In a market where multiple offers on move-in ready homes are now commonplace, proving how you’ll pay matters to the seller. You can’t assume the highest bidder always takes the prize. Sometimes it’s the one with the most secure means to pay. Whether you’re planning to pay with a mortgage approved by a bank or with cash, proof of your funding may be required before a seller accepts your offer over another’s. Here are two checklists of items you may need to fulfill, preferably before you make an offer. While there appears to be many hoops to jump through, the more prepared you are, the better position you’ll be in to win acceptance on the home of your choice.
Checklist for Obtaining a Mortgage
Each financial institution will have its own requirements to prove your ability to pay off a mortgage. These are the most common items you’ll be asked to supply so that the lender can determine your eligibility. Going through this process before you’ve found your home will get you the “pre-approved” letter you’ll need to secure a better bargaining position.
∙ W-2 forms from the past two years, if you are employed.
∙ Several recent paycheck stubs.
∙ Your most recent federal tax return. Sometimes a lender will require your last two returns. These returns must match the ones you actually sent to the IRS. (If they don’t, you may be stirring up some trouble.)
∙ A list of all your debts, which includes credit card debt, student loans, car loans, child support payments, and minimum monthly payments and balances for each.
∙ A list of all financial and property assets such as bank statements, mutual fund statements, investment brokerage statements, real estate and automobile titles, and any other asset records.
∙ Cancelled checks for recent rent or mortgage payments.
Checklist for Paying Cash
The favorite form of cash is liquid cash, sitting in a bank account, ready to be wired on the day of the closing. A current bank statement can be used as proof of funds. However, you may offer proof of cash in other forms and liquidate prior to closing. Take note that timing can become an issue when the funds need to go through other processes to become transferrable.
∙ HELOC (Home Equity Line of Credit): This requires an appraisal of another property and the buyer’s qualification to repay the funds. Essentially, it’s like going through the mortgage process.
∙ Investment account: This typically requires selling off investment holdings or going through the process of liquidating funds. Be sure you know the timing needed so that you don’t jeopardize your closing date.
∙ 401K: Taking money from a retirement account typically requires an application and approval process. Again, be informed of the timing needed so that you have the funds available for closing.
∙ Gift from relative: If that relative’s name isn’t signed on the contract, he or she has no obligation to the contract. It’s best to get the money in your own account and provide proof of funds, or else your offer might not be taken seriously by the seller.
∙ Money kept under the mattress: No personal or cashier’s check over $10,000 are accepted at closings anymore. Payments must be wired to and from financial institutions. If you happen to be a buyer with more money than that stored outside of a financial institution, be aware that you’ll need to put the money in a bank account prior to the transfer at closing. This could generate notices from the IRS to you.
Obviously buying a home is a serious undertaking. Use forethought in how you approach the financial part of the process. Preparedness will help you navigate more smoothly and possibly put you in a better negotiating position because you can more quickly prove your eligibility over another buyer.