When working with first time home buyers I get a variety of questions being asked. I decided it would be best to blog the answers to these questions to help out other first time home buyers who are looking to get pre-approved and purchase their first home.

Buying your first home can be an exciting time for many and it does not have to be as stressful as you think if you know what to expect. Having your personal and financial documents ready for your mortgage lender and escrow agent can save you a lot of time and delays in purchasing your new home. During the escrow time period, it is crucial to that every step is completed by each deadline if you want to avoid additional costs. (For the complete escrow process read my blog article “30 Day Escrow: What happens during the escrow process”)

Key Highlights:
– First Time home buying can be an easy and smooth process if you know what to expect
– Have all of your required documents ready so that you may save time during your home search
– Get a Pre-Approval letter first before beginning your new home search
– The lender you get pre-approved with does not have to be the lender you use for your actual mortgage

You’ve decided to buy your first home, great! Before you start looking around at different houses you should get pre-approved by a mortgage lender so you know what your parameters are in terms of purchase price and how much down payment you will need. There are various loan options available to buyers, especially first-time buyers where you can put down a lower down payment percentage and get tax credits.

When mortgage loan shopping its best to interview a number of loan officers as each one may offer you different mortgage rates. Talking to a mortgage broker may be a good thing to do as well as they work with a variety of lenders and can offer you different mortgage rates from different lenders. Note that whichever lender you get pre-approved by, you do not have to use for financing when it comes time to purchase your home.

Now, you finally chose a lender you want to use and contacted them to start the loan application process, first they will create a Loan File for you.

A Loan File consists of:

1. Mortgage Application – This is application asks you for basic information about your employment history and financial assets. These applications can be filled out online or in-person. In 2017, a majority of these mortgage applications are filled out online by the borrower (you) and completed by the lender who adds mortgage calculations.

2. Credit Report – After your mortgage loan application is filled out, your credit report is pulled by your loan officer. This report is called a tri-merge, because it shows your three credit scores from the major credit agencies, Equifax, Trans-Union, and Experian. Your middle credit score of the three is used for underwriting. For example, if your credit scores are Equifax 800, Trans-Union 775, and Experian 790. Your Experian credit score of 790 will be used. The purpose of pulling your credit reports is to give the lender an official look at your financial responsibility which helps them to assess any risks with giving you a loan.

What shows up on your credit report?
– Credit score
– Credit history of trade lines, past accounts, past payment history (They look for any late payments that may have been noted on each account)
– Any credit inquiries
– Any public records for bankruptcies, overdue debts in collections, foreclosures, lawsuits, liens, judgments and wage attachments

Here are the 4 main documents that you will be asked to present in order to get pre-approved for a loan:

  1. Borrower Identification
    – A state-issued photo ID driver’s license or identification card. A valid passport may also be sufficient.
    – All borrowers/co-borrowers on the loan must provide ID.
  2. Tax Returns
    – 2 years of tax returns and W-2 forms if you work for a company
    – If you are self-employed, then you’ll most likely be asked for a profit & loss (P&L) statement for your company and federal tax statements for the last two years. You may also be asked for your business license or a letter from your Certified Public Accountant (CPA).
  3. Pay Stubs
    – Must provide your most recent 30 days of pay stubs or profit & loss statement
  4. Bank Statements
    – You must also provide 2 months of your most recent complete bank statements. This includes all pages for all your accounts. Your statements must show your full account numbers
    – These accounts may include your:

    • Savings Accounts
    • Checking Accounts
    • Brokerage Statements
    • 401k
    • IRAs
    • Roth
    • 403b

Other documents that may be required for Pre-Approval

Other documents may be requested from the borrower as each loan is unique to each person applying for a loan. The following documents may be requested from you:
– Mortgage gift letter
– Social Security/Disability Statement
– Divorce decree
– Pension Statement
– Bankruptcy discharge paperwork
– Home Owners Association (HOA) Statement
– If you own other properties, you may be asked for current mortgage statements and a homeowner’s insurance declaration for each property

Through the pre-approval stage, your loan officer will provide you with “Initial Disclosures”. These are meant to help you understand the credit terms of the proposed mortgage. Initial Disclosures are required by law and must be delivered to you within three (3) days of your mortgage application.

After the underwriter completes your application you will receive a Loan Estimate, or formerly referred to as Good Faith Estimate (GFE). This estimate itemizes the anticipated costs of the loan as well as the ongoing costs such as your monthly payments. If you are applying for an adjustable rate mortgage (ARM), you will see how your mortgage payments may change in the future.

The Loan Estimate will feature:
– Loan Amount
– Interest rate and APR
– Term
– Monthly Payment
– Closing Costs
– Any Prepayment penalties, if applicable

Once this is all complete and you are approved, which should only take a few days, you will receive your Pre-Approval letter! Aided with your Pre-Approval letter you now know what to expect with your home mortgage loan and start the exciting search for your new home.

Ashraf Spahi is a Los Angeles Realtor who specializes in First Time home buying and can assist you with any questions you may have.