Financing

Knowing your Buying Power maximizes your options and enhances your negotiating position.

Get Pre-Approved Today!

There are two ways of estimating your borrowing power: pre-qualification and pre-approved. Pre- qualified” and “pre-approved” are not the same thing. There is a difference. Looking at a mortgage calculator on line and determining how much a mortgage payment will be, depending on the down payment and price of the home, does not count as a pre-approval.

If you are in the early stages of the property buying process, getting pre-qualified by a lender gives you a good idea of what you can borrow. You simply provide income, debt, and down payment figures. The lender will then provide you with an estimate of how much house you can afford.This is often done quickly, over the phone, and you have no obligation to use that lender to get a mortgage.A bank may have even done this for you, but to be pre-approved means the bank will actually loan you that amount of money to buy a home.

Pre-approval requires a more in-depth look into your finances to determine exactly how and why you can afford a certain home.Lenders will sit down with you and go over all your income, debt, liabilities and assets to determine a monthly payment you can comfortably afford. You typically usually don’t want more than 25% going toward a housing payment.You can go up to 38%, on a case by case basis.The bank will factor in all your current debts and decide if you can afford to pay back the loan based on all your other responsibilities. Lenders have stricter requirements now and require proof of your income and funds in the bank.

Credit scores also make a big difference in the interest rate and fees you will pay for a loan.The bank will provide a letter that indicates the amount that they are willing to provide as a loan.Unless you intend to purchase a new home with cash, you should obtain a mortgage pre-approval letter because many sellers today will not even entertain the idea of accepting your offer without a pre-approval letter provided to them first.

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Bottom-line

The first step in the pre-approval process is to find a mortgage professional or mortgage broker that you feel comfortable working with. The more information that you provide upfront for your mortgage broker, the better off you will be in the long run. This will lessen the chance that you will have any problems or delays in closing. To obtain a pre-approval letter, your lender will ask you to provide them with a number of documents that will create a “snapshot” of your current financial health and your ability to borrow. For each adult who will be on the loan application, the lender will probably ask for some or all of the following:

  • 30 days of pay stubs
  • 60 days of bank statements for every bank account
  • W-2′s for the last 2 years
  • Tax Returns ALL pages for the last 2 years
  • Photo ID’s
  • Name, address, telephone and fax of your employer(s) for the past 2 years
  • Name, address, telephone and fax of your landlord(s) for the past 2 years.
  • If you are self-employed, you will need tax returns from the last two years

With this information and your permission, they will run your credit, verify your employment & your earnest money deposit, and create a file that is ready to be submitted to the underwriter once you have found your home. Your lender will then be able to provide you with a mortgage pre-approval letter that you can give to buyer’s agent.

Your income level will help the mortgage broker determine your DTI (debt to income ratio) and give you an accurate purchase price for a new home. There are a variety of factors that will greatly affect your interest rate. Lower credit ratings and scores will equal higher interest rates which will mean a higher mortgage payment. The amount of your down payment will influence your interest rate as well. The type of loan you are going to get will affect your interest rate and down payment as well as other fees charged in connection with your loan. Pre-approval is usual quick and relatively painless and usually you can get pre-approved within 24 hours with the necessary income verification and supporting paperwork on hand.

Once the borrower is pre-approved, they can begin shopping for properties that fall within the amount of the pre-approval offer. A pre-approval is subject to the borrower’s continued good credit and usually remains valid for 60 or 90 days, after which the borrower must reapply in order to make sure the loan offer is still good.

WHAT RESPONSIBILITIES DO I HAVE DURING THE LENDING PROCESS?

  • To ensure you won’t fall victim to loan fraud, be sure to follow all of these steps as you apply for a loan:
  • Be sure to read and understand everything before you sign.
  • Refuse to sign any blank documents.
  • Do not buy property for someone else.
  • Do not overstate your income.
  • Do not overstate how long you have been employed.
  • Do not overstate your assets.
  • Accurately report your debts.
  • Do not change your income tax returns for any reason. Tell the whole truth about gifts. Do not list fake co-borrowers on your loan application.
  • Be truthful about your credit problems, past and present.

Be honest about your intention to occupy the house.