Once you’ve found a Realtor to represent and advise you on what is going to be the biggest financial transaction you ever make, step 2 to buying a home is to get preapproved by a mortgage lender. As Realtors, we won’t take someone out to preview homes unless he or she has been preapproved otherwise, we are wasting their time as well as ours. In addition, it’s important that you have an understanding of how much you can comfortably afford to spend on a home, what your monthly payments will be, what interest rate you qualify for, and how much you’ll be paying each month in taxes, etc. Click here for a great booklet that demystifies the mortgage process which we highly recommend all buyers read before applying for a mortgage.
Having a good mortgage lender is a crucial part of ensuring a smooth transaction. Working with a bad mortgage lender can make the process a living hell for everyone involved and put your purchase in jeopardy of not closing on time or at all. You also might end up regretting the lender you chose for years if you end up paying a higher interest rate than you should have if you had shopped your loan through various lenders. You could also lose out on your dream property because your mortgage lender was disorganized and couldn’t get you fully approved during underwriting, etc. That’s why it’s important to work with the best.
For a List of Our Recommended Lenders, Please click here
Paperwork You Need To Gather
Each lender has slightly different requirements regarding what documentation they need from you for the preapproval process, but in general, expect to provide the following items:
- A completed application. The lender will provide this form to you directly
- Two most recent months (or a quarterly statement) of any asset information listed on the application. Generally: checking, savings, 401k, mutual funds, individual stock accounts, IRA’s, etcâ€¦..
- Most recent month of a paystubs
- Past two year’s worth of W2 statements
- Past two year’s worth of Tax Returns (all pages)
- 2013 and 2012 Corporate Tax Returns (if self-employed and you own over 25% of the company)
For a more detailed lists of what your lender may request from you, click here.
Getting a Pre-Approval Letter
Generally, once you submit the above items to your lender you should receive a pre-approval letter within 2-3 business days. The lender may ask for additional documentation. They are not trying to be difficult by asking for additional documentation, rather, after the housing bubble burst, underwriters became much stricter regarding the loan approval process so a lot more documentation is needed today than it was 10 years ago. In addition to receiving a pre-approval letter which shows the amount you can afford to purchase, you should ask your lender to show you what that preapproval amounts into in terms of a monthly mortgage payment plus any PMI, taxes, and insurance. That way you can make sure you are comfortable with what your monthly housing payment will be at that pre-approval letter. Once you’ve received your pre-approval letter, forward it to us for your file so we can have it when we are ready to submit an offer.
Ask About Free Money
Florida often offers several grant programs for home buyers where the state of FL will literally give you free money or loan you money to put towards your down payment or closing costs. Click here to read about these free programs. If any of the programs interest you, talk to your mortgage lender to see if you qualify. Better yet, I’d ask them to assist you first!
Get a Loan Estimate and Understand Your Closing Costs
In addition, mortgage lenders are required to provide you with a Good Faith Estimate (GFE) within 3 days of receiving your pre-approval. The GFE provides an estimate of the closing costs you’ll need on top of your down payment and shows exactly what fees the mortgage lender is charging you. Make sure you understand these fees. Generally, we estimate closing costs to be approximately 2.5% of the purchase price of the property. Your mortgage lender can provide you with more detailed estimates based on your exact pre-approval price. Remember, these closing costs are due at closing (except for the appraisal and inspection fees which are due on the day those services occur) and are on top of your down payment. Therefore, if you’re buying a $500,000 property and putting down 20% towards the loan you’ll need to have $112,500 cash available at closing ($100,000 for your down payment and approximately $12,500 for the closing costs).
Should You Shop Your Loan Around?
Absolutely. Every lender charges different fees and different interest rates so it’s crucial you shop your loan around to at least two lenders, in my opinion. Click here for a list of Questions to Ask when interviewing Lenders. We recommend waiting between meeting with lenders as the lender will need to pull your credit report in order to give you an accurate preapproval letter. If your credit is pulled by various lenders in the same week it could affect your credit by a few points. Although if you’re looking for an auto loan or mortgage specifically, some credit score models will allow for some level of shopping around by essentially viewing multiple inquiries within a certain time period as just one. Click here for more information about this topic.
Questions about the pre-approval process? Just call 954-464-5434 or email at Linda@CrossroadsRealtyTeam.com. I’m always here to assist.