Once you’ve found a Realtor to represent, advocate on your behalf, 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 put an offer in on a home for a client unless he or she has been preapproved. 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.
NOTE: Preapproval is different from prequalification. Mortgage preapproval involves much more documentation and will get you a more serious loan offer. Prequalification is less formal and is essentially a way for banks to tell you that you’d be a good applicant, but it doesn’t guarantee any particular loan terms.
Having a good mortgage lender is a crucial part of ensuring a smooth transaction. You will rely heavily on your lender for accurate preapproval information, assistance with your agent in contract negotiations and trusted advice. Also, remember that interest rates, fees and terms can vary substantially from lender to lender.
“That’s why it’s important to shop around carefully and ask questions”
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 to you directly
- The 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, etc
- Most recent month of a paystub
- Past two year’s worth of W2
- Past two year’s worth of US Tax Returns
- Previous year’s Corporate Tax Returns (if self-employed and you own over 25% of the company)
Getting a Preapproval Letter
Generally, once you submit the above items to your lender you should receive a preapproval 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, underwriters became much stricter regarding the loan approval process so a lot more documentation is needed today than it was in the past. In addition to receiving a preapproval letter which shows the amount you can afford to purchase, you should ask your lender to show you what that preapproval amounts to 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 preapproval dollar amount. Once you’ve received your preapproval letter, forward it to us for your file so we can have it when we are ready to submit an offer.
Get a Loan Estimate and Understand Your Closing Costs
In addition, mortgage lenders are required to provide you with a Loan Estimate (LE) within 3 days of receiving your preapproval. The LE 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. Your mortgage lender can provide you with more detailed estimates based on your exact preapproval price. Remember, these closing costs are due at closing (inspection fees which are due on the day those services occur) and are on top of your down payment.
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. We recommend having the lenders all pull your credit on the same day though. Each 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 on the same day or within a day of each other it will affect your credit a lot less than if you have it pulled by various lenders weeks apart. Also, if you’re going to compare interest rates, make sure you are comparing interest rates between lenders on the same day as rates vary, even over the course of the day. So if you aren’t comparing interest rates on the same day, it’s like comparing apples to oysters.
BEFORE you start the process of talking with Lenders…call us at (740) 590-4882 or email info@athensuptownrealty.com