The following is a quick timeline of the financial process behind buying a home in Vermont. If you have any questions or want a tour of Chittenden Vermont Real Estate, contact Dave Chenette or call 802-264-1991.
Find Best Loan Program
The first part of the financing process is to find the best loan program for your needs. Most people tend to just use the same bank as they use for their everyday needs. Although this might work out for some, it is more by chance as not all banks offer the same loan programs. It is worth taking the time to fully investigate what is out there before deciding upon a lender. Your real estate agent has years of experience in this area. They will know which lenders that have various loan programs and different down payment requirements that meet your specific situation and needs. For example, a first time home buyer is going to have different needs than someone who is purchasing a second home or one who may need to consider a low down payment program.
Prequalification Letter and Pre-Approval
Obtaining a prequalification letter not only saves time when you do find a house, you will have an advantage over other buyers if there is competition over buying the house. What is nice is that the prequalification process can often be done in one day or over the phone. The lender often writes a letter stating that the buyer is qualified to purchase a home within a certain price range. Just keep in mind that prequalification is not pre-appoval. It is a much easier and shorter process. If you really want to be prepared consider taking the time to get Pre-Approved.
Pre-approval is a longer process that involves a more in-depth analysis of your credit history, written documentation of current and previous income, assets, among other things. At the end of the process the lender issues an approval letter. This letter is much stronger then the pre-qualification letter but is still conditioned on the borrower finding a home and paying for a satisfactory appraisal and title work showing the property to be in good title and free of encumbrances.
Despite the differences between the two, both are going to give you a greater advantage when purchasing your home. When trying to decide between the two, it is always best to opt for a pre-approval over a pre-qualification letter.
Purchase and Sales Contract
You are now ready to find your dream home and secure a purchase and sales contract. Take your time with this process.
Formal Application for Mortgage
Now that you have a house to buy you need to submit a formal application for mortgage. This usually involves paying an application fee that covers the appraisal ordered by the lender. You will typically need:
- Two Months Worth of Bank Statements
- Retirement Account Information
- 1 Month Worth of Pay Stubs (2-3 yrs of Tax Returns for Self-Employed Borrowers)
- 2 Years of W-2’s
- Copy of Purchase and Sales Contract
- Misc. Other Documents Depending on Situation
- Names and Address of Current and Previous Employers
- Asset Information (such as Vehicles Owned)
- Current and Previous Residence Addresses
Schedule Home Inspection
Lenders don’t always require a home inspection. Most good real estate agents will recommend you get one. If you are at all in doubt, talk to your agent or trusted friend who has had an inspection done. The lender has an appraisal of the property but the appraiser has a different focus. Many appraisers only note the more obvious defects. A home inspector spends 2-3 hours reviewing all systems of the house and often gives a detailed report that you can keep for future reference.
The appraisal can take from one to three weeks to get back to the lender. While waiting for the appraisal to come in, you can begin shopping for homeowners insurance. Be sure to get a couple of good quotes that you can act upon when you commit to the loan. You can also choose an attorney to open a file on your purchase. The lender will often have a list of approved attorneys to use. You have the right to use your own attorney, but if that attorney is not approved by the lender, you may need to pay the lender's attorney to close the loan in addition to your attorney.
Once the appraisal is in, then the lender submits the complete file to the underwriters for final approval. It may have been submitted before the appraisal came in for initial approval, but a final commitment letter will not be issued until the underwriters review the complete file which would include the appraisal. If the underwriters like everything they see, underwriting usually only takes a day or two. If the underwriter has questions on the appraisal for example, it may take a few days.
Prepare for Closing
Prior to the time the final commitment is granted the the attorney does a title search and prepares the documents for closing. This usually takes about a week to process. The attorney will also be preparing the "CD" which stands for Closing Disclosure. The CD contains all the costs for the closing. The attorney should indicate to you a day before closing what to bring in for closing costs. This is usually a good ball park figure and you will want to be prepared with a personal check if you are under.
This is also where you go back and pick an insurance company to obtain a “binder.” The binder is basically a receipt that states you paid for the policy (usually paid one year in advance) that is bound on the day of closing.