binding as you might think. You still need to submit documents that corroborate your financial information to get a loan. Thus, property must be appraised at a certain value, too.” For example, a lender won’t approve a $150,000 mortgage loan if its appraiser says the house you want to buy is worth $125,000.
After you find a house you like, and your bid has been approved, you’ll have to go back to the lender and turn your pre-approval into a solid commitment. You’ll have to “clarify and verify” all the financial information you submitted to get your pre-approval.
You also may have to clear any hurdles in your path. Your assets will be evaluated. Often, says Carrigan, “lenders look for employment history showing at least two years in the same line of work. In some cases, higher education can be used instead of employment history if you’re new to the work force.”
The general rule is that you’ll need to show three examples of how you’ve handled credit to build up a credit history. “If you don’t have enough of a credit history, you may be able to use regular monthly payments such as rent, phone, [and] cable TV,” says Gwen Thomas, consumer real estate multicultural executive for Bank of America in Charlotte, North Carolina.
Sly says she ran into a snag when construction of her home was delayed, pushing the closing back a month. “That meant more paperwork,” she says, “such as a new pay stub to show continued employment.”
And she faced even more paperwork at the closing. “There were many documents to sign, which became a little intimidating, but my loan officer and my real estate agent were there to help me get through,” she says. Support by competent professionals and knowledge of the financing process can be the keys to getting the home you want.
Avoiding Bad Homeowner Loans
What abuses do homebuyers need to avoid when they take out home loans? The Federal Trade Commission (FTC) warns about the following:
Equity stripping: This occurs when a loan is made based on the equity in a property rather than on a borrower’s ability to repay the loan. As a general rule, loans made to individuals who do not have the income to repay them are designed to fail. They frequently result in the lender acquiring the borrower’s home and any equity the borrower had in the home.
Packing: Here, the practice of adding credit insurance or other “extras” increases the lender’s profit on a loan. Lenders often stand to make significant profits from credit insurance and, therefore, have strong incentives to encourage consumers to buy it as part of a loan.
Flipping: A lender may encourage a borrower to repeatedly refinance a loan, often within a short time frame, charging high points and fees each time.
SOURCE: FEDERAL TRADE COMMISSION