So we were preapproved... yay. Now the stressful part!
I'm worrying myself to death over the actual underwriting process.
Any advice on what we will be required to show and how much money we need?
What's the Debt to Income ratio and also what's up with people talking about Reserves? We will pretty much be draining our accounts to pay for the down payment and appraisals. What if we have no reserves left?
Your loan officer should be able to provide a breakdown of the anticipated "funds to close" based on a hypothetical purchase price.
The debt to income (DTI) ratio is the percentage of your monthly payments compared to your gross income. i.e. if the new mortgage payment is $1k & you have $500/mo in other debt payments (car, student loan, credit cards, etc.), and your income is $4k/mo, then your housing ratio would be 25% & your total debt ratio would be 37.5%, which is commonly written as 25/37.5%.
Reserves are leftover liquid funds you have available to you after closing. Items such as checking, savings, money market, CD's, 401k, IRA, stocks, mutual funds, and bonds are the most common sources of reserves. Some loan programs require them, some do not. FHA doesn't require any reserves unless you are purchasing a 3-4 unit property or need to be manual underwritten and your debt ratio are higher than 31/43%. Ask your loan officer if they needed reserves to pre-approve you.
I close today FHA,
Going to need Bank statements 90 days worth, Pay Stubs for past 30 I think ? Need to show your funds for closing ect. If they are being gifted you will need to fill out a gift letter and then show the check clearing in your account and also were the check funds came from. Validate employment which the bank will do, Insurance binder for home owners. This is all needed of coarse after you make a offer, its accepted and your inspection goes through with out major issues
For reserves they really don't care. I have like 8k left over which 4k will go into the house and we will keep 3.5 for emergencys.
For an idea your lender should be able to compute the numbers for closing costs. Mine were abou t 12k (200k house, 4k Taxes). We used a 4% seller concession and rolled half into our loan so its like 5.5k due at closing today.
My Debt to income was very low I'm not sure what the max you can do. All I had was a car loan and maybe 1k credit card. I did have to pay off a few collections in order to get a Clear to close showing proof of this as well. Money coming out of my account ect. Overall my process was smooth and My middle score was 640.