A Q&A with Better Mortgage
We know that home buying and selling are extremely important life events, as well as one of the biggest financial decisions of most peoples’ lives. At Knock, we’re on a mission to make this major milestone more certain, convenient and cost-efficient for our customers. With our Home Trade-In program, we buy your next home on your behalf before the old one sells, so you can move in and avoid the inconveniences of getting your home prepped for market and living through showings. Then, we help you sell your old home on the open market. We are there to guide you and this process every step of the way. One of the very first steps? Helping you secure financing for your home purchase.
How much home can I afford?
When customers are embarking on a Home Trade-In, we often receive questions about the process of securing financing for their new home. With Knock, the first step is your verified pre-approval so you know exactly how much you can afford to pay for your next home. Getting pre-approved helps the entire buying and selling process move along more quickly and easily.
Luckily, Knock partners with great mortgage providers, who help us make our customers’ dreams of moving into a new home a reality. With these partnerships comes a wealth of information about what it takes financially to buy and sell homes, and we want to share that knowledge with you.
Breaking it down with Better
We asked one of the experts: Julien Fraiha of Better Mortgage, a direct lender that uses technology to make the mortgage process more transparent and easier for consumers. Better is one of Knock’s partners that regularly helps our Home Trade-in customers with the mortgage pre-approval process. In this blog, Julien answers the most pressing questions customers have about verified pre-approval, one of the first steps in the Knock Home Trade-In process.
1. How does financing of the Knock Home-Trade in work?
There are technically three transactions involved in the Trade-in process:
1) Knock buys the customer’s new home on their behalf.
2) Knock helps the customer sell their old house.
3) The customer buys their new home back from Knock.
Mortgage providers like Better are involved with both steps 1) and 3). Before Knock even begins to take the customer shopping for their next home, they need to make sure they have enough equity both inside and outside their current house to afford their new one. That’s where Better comes in.
“The customer will need to get underwritten and pre-approved with a lender for the buyback of the new home from Knock,” says Fraiha.
2. What exactly is a verified pre-approval? (and how does it differ with other kinds of mortgage pre-approval/qualification)
The verified pre-approval is an underwriter-reviewed pre-approval, or in layman’s terms, when your finances—your income, debt, assets, and credit history—have been reviewed by an underwriter, or a financial risk analyst, to determine how much money you can borrow, how much you can afford per month, and what your interest rate will be.
As Fraiha explains, “At Better.com we are quickly able to verify a borrower’s tax returns, W2s, pay stubs and creditworthiness, resulting in a fully underwritten verified pre-approval. With a verified pre-approval you gain the confidence of a cash buyer. Your Knock agent needs a verified pre-approval to submit Trade-In offers on your behalf. ”
3. What do I need to be eligible?
Being in solid financial standing is wise for any homeowner looking to make a move. There are certain terms of eligibility customers must meet in order to use our Trade-In program. These may include things like savings for a down payment, or “good” credit. Here’s the nitty-gritty*:
- Minimum down payment: 5% (3% for first time home buyers)
- Credit score minimum: 620
- Maximum debt-to-income ratio: 50%
- Bankruptcy, Chapter 7 or 11 -> 4 year waiting period
- Bankruptcy, Chapter 13 -> 2 years from discharge date, 4 years from dismissal date
- Foreclosure -> 7 year waiting period
- Deed-in-lieu of foreclosure, pre foreclosure sale, charge-off -> 4 year waiting period
*Note these underwriting guidelines are mandated by Fannie Mae for conventional financing.
4. What documents will I need to submit?
We get it, no one likes sifting through paperwork. But, having the below documents ready to submit will help expedite the process.
- Bank statements: Checkings and savings for the last two months
- Other statements: Your two most recent statements (either for last two months or last two quarters) for all other assets and reserves, such as investment and retirement accounts
- A credit report: You can use an app like Credit Karma to pull your credit without impacting your score
- Employment documents: W-2 forms for the last two years and pay stubs for the last 30 days
- Tax documents: Federal and state tax returns for at least the last year
- Homeownership documents: Mortgage statements and homeowners insurance declarations for your primary residence and any rental properties
- Investment documents: Any current lease agreements for investment properties you already own, as well as official closing documents
- Home inspection documents: Most of the time your mortgage lender will do an appraisal of the house. But it’s smart to pay for a home inspection yourself before you make an offer, so there are no surprises down the line
- Personal documents: Bankruptcy, divorce, or separation papers, if applicable
5. When can I lock in my rate?
Says Fraiha, “A buyer can lock their rate as soon as they are under contract for a new home. Rate locks range from 30 days to 75 days. For Trade-In customers, a great time to lock is as soon as the customer’s listing goes into contract, to then plan for a same-day closing of the old home and new home. ”
This timing is perfect for the overall Trade-In program. With the program, we wait until you move into your new house to start the preparation and listing of the old one. This saves our customers the stress and inconvenience of repairs and showings; it also ensures they’re getting the most value out of the costs of our program by lining up both closings.
6. How long will it take to get my verified approval?
We know that time is of the essence. And we also know that you’re especially excited to start looking for your new home! But, we don’t want you to fall in love with a house that’s outside of your budget. Luckily, we are able to move the process along quickly.
“A buyer has access to an official Loan Estimate as soon as they complete an online application,” Fraiha explains. “After submission of all documents to Better.com, an initial review can be conducted within 1-2 business days. Better may need more information after the initial review to issue a decision. ”
When you’re ready to find your new house, we suggest checking out Knock Deals. You can set up alerts for your dream home based on your desires and requirements and we’ll alert you when you can get it for the best price.
The Financial Finale
Knock’s Home Trade-In program is a great solution for any homeowner looking to sell their current home and buy their next one – whether you’re upgrading, downsizing, or just looking for a change of scenery. And the first step in the financial process when getting started with Knock is your pre-approval. Although you can always choose to use your own mortgage lender, we have solid partnerships with companies like Better that are familiar with our process and whose mission is to improve access to home finance.
Ready to get started? Before you can get your verified pre-approval from a provider like Better, the first step is to submit your current home for a free market price estimate at Knock.com and talk to a Knock representative.
For questions regarding Trade-In specific costs please discuss with a Knock representative.