When you are selling your home, whether it is For Sale by Owner or traditionally with a real estate agent/Realtor, you will have to understand the offers presented to you and the financing they have been approved for. Each type of financing can be different, and each have their pros and cons. Let’s look at the conventional loan.
A conventional mortgage or conventional loan is any type of home buyer’s loan that is not offered or secured by a government entity. Instead, conventional mortgages are available through private lenders, such as banks, credit unions, and mortgage companies. However, some conventional mortgages can be guaranteed by two government-sponsored enterprises: The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).
Conventional mortgages typically have a fixed rate of interest, which means that the interest rate does not change throughout the life of the loan. Conventional mortgages or loans or not guaranteed by the federal government and as a result, typically have stricter lending requirements by banks and creditors.
In the years since the subprime mortgage meltdown in 2007, lenders have tightened the qualifications for loans—“no verification” and “no down payment” mortgages have gone with the wind, for example—but overall most of the basic requirements haven’t changed. Potential borrowers need to complete an official mortgage application (and usually pay an application fee), then supply the lender with the necessary documents to perform an extensive check on their background, credit history, and current credit score.
No property is ever 100% financed. In checking your assets and liabilities, a lender is looking to see not only if you can afford your monthly mortgage payments, which usually shouldn’t exceed 28% of your gross income.6 The lender is also looking to see if you can handle a down payment on the property (and if so, how much), along with other up-front costs, such as loan origination or underwriting fees, broker fees, and settlement or closing costs, all of which can significantly drive up the cost of a mortgage. Among the items required are:
- Proof of Income
These documents will include but may not be limited to:
- Thirty days of pay stubs that show income as well as year-to-date income
- Two years of federal tax returns
- Sixty days or a quarterly statement of all asset accounts, including your checking, savings, and any investment accounts
- Two years of W-2 statements
Borrowers also need to be prepared with proof of any additional income, such as alimony or bonuses.
You will need to present bank statements and investment account statements to prove that you have funds for the down payment and closing costs on the residence, as well as cash reserves. If you receive money from a friend or relative to assist with the down payment, you will need gift letters, which certify that these are not loans and have no required or obligatory repayment. These letters will often need to be notarized.
- Employment Verification
Lenders today want to make sure they are loaning only to borrowers with a stable work history. Your lender will not only want to see your pay stubs but may also call your employer to verify that you are still employed and to check your salary. If you have recently changed jobs, a lender may want to contact your previous employer. Self-employed borrowers will need to provide significant additional paperwork concerning their business and income.
- Other Documentation
Your lender will need to copy your driver’s license or state ID card and will need your Social Security number and your signature, allowing the lender to pull your credit report.
Most sellers tend to favor the conventional loan. These borrowers tend to be putting more down, they tend to have better credit, and they meet tighter requirements that lead to their approval. This does not mean, FHA or VA offers will not close or are inferior, it is just another or different type of financing.
As a Realtor, I do prefer conventional, but look at all offers to decide which one will benefit the client. All offers are different when they come in, just like the financing. It is sifting through all the information to decide which offer and financing meets the needs of the situation.
The information here is provided for informational purposes. The writer is not a mortgage or financing professional. It is always best to discuss financing matters with a mortgage or financing professional.
If you have any questions about real estate or would like to buy or sell a home, Investment property, or commercial property in Michigan (Ohio and Florida by 2021), please e-mail us at email@example.com or call 248-294-7850.
Scott Fader and Gary Brincat
Mitten Realty Group, LLC
Mitten Realty Group is a veteran owned company located in Michigan. Scott Fader and Gary Brincat are two of Michigan’s multi-million-dollar top producers. They have been working in real estate as brokers, Realtors, investors, property managers and real estate company owners for over 20 years. Together they would like to share their experiences, knowledge, success and failures to help buyers, sellers, Realtors, brokers and anyone else in the real estate and business, so that together we can grow as a community.