I’m often asked by home buyers “does my preapproval letter expire” or “what happens if we don’t find a home in a few months”. Preapproval letters should include two dates: when the letter was prepared and when the preapproval expires. Fear not, most of the time, it should just take providing a couple documents to your loan officer so they can “dust off” your application and provide an updated pre-approval letter.
Recently one of my out of state clients who is looking to buy an investment home in Seattle asked “Is it necessary in Seattle to get preapproved?”
The short answer: YES! Unless you’re paying cash! And if you are paying cash, be prepared to show the listing agent and seller that you have proof of funds.
Redfin’s “Bidding War Report” reveals Seattle is the 5th most competitive housing markets in the nation with 74.6% of offers “facing competition” (multiple offers) last month.
With Seattle area home sellers having more than just one offer from potential home buyers to choose from, you must be preapproved by a reputable local lender. Listing agents will help the seller review the offers to determine which one is the best for their situation.
According to the Bidding War Report, if you’re buying a home in Seattle, you may want to consider getting your home inspection done BEFORE making your offer (aka a “pre-inspection”). Last month, 14.3% of “winning offers” on Seattle homes had pre-inspections and 19% waived their inspection contingency.
Pre-Inspect-to-Play: This 2-bedroom, 1-bath home in Seattle’s Phinney Ridge neighborhood had 300 showings, 19 pre-inspections (a competitive strategy common in Seattle in which the buyer has the home inspected before submitting an offer so that they can safely waive the inspection contingency), and more than 30 offers….
What did the “winning offers” have for financing in Seattle last month?
- 63.1% used conventional financing
- 4.8% used FHA or VA financing
- 2.4% paid cash
10.7% of “winning offers” waived their financing contingency. 17.9% of “winning offers” included a cover letter, or a “love letter” to the seller about why they want to buy their home.
This is great news for home owners who have been contemplating selling their home. Last night, King 5 aired this story about a couple from Seattle who sold their home in a matter of days for more than they expected with several strong offers to choose from.
Rising home prices will also help home owners who have been waiting for their home values to go up so they can refinance (if they don’t already qualify for HARP or a FHA/VA streamline refi).
ATTENTION HOME BUYERS is the greater Seattle area: you’ve got to get your game on if you want to “win” in a multiple offer situation! Be sure to get preapproved from a local trusted lender. Your preapproval letter needs to be strong enough to give the seller and listing agent confidence that you are the most qualified buyer with the highest odds of having the transaction close quickly and without issues. Here’s a list of what you’ll need in order to be truly preapproved…if you’re working with a lender who has not requested these items, you’re probably just prequalifed and there is a HUGE difference.
If you are considering buying or refinancing a home located in Seattle or anywhere in Washington state, where I’m licensed, I am happy to help you! I have been helping home buyers with their mortgage needs at Mortgage Master Service Corporation for 13 years. Click here for a rate quote or contact me to start the preapproval process.
I’m working with a couple in Seattle who would like to buy a home. They have excellent credit (scores of 740 or higher) and are planning on using $70,000 for their down payment and closing cost. They want to know how much home they can buy based on their down payment.
The following rate quotes are effective as of January 24, 2013 at 12:20 pm. Rates change constantly, for your personal rate quote for a home located in Washington state, click here.
Conforming High Balance allows them to buy a home priced at $576,000.
The conforming loan limit in Seattle/King-County is currently $506,000. Using a conventional mortgage, they could buy a home priced at $576,000.
Current mortgage rates for a 30 year fixed conforming high balance ($417,001 – $506,000) based on this scenario is 3.750% (apr 4.094).
3.750% is priced as close to “par” as possible meaning there is as little rebate credit or discount points priced with the interest rate. We could adjust the rate slightly higher to create more rebate credit to help pay for closing cost or we could reduce the rate by paying more in discount points.
The loan to value based on a sales price of $576,000 and loan amount of $506,000 is 87.874% which means the Seattle home buyers will have private mortgage insurance (pmi). For this client, we’re opting to include the pmi in their mortgage payment instead of paying it as an upfront additional closing cost or doing “split premium” mortgage insurance.
The principal and interest payment is $2,343.36 plus private mortgage insurance of $282.52 gives us a “PIMI” payment of $2,625.88. Property taxes and home owners insurance are additional.
The Seattle home buyers will negotiate the seller paying for remaining closing cost and prepaids/reserves estimated at $7900, leaving their amount due at closing very close to $70,000. If the sellers opt to not pay for closing cost and prepaids, the buyers can use rebate pricing (slightly increasing the mortgage rate) to offset the cost.
FHA allows them to buy a home priced up to $637,500.
FHA mortgages in the Seattle/King County area have a loan limit of $567,500. With a down payment of $70,000 they could buy a home priced up to $637,500. The big difference between FHA and conventional financing is the mortgage insurance. FHA has both upfront and monthly mortgage insurance.
The current mortgage rate I’m quoting for their FHA scenario is 3.375% (apr 4.059%).
This rate is priced with a little more rebate to help reduce closing cost. If the Seattle home buyers want a lower rate with less rebate credit, they certainly can opt for that. Mortgage rates are not locked until we have a bona fide contract and the rates will be “floating” while they shop for a home.
The principal and interest on this rate and loan amount is $2,552.80 with mortgage insurance at $562.43 providing a PIMI payment of $3,115.23. Property taxes and home owners insurance are additional.
After the rebate credit, if the buyers negotiate the seller paying the remaining balance of their closing cost, prepaids and reserves in the amount of $4,000, the buyers will need around $70,000 for funds due at closing.
VA loans allow them to purchase up to $780,000 with a “VA Jumbo” loan.
The VA zero down loan limit in Seattle is $500,000. When a loan amount exceeds the limit, eligible Veterans can have a down payment based 25% off the difference between the sales price and loan amount.
For example, a sales price of $780,000 less $500,000 loan limit = $280,000. $280,000 x 25% = $70,000 down payment.
The current rate I’m quoting for this VA Jumbo 30 year fixed loan is 3.250% (apr 3.379).
The principal and interest payment on this loan is $3,136.31. There is no mortgage insurance on a VA loan. Property taxes and home owners insurance are additional.
If the seller pays for $4500 of the Veteran’s closing cost and prepaids, then the amount due at closing will be around $70,000.
USDA loans are not eligible in the Seattle area because it’s not a rural area.
If you are interested in buying a refinancing a home located anywhere in Washington state, I’m happy to help you. I’ve been originating residential mortgages at Mortgage Master Service Corporation since April 2000.
APR was created by our government to help consumers select a mortgage rate. It was intended to be a tool that would allow someone to simply compare various mortgage scenarios and shop mortgage lenders for the “best rate” at the lowest cost. Unfortunately, APR is probably not providing an accurate view of what the true cost of the mortgage, whether it’s for a home purchase or refinance, is. [Read more...]
When someone becomes “preapproved” for a mortgage, it boils down to they qualify for a certain mortgage payment based on their income and debts (DTI aka debt to income ratio). A home buyer qualifies for the loan amount of the new mortgage and their funds available for down payment and closing cost determine the sales price.
Because mortgage rates are not locked when the home buyer is not yet in contract, the preapproval is subject to change and is only valid if the the information relied on (the application and supporting documents) have not changed. For example, if a home buyer changes employment or buys a new car without consulting their mortgage professional, the preapproval letter may be void.
There are some things that may impact a loan preapproval that are not directly in the home buyer’s control such as the amount of property taxes, home owners insurance and/or home owners association dues. When I prepare a preapproval letter for my clients, I include the maximum total mortgage payment they are qualified for.
Another variable is, of course, mortgage interest rates. If a borrower is approved at today’s super low rates and makes an offer on a home a month from now and rates are higher, they may not qualify if their debt to income ratios are “pushed” to the limit.
It’s also possible to have loan programs and underwriting guidelines change. Private mortgage insurance fees may adjust as well as the mortgage insurance or funding fees for FHA, VA or USDA mortgages. I’ve seen FHA mortgage insurance premiums adjust high enough to disqualify or reduce the buying power of homebuyers a couple times over this last year!
I strongly encourage home buyers to check in with their mortgage professional before making an offer on a specific home so that everything can be reviewed and the preapproval letter can be updated. If rates have gone up from the time of the original preapproval, it’s possible you may need to request the seller pay for closing or discount points to bring your rate back down.
When I’m working with a home buyer, it’s not unusual for me to prepare several preapproval letters during their search for their next home.
I have been helping home buyers with their mortgage needs since 2000 at family owned and operated, Mortgage Master Service Corporation. If you’re buying a home in Seattle, Woodinville, Renton or anywhere in Washington, I’m happy to help you!
Many families are squeezing in a vacation during the remaining days of summer. I can’t blame them, I’m just back from one myself! If you are in the mortgage process, it’s critical that your let your mortgage originator know of any vacation (or business travel) plans.
If you’re going to be in a spot where you can receive important documents and respond to emails, it may not be a huge issue. If you’re going off the grid, it may impact your rate lock commitment if your loan is currently locked. Your mortgage originator will need to price out a long enough lock period for your loan (if you’re locking) or you may opt to float and not lock in the current rates available. And of course, if you run out of time with your lock, the rate lock commitment may be extended.
Another factor is signing your final loan documents. Escrow companies can email (I do not recommend sending final docs via email) or send your loan documents via something like FedEx or UPS. This can be a bit risky as well as if a signature is missed or something is not notarized properly, your transaction may be delayed.
The more notice you can provide your mortgage originator about vacation or business travel, the more time they will have to prepare your options for the mortgage process.