Escrow 101: Financing Basics

Preparing to Work with Your New Lender

As you begin the home buying process, one of your important first steps is to take a serious look at your finances. This means putting your “financial house” in order and pre-qualifying for your new financing before you ever make a formal application for a new loan.

There are several factors which demonstrate your credit worthiness and your ability to repay your loan, including your income, savings, debts, and credit history. Consider the following actions you might take to provide evidence to your lender that you are a good risk.

Your Income

  • Your lender will verify your income to be sure you can manage your new loan payments. If you anticipate receiving a pay increase in the near future, ask your employer to verify this. Consider taking a position with your company that might offer you a higher salary, and if your spouse is unemployed, a job for that spouse might be worth considering as a way to enhance your monthly income.

Your Savings

  • Your lender may look at your savings account balance to see the amount of your cash-on-hand. Long-term, consistent savings demonstrates your spending discipline and an ability to produce sufficient down payment. Reduce expenses as much as possible and postpone making major purchases. Plan a budget and discipline yourself to stick to it.

Your Debts

  • Keep your credit as clean as possible and consult with your lender about consolidating credit card accounts. This takes time to appear on your credit report, so early attention to this detail is a good idea. Pay down existing loans if you can.

Your Credit History

  • Make all payments on time, fix any credit problems you may have, and do not overdraw your checking account.

Once you choose a lender, be sure to provide that information to your Escrow Officer. As the escrow progresses, the Escrow Officer will be in contact with your lender to check on the approval process and to be sure that any required escrow documents are supplied promptly. When your loan is approved, your Escrow Officer will coordinate your document signing appointment and describe the timeline for the final steps leading to your closing. Your real estate agent, your lender, and your Escrow Officer will partner with you to guide you through the financing process from start to finish.