Once you’ve chosen a Realtor to represent you during what might one of the biggest financial decisions of your life, the next step is to get pre-approved for a loan by a mortgage lender. There are many reasons we need to have a pre-approval before we look at homes:
- To make sure we’re looking in the correct price range
- To only look at homes that will qualify for the loan product you’re pre-approved for
- To have time to shop for the best loan product, compare interest rates and fees charged by the lender
- To have time to apply for Down Payment Assistance if you qualify
- To be informed of your approximate closing costs, down payment amount, pre-paid items, monthly payments and escrow amounts to ensure that you’re comfortable with those numbers
- A pre-approval letter has information needed to complete the financing section of your offer
- Most sellers want to see a pre-approval letter attached to offers to see that you’re a solid buyer who has done their homework
There’s nothing quite as disappointing when starting your home search than when an online mortgage calculator doesn’t calculate all the fees and pre-paid items (such as homeowners insurance, taxes, and possibly flood insurance premiums) into an accurate estimated monthly payment. When you find out that the payments will be much more expensive in reality than you expected, it can definitely put a damper on the entire experience. We won’t even talk about the differences in home style, construction, square footage, etc…, when dropping your price range to meet the monthly payment that you’re most comfortable with. So it’s best to start in the most accurate price range(determined by a lender) from the very beginning to eliminate these issues.
The second reason we need a pre-approval is to make sure we are only looking at homes that will qualify for the loan product you’re approved for. Let’s say that you tell your lender you’d like to buy a house with no money down and after they review your financials, you qualify for a Rural Development Loan at 100% financing. That’s a great deal! However, we need to make sure we’re not looking at houses smack-dab in the middle of town. We need to cross-reference each address with the Rural Development eligibility website and if the home’s address is eligible, only then we should we set up an appointment to see the house. There are other instances where we need to double check the property against the loan product but this example is just a start.
Getting pre-approved in the beginning of the process will allow you time to shop around for the better deals. Interest rates, fees, charges, programs, etc., vary from lender to lender. Calling a few lenders and asking questions at this stage will eliminate stress and allow you to make a educated decision based on your research rather than emotionally charged decisions when the heat is on and you’re trying to place an offer right away.
INSIDER TIP: Did you know that you can “shop” for a loan. To the best of my knowledge, you can get quotes from multiple lenders and your credit SHOULD only be “dinged” once because it’s a “like-kind” inquiry. Just make sure you do all of your shopping within a 10-14 day period… Any longer than that and you risk getting multiple inquiries counted against you… Please make sure you proceed only after performing your own due diligence. Here’s a good article that you may want to check out:
Ask the lender if you might qualify for down payment assistance or a grant. The lender can provide more information regarding these programs but look at this link to get started:
There are several fees associated with buying a home above and beyond the down payment. There are closing costs and prepaid items (a lender can give you an estimate, but a good rule of thumb to follow is 3-4% of the sales price), a deposit if you choose to put one down (it’s not required in the State of Louisiana, but approximately 1% of sales price is customary) costs for inspections, and the appraisal. This post explains the upfront costs you can expect to pay when buying a home. You might also want to ask the lender to give you a few options of monthly payment amounts if you qualify for more than one type of loan or if you can adjust the down payment. Given your circumstances, we may need to ask the seller to contribute some money toward the closing costs and pre-paid items. This is where the lender’s knowledge and information is necessary for a smooth transaction. I don’t know about you, but I don’t like bad surprises when it comes to $$$. For more information regarding closing costs see this post.
The pre-approval has information that I need to complete an offer once you find “The One”, such as loan amount, approximate interest rate, mortgage term, what type of loan program, any points, etc.
The last bullet point is pretty self-explanatory. If we find ourselves in a multiple offer situation, the offer with a pre-approval letter will appear much stronger to a seller than an offer without.
So what documentation should you gather for a lender? Here’s a list to get you started, but the lender will send over their specific “needs” list when you reach out to them.
- Last two years tax returns with all schedules and attachments
- Last two years W-2’s
- Most recent pay stubs covering 30 days
- Most recent bank statements (all pages) covering 60 days; checking/savings
- Legible copy of driver’s license and Social Security Card
- Name and phone number of your insurance agent
- Full legal names of all borrowers
- Social Security numbers and dates of birth of all borrowers
- Employment and address covering last two years
- Residential addresses covering two years
- Email address
Know that this list of documentation is only the beginning. Buying a house is a big deal and the lender wants to make sure that you can re-pay the loan. Be prepared for the lender to ask for stacks of paperwork since the underwriters have buckled down after the housing crash in 2007-2008. Awareness that they will need to double and triple check your file will help prepare you for the journey.
An experienced local lender can make all the difference when buying your home. We are aiming for a smooth transaction that gets to the closing table on time. Believe me, you don’t want the alternative… If you don’t have a relationship with a local bank or lender and need a recommendation, please reach out to me at misty (dot) carrier (at) exprealty (dot) com for a list of lenders I’ve worked with on many transactions. Ultimately, the lender you work with is your decision, but if you need a place to start and want to talk with the lenders I recommend, just shoot me a text or email and I’ll be happy to send the list over to you.