saying (but we’ll say it anyway) that you should not incur any new debt, such as a car or new appliances before completing your purchase. Even though you are eager to get your shiny new appliances and your local store is offering “90 days, same as cash” financing, the lender will have to compute your debt to income ratio with a new payment after the 90-day no payment period. Wait until you’ve completed your transaction and you have the keys to your new house—please.
Don’t make any unplanned changes in your employment. Even though you may be hoping to take an early retirement, you should be aware that all lenders perform a “verbal verification of employment” right before closing to be sure the borrower is still employed. This may seem like overkill on the lender’s part, but there have been cases where a borrower quit or retired one day before their escrow was scheduled to close. They did not get their loan.
One minor item that can delay a closing is the homeowner’s insurance. Most people can arrange their insurance over the phone by answering a series of questions from the insurance agent. The agent will provide an itemized quote at the outset, then a formal commitment to insure the property, the “Evidence of Insurance.” The best practice is to arrange your homeowner’s insurance as early in the process as you can.
Buying a home in Seattle, WA is an exciting time—but it can often be stressful. By knowing how to avoid the pitfalls, you’ll be able to enjoy the process while keeping stress to a minimum. Contact our Mortgage lenders today to learn more!