Purchasing real estate can be one of the biggest financial purchases your will make. There are different types of loans and financing options depending on the type of property you wish to purchase and your own financial situation. Contacting a local lending institution is one of the best first steps you make! Below is a short overview of the general process.
Choosing a Lender
It’s often recommended that you work with a local lender for a few reasons – the main one is that they’re most familiar with the types of loans for buyers in this particular area. Most second homes or luxury homes of a certain amount will need a special jumbo loan that has different requirements and parameters than a primary residence for a first-time homebuyer. If you’re considering purchasing a vacation rental property, there can also be different hoops to jump through for that type of property that your normal lender, not from this area, may not be aware of. As a local agent working every day in the area, I’m happy to help make recommendations for qualified lenders for your particular situation!
Loan Application & Pre-Qualification
Once you’re chosen a lender, you can start the loan application process. The lender will let you know what documents they will need from you to start the process. Once the application is completed, the lender can then provide you with a pre-qualification letter. It is strongly encouraged for buyers in a competitive market who plan to utilize financing to have a pre-qualification letter. This shows the seller that you are not only serious about purchasing the home, but that your financing contingency will not be an issue. This is helpful in a multiple-offer situation!
If you plan to finance any portion of the purchase price, your offer will need to include an addendum that outlines the loan amount, term, and amortization rate, and program. This document will also the appraisal contingency, which states that the property must appraise for at least the purchase price, or further negotiations will be needed.
Loan Underwriting & Appraisal
Once the contract has been ratified by all parties, the loan underwriting process can begin. Many lenders have in-house underwriting, which can help accelerate the process. You should allow for 30-60 days for underwriting to finish. During this stage, your lender will order the appraisal. The appraisal will be accepted by a licensed area professional. The appraisal takes into consideration the current market and recent sales and the overall condition of the property and structures.
Once underwriting is through, and the appraisal has come back at a value that’s acceptable for the loan to proceed, it’s time to close! Your lender will send you a copy of the closing disclosure at least 3 days prior to closing. This will outline exactly how much you’ll need to bring to the closing table – the title company or closing office will offer options for money, whether through cashier’s check or wiring instructions.