Mortgage

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Understand the Process

Today’s stricter lending environment means that processing a mortgage application is more complex than ever, given the number of steps that lenders, underwriters, and mortgage insurers must all complete before home buyers truly have their financing in place.

To help ensure the process goes smoother, you can also take steps of
your own. It’s a good idea to discuss the process with your Agent even before shopping for homes. By planning ahead, you’ll be in a much
better position to negotiate and move forward on a purchase—and avoid any unpleasant surprises regarding your mortgage

Lenders and mortgage insurers look at a variety of factors, but the two most important are your monthly mortgage payment and your total debt load, relative to your gross income. As a home buyer, it’s also important to consider additional expenses, beyond your mortgage payment, that can impact how much home you can
afford. Depending on your situation, these other expenses could include property taxes, mortgage insurance, homeowners insurance, home maintenance expenses, homeowner association fees, parking expenses, and utilities.

Deciding what type of mortgage is best for you depends on your
personal situation, your financial scenario, and your future plans. For example, if your down payment isn’t large enough to qualify for a conventional loan, an FHA mortgage can be an excellent option. Alternately, you may qualify for an attractive program offered at the national or local level. Mortgage programs are always changing, so ask your Agent about current options.

Your Agent can provide several recommendations, based on past
home buyers’ experiences. Rates and fees are typically very competitive between lenders, so it’s often more important to focus on other factors, including the level of service provided and how well they’ve executed transactions for other buyers. The type of mortgage you are seeking may also impact your choice of lender, since some are more familiar with certain mortgage programs than others.

Completing a loan application with one or more lenders will help confirm whether your intended mortgage financing plans will work out as hoped, or if you must modify your plans. It’s important to understand since preapprovals are contingent upon the lender receiving full documentation, your preapproval does not guarantee that you have a mortgage. Still, it’s an important first step that will also put you in a better negotiating position with sellers.

As soon as you are under contract to purchase a home, commit to working with one lender to complete your mortgage application. You will probably be charged a fee at this point because this is when the lender starts incurring processing expenses on your behalf. Show your lender that you are serious about working in partnership with
them by submitting all the required documentation as quickly as possible.

Following these six steps will greatly improve your results in getting a
mortgage. Count on your Agent to provide more detailed information on each step in the process and answer any questions you may have.

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Get pre-Approved

Preapproval is the process of determining how much money you can borrow to buy a home. To preapprove you, lenders look at your income, assets and credit score to determine what loans you could be approved for, how much you can borrow and what your interest rate might be.

With a preapproval, sellers and their Realtors know you’re serious about buying a home — and they know you can afford it. If you’re interested in a home and want to make an offer, the seller wants to know that you can follow through with financing. Without a preapproval, you could be passed over in favor of someone who already has a lender and the funds lined up.

On top of that, getting preapproved gives you an idea of how much home you can afford. You can see how much money the lender will give you, figure out a down payment and know if the houses you’re considering are practical. It saves time during house hunting to immediately eliminate homes out of your price range.

It’s easy to confuse mortgage pre-approval with mortgage pre-qualification (especially because lenders often make up their own names for these steps).

But you shouldn’t mix up these two processes. A pre-approval letter gives you verified home buying power, whereas a pre-qualification letter is just an estimate of what you can afford.

Mortgage pre-qualification
Getting pre-qualified involves an informal interview with a mortgage lender.

The lender will ask about your credit, income, assets, and debts. Then it gives you a general idea of the price range you could afford and how much cash you’d need to purchase a home.

Pre-qualification can help you figure out what homes you can afford. But since none of your financial information has been verified yet (only stated), a pre-qualification letter won’t be taken seriously by a home seller.

To actually make an offer, you need a pre-approval letter.

Mortgage pre-approval
Pre-approval requires all the same information as pre-qualification, but the lender goes one step further by actually verifying the information you provide. That means it will look into your credit report, employment history, assets, and income.

To get a pre-approval letter, you’ll complete a full loan application. That includes submitting documents like W2s and bank statements, and authorizing a hard inquiry on your credit, to support the information you provided verbally.

With a pre-approval letter in hand, you’re free to make an offer on a house within your price range. The seller now has proof that you’re a serious buyer who should be good for the amount stated.

The pre-approval process varies from lender to lender. But it generally involves a loan application, a credit check, and various forms of documentation.

Many lenders let you complete the whole pre-approval process online. But if you want, you could also do it over the phone or in person.

Step 1: Complete a home loan application
To get pre-approved, you need to fill out a mortgage loan application. Your lender will usually let you complete your loan application online, over the phone, or in person. Online applications typically take 10-20 minutes to complete.

The loan application, also known as Form 1003, asks for your personal information, financial information and loan information.

After your application is completed, the lender will pull a three-bureau credit report known as a tri-merge. This report shows your credit scores and credit history.

Note, you can apply and get pre-approved with any lender you wish. You can even get pre-approved by more than one lender to find the best offer.

Pre-approvals are non-binding, and you’re free to switch lenders before taking out the loan.

Step 2: Document your income and assets
Your lender will require documentation to support the info in your loan application. This is what makes getting pre-approved different from getting prequalified.

Typically, your lender will require the following documents for mortgage pre-approval:

  • Identifying documents such as a valid driver’s license or Social Security card
  • Last two years’ W-2s and/or 1099s
  • Last two years’ tax returns
  • Profit & Loss statement if self-employed
  • Paycheck stubs for last 30 days, if applicable
  • Statements from bank accounts, retirement accounts, and other asset accounts
  • Divorce decree or separation agreement, if applicable
  • Contact information for your landlord(s) for last two years, if applicable (if you already own a home, housing payment history will show up on your credit report)

To speed up the pre-approval process, it helps to have these documents in hand before you get started.

Some lenders can pull documents directly from your employer and bank, but not all. Some can also verify your income with the IRS, with your consent.

Step 3 – Your mortgage lender completes the pre-approval
Once you’ve filled out your pre-approval application, turned in your documents, and paid your application fee (if applicable), your work is done. The last step, underwriting, is up to your lender.

Most lenders use a universal automated underwriting system (AUS) to pre-approve customers for home loans. AUS is a technology-driven underwriting process that provides a computer-generated loan decision.

In other words: You don’t have to wait for a human underwriter to read through all those documents and approve or deny you.

By using automated underwriting, lenders can render near-instant decisions that could take up to 60 days to complete via manual processing

Do mortgage pre-approvals affect your credit score?

Most mortgage pre-approvals require a “hard” credit pull which can affect your credit score. But the impact is usually very small. According to myFICO, one hard inquiry will take less than five points off your FICO score. (For perspective, the full scoring range is 300-850.) And if you get multiple pre-approvals within 2-4 weeks of one another, they all count as a single hard inquiry — so your score will only be dinged once.

How long does mortgage pre-approval last?

Mortgage pre-approval letters are typically valid for anywhere from 30 to 90 days. However, a pre-approval can be updated and extended if the lender re-checks your information. The pre-approval letter serves as evidence that a lender has reviewed your credit and verified your income and assets.

Will a real estate agent show homes if you’re not pre-approved?

A seller’s real estate agent may not want to show a home unless you have a pre-approval letter. Your own agent would likely show the property; however, most real estate agents prefer working with homebuyers who have been pre-approved. The pre-approval letter proves you’re a serious buyer.

Any changes to your mortgage application after getting pre-approved could affect your eligibility, interest rate, or home buying budget.

After getting pre-approved for a mortgage, try to maintain the status quo until you close on the home. For example:

  • Keep the same job
  • Delay major purchases that could impact your credit or debt-to-income ratio
  • Protect your savings account
  • Gather documentation for any large deposits into your bank accounts

If you do have any major changes in any of these areas, be sure to contact your lender as soon as possible.

Otherwise, by holding steady, you should be able to keep your mortgage pre-approval intact and your home offer secure.

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Bill also receives significant attention within the real estate community and beyond; as a star of the hit Netflix show Selling Sunset featuring his brokerage and agents as they sell luxury homes to their affluent and celebrity clients. With more than $1 billion in closed sales, he currently has more than $300 million in active listings.

Bill also receives significant attention within the real estate community and beyond; as a star of the hit Netflix show Selling Sunset featuring his brokerage and agents as they sell luxury homes to their affluent and celebrity clients. With more than $1 billion in closed sales, he currently has more than $300 million in active listings.