Helping first-time buyers browse home listings and go to showings and open houses is exciting for them and rewarding for you. But it’s just as important to help them apply and get approved for a mortgage. Finding the house and securing the funds go hand in hand. Here’s how to lead them through this unfamiliar process.
Knowing their needs
Once you’ve interviewed your buyers about their needs, you’ve not only gained direction in the house-hunting process, you’ve uncovered much of what they may need in a mortgage.
Are you helping a young couple looking to start a family? The house must have room to grow, and the mortgage terms must leave room in the budget for the added cost of children.
Do your buyers plan to renovate? How long do they expect to own the home? The house they start with must leave room in the budget for remodeling costs, so an adjustable-rate mortgage could make the first years more affordable.
Do your buyers qualify for an FHA loan with easier terms?
Be sure your buyers have begun searching for a good mortgage broker before they even start home shopping in earnest.
Have your buyers apply for pre-approval
It is important for your clients to apply for mortgage pre-approval early on. Having a pre-approval letter in hand shows sellers that your buyers are serious about buying a home
The mortgage application process
When your buyers have a house under contract, prepare them for the loan application process.
- Prep them on the documents they will need to supply the lender: W-2 and 1099 statements, tax returns, pay statements and bank and investment statements. They should also be ready to explain the source of down payment funds.
- Explain that they must be current on all debt and absolutely must not take on more debt, such as a car loan, while they are in the process of finding a home.
- Explain that the lender will look at the relationship of their debt to their income. There are two ratios they need to know about. The front-end ratio looks at the monthly mortgage payment as a percentage of monthly gross income. The back-end ratio adds all monthly installment debt together and figures it as a percentage of income.
- Explain that the lender will also review their credit scores with the major credit rating agencies.
- If your buyers have received a large monetary gift in recent weeks, they may be asked to explain it to the lender. Young couples may receive family gifts toward helping with the purchase of a first home, but the lender will want to know about the gift to make sure it meets legal requirements.
Your experience guiding first-time buyers will provide an invaluable service to others as you help them land that first home.
The mortgage process can be difficult to navigate. The Encompass Lending Group strives to simplify the process by communicating effectively with you and your valued clients. Reach out at [email protected] for mortgage assistance.