The Home-Buying Process, Part 1
Editor’s note: This is Part 1 of a 3-part series on the home-buying process. Part 2 will address debt-to-income ratios, credit scores, and more!
Make a list, check it twice
To a first-time purchaser, the home-buying process can seem daunting. You might find yourself repeating, “Wait … you want what?”
Calm down. Nobody is going to ask you for your firstborn’s blood type. You won’t have to sacrifice any limbs. Mortgage lenders don’t care where you buy your shoes, but you will need to provide a boatload of documentation to support any claims you make on a mortgage application. Simplify the process by gathering documents in advance.
Pre-mortgage planning paves the way
The yellow brick road to owning a home is paved with preparation. You might not be ready to jump into home ownership today. That’s okay. It’s never too early to plan your strategy. Most first-time buyers need to secure financing from a mortgage lender. Having your important documents in order will save you, the buyer, undue stress, time, and frustration when you do finally leap.
Building an “Important Documents” file will make your life easier on so many levels. Have you ever scrambled through your house looking for a lost birth certificate, an official marriage license, immunization records, or a canceled check? It’s mind-numbing to frantically search for a passport, vital records, annual taxes, college transcripts, your degree, etc. Spare yourself those few minutes (or many hours) of panic. Start gathering these things today.
Your “I know where everything is, just don’t touch my desk,” method might work perfectly for you; but in the unlikely event you become incapacitated, would it make sense to someone else? Maybe that green garbage bag has been the only filing system you’ve needed for years. Or maybe you’re one of those, “It’s somewhere in my mom’s attic,” record keepers. Before you embark on the mortgage application process, it’s time to find a better way. There is no time like the present.
Build a living mortgage file
Keep a secure electronic copy of your important documents. Following are some pros of digital records:
- They take up less room than hard copies.
- They’re easy to search.
- They are environmentally friendly.
- Back-up files are easy to make, store, and share.
There are some real cons to using only digital storage too:
- Security is critical and constantly changing.
- Some institutions require original hardcopies.
- Piling up paper in a “I’ll Scan this Some Day” file does not constitute a system.
- Technology changes. Your thumbdrive files might not be accessible in 10 years.
Create a digital and a hard copy filing system and protect both with security that makes sense. Document safes are available online starting at just more than $50. These make great storage for vital records and protect them from fire, water, wind, and prying eyes. They are not fail-proof.
The format in which you save digital files matters. If you put them on a thumbdrive or CD, they will still be vulnerable and likely in the same building where you store hardcopies. If you do store files on external drives, keep them in a different location (like, miles away) from your hardcopies. Disasters strike. If one set of documents is destroyed, the other is likely to survive.
Review technology anually and determine if your file formats and storage methods are in keeping with modern standards. Upgrade when necessary.
There are many cloud-based programs available for storage. Research multiple options. Read reviews, understand security measures, and check the health of the company you choose to be the keeper of your life library.
When you organize your critical documents, organize them in a standard format that almost anyone can understand. Remember:
- Use seperate file folders for each set of documents. Organize them by individuals, contents, or by subject.
- Label file folders with a bold marker or bold-face type.
- Alphebetize folders.
- Store hardcopy documents in a clean, dry, place with moderate temperatures.
- Protect documents in acid-free storage sleeves.
- Shred and discard outdated records.
Your hardcopy files will include:
- Social Security Cards
- insurance Policies
● birth certificates
● death certificates
● marriage/divorce records
● stocks and bonds
● immunization records
● emergency contacts and complete contact information
● court orders
● tax records
● some bank records
What do immunization records have to do with a mortgage application? Well, nothing. As long as you are starting a file, let’s get these ducks in a row so you don’t have to waste your time herding them around (when you could be focusing on your dream of owning a home).
This file should remain fairly small, simple, and clear. Find one trustworthy person who does not live with you. Share the code/key/combo with a trusted confidant.
What kind of documents will your lender require?
Following is a list of documents your lender might require when you apply for a mortgage:
- state-issued identification, a passport, or a U.S. alien registration card
- income information and supporting documentation
- bank statements
- investment account statements
- rental information & documentation
- a list of your debts and the most recent statements for example:
- tax documents
- car loans
- student loans
- credit cards
- personal loans
- home insurance policies
- homeowners association (HOA) information
- medical bills
Many of these documents will need to be current (the most recent). If you electronically file statements they should be readily available. Most are easy to get from the service provider, agency, lender, etc. within 24 months (check with your institution). Make a list of current/past accounts. Include Names, account numbers, websites, email addresses, and passwords. This will help you gather these items quickly when you need them. Keep a copy with your hardcopy documents.
If you are thinking about buying a home and have questions about the process, call me! 801-673-3333.