Real Estate Tips (Items You Need to Close)

by FI Fighter on February 17, 2013

in Real Estate Thoughts

 

Now that I’m putting the final touches on securing a loan on Rental Property #2, I feel like I have a better grasp on what to expect from the lender in regards to closing a deal. That is, I now know what documents I need to prepare, and the steps to take to insure that all requirements are met within 30 days (typical closing time). In fact, I think I have the process figured out enough to where I can close within 20 days. Many days are lost when you have to go back and forth between different parties, but this can be avoided altogether if you know what to expect in advance.

Here is a summary of documents, information needed once you enter contract:

  • W-2 forms for up to two years (this step can be bypassed if you secure a pre-approval letter within a few months of closing. In my case, I needed to verify this information again, since my pre-approval letter was granted about eight months ago, before I bought Rental Property #1.)
  • Most recent paychecks, up to two weeks (you can send them the two most recent paystubs, and they’ll probably require a final paystub just prior to closing. Typically, three total.)
  • Bank statements for up to two months (most recent statements in your checking account.)
  • Stock statements for up to two months (this is needed if you still need to transfer funds from a brokerage account to a checking account.)
  • Appraisal (depending on your lender, the appraisal document can take 2-3 days to complete, or up to a week. It’s best to order this document ASAP. For owner occupied, I paid ~ $350. For a rental property, I paid ~ $700.)
  • Property Tax payment (if you own other rental units, the bank will need you to verify that you are up to date on your property tax payments.)
  • HOA documents + Questionnaire (This can take up to a week to process. It’s also best to order this ASAP from your HOA, provided your new property has an HOA.)
  • Master Insurance Certificate (Contact the HOA office. They should be able to direct you to the contact person to get this information. I forwarded the contact information to the lender and let them take care of this.)
  • Effective HO-6 Policy (for owner occupied, I was able to just provide the lender a quote. I didn’t finalize the insurance policy until closing. For a rental, they demanded that I have an effective policy before closing. I didn’t know this in advance, so I wasted a few days on this item. The processing of my loan was stalled until this hurdle was finally cleared. I would clear the home inspection and appraisal items first, before purchasing the insurance policy. The home inspection and appraisal usually allow you your last chances to back out of the deal. So, make certain you are 100% committed to buying the property, before purchasing insurance.)
  • Don’t move funds around (If you need to move large amounts of money around, try and do so a few months before you decide on bidding for a property. Once in contract, underwriting will scrutinize every last detail of your checking account. I transferred about $100 from a brokerage account to my savings, and they wanted a brokerage statement to confirm this transaction. Just to make sure it wasn’t from an unscrupulous source. The less transfers you need to initiate, the better.)
  • On the topic of moving funds around, also note that if you are buying a property as “rental” and not “owner occupied”, you won’t be able to transfer in funds that are designated as “gifts”. For a “rental”, the lender will typically require all funds coming in to be sourced by YOU! Cash is not accepted towards the downpayment either, because the source cannot be verified. My first rental was designated “owner occupied”, so I was able to wire in some cash, without objection. For the second property, it was a “rental”, so that’s the main reason I had to liquidate most of my stock portfolio…

These are the main items my lender asked for. Of course, your experience may be slightly different, depending on which lender you go with. Good luck, and happy hunting!

{ 10 comments… read them below or add one }

1 MichelleNo Gravatar February 18, 2013 at 7:26 am

Great post! We’ve looking into buying our second house sometime within a year from now and I forgot about all the things that are needed!

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2 FI FighterNo Gravatar February 26, 2013 at 9:29 pm

Michelle,

Thanks! There really are a lot of little details that one can overlook when trying to get a bank loan. It seems so simple on the surface, but trying to get every last piece of information takes quite a bit of time. The 30 days (typical closing deadline) really doesn’t give you as much time as you might think…

Best of luck on the hunt for house #2!

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3 The First Million is the HardestNo Gravatar February 18, 2013 at 3:16 pm

Thats a pretty comprehensive list. I wish I knew about the transfers when I closed on my house. I made a couple big transfers a month before the underwriting process and it caused a lot of headaches as they wanted me to provide all sorts of documentation to explain what they were all about.

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4 FI FighterNo Gravatar February 26, 2013 at 9:30 pm

First Million,

Yeah, underwriting can be a total pain. I guess you can always get lucky and end up with a person who doesn’t scrutinize every last detail. I’m finding property #2 to be more painful than #1. Now that I’m nearing the final stages, I’m making sure to freeze all transactions in my banking account until after closing. Each time I remove $0.01, the underwriter flags it… or so it seems…

Take care!

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5 Brick By Brick Investing | MarvinNo Gravatar February 18, 2013 at 5:03 pm

Ugh! This is a painful reminder of when we built our home this past November. We literally had to go back and forth with our mortgage broker because my dad had deposited money in my account that he owed me.

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6 FI FighterNo Gravatar February 26, 2013 at 9:32 pm

Marvin,

That’s funny, the same thing happened to me. My brother paid me $500 in Amazon payment for money he owed me… the underwriter flagged that immediately. It can be a painful process, which is another reason I want to get this over with ASAP and re-focus on stocks. So much simpler…

Cheers!

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7 JC @ Passive-Income-PursuitNo Gravatar February 22, 2013 at 9:04 am

Sounds awful, but I’m bookmarking this site to reference when my wife and I start looking at buying a house.

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8 FI FighterNo Gravatar February 26, 2013 at 9:33 pm

JC,

Best of luck to you and your wife on your house hunt! Hopefully when the time arrives, you’ll have better luck than me. I haven’t documented every detail on this blog, but finalizing the loan this time around has been extremely unpleasant, to say the least 😉

Cheers!

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9 KK @ Student Debt SurvivorNo Gravatar February 24, 2013 at 5:19 am

Bf and I have been seriously thinking about purchasing a rental property so these tips are helpful reminders. Our real estate agent gave us a lot of the same advice when we purchased our condo. Don’t get new credit cards, don’t move money around, don’t make big purchases etc.

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10 FI FighterNo Gravatar February 26, 2013 at 9:34 pm

KK,

Exactly. If you know in advance that you are about ready to purchase a home, it would be prudent to take care of all money transfer 2-3 months before you start making offers. The lender shouldn’t look at your bank statements beyond that…

Best wishes!

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