Buying a Home: get pre-approved for a mortgage
Once you’ve found a REALTOR® to represent and advise you on the transaction that’ll be your largest financial instrument, the next step to buying a home is to get pre-approved by a mortgage lender. I do not recommend submitting an offer in on a home for a client unless you’ve been pre-approved for a loan, demonstrating to the seller you are in a strong position to purchase their home.
In addition, it’s important you have an understanding of how much you can comfortably afford to spend on a home, what your monthly payment will be, what interest rate you qualify for, and how much you’ll be paying each month in insurance, taxes, etc.
Having a good mortgage lender is a crucial part of ensuring a smooth transaction. Working with a bad mortgage lender can make the process terribly difficult for everyone involved and put your purchase in jeopardy of not closing on time or even 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 or out of touch and couldn’t get you fully approved during underwriting. That’s why it’s important to work with the best. The lenders I recommend are on my real estate resources page.
Paperwork You Need To Gather
Each lender has slightly different requirements regarding what documentation they need from you for the pre-approval process, but generally you can expect to provide the following items:
- A completed application. The lender will provide this to you directly or it will be online in a secure webpage (make sure the URL begins with ‘https://’).
- 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’s paystub
- Past two years’ W-2
- Past two years’ federal income tax returns
- If self-employed and you own more than 25% of the company, you will need the past two years’ corporate income tax returns
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. Know 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 more documentation is needed today than it was 10 years ago. In addition to receiving a pre-approval letter showing the amount you can afford to purchase, you should ask your lender to show you what that pre-approval means in terms of a monthly mortgage loan payment plus any PMI, property taxes, hazard insurance premiums, and flood insurance (if applicable). That way you will be comfortable with the monthly housing payment indicated in your 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
Oklahoma offers several programs for home buyers where the state will literally give you free money to put toward your down payment or closing costs. There are a number of programs designed for low and moderate individuals and families. Be sure to talk to your mortgage lender to see if you qualify! See more info at the OHFA Advantage Program website.
Obtain 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 pre-approval. 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. 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 are rendered) and are on top of your down payment. Therefore, if you’re buying a $200,000 property and putting down 20% toward the loan, you’ll need to have $45,000 cash available at closing ($40,000 for your down payment and approximately $5,000 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. Some recommend waiting 2-3 weeks between meeting with lenders, as they will pull your credit report in order to give you an accurate pre-approval letter. If your credit is pulled by various lenders in the same week, it could affect your credit by a few points. If you wait a few weeks between having your credit pulled, it generally won’t affect your credit at all.
Questions about the pre-approval process? Just call me at 405-585-6580 or email Steve@SoldonShawnee.com.