Seattle Real Estate Chat [Video] on Preapproval and Commitment Letters

In this episode, Jim Reppond and I discuss Commitment Letters.  A commitment letter is kind of like a preapproval letter on steroids. And in this hot sellers market that the greater Seattle area is currently experiencing – many buyers can use a little extra help to stand out from a similar competing offer.  A Loan Commitment Letter may be the extra boost that could help some home buyers.

Check out our last episode!

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Steps in the Mortgage Process

iStock_000003709509SmallThe process of getting a mortgage consists of several stages and typically takes anywhere from 20 – 40 days (or more) depending on how prepared you are, what mortgage program you have selected and if it’s a purchase, the closing date may dictate how long the process will take. The steps below may not take place in the exact order I have listed and some steps may happen simultaneously.

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Protect your Preapproval Status over the Holidays

santawalletTis the Season for holiday shopping. The aggressive sales push this year started BEFORE Thanksgiving with more mega-stores even remaining open on a day when employees should have had the day off (or at least had working on Thanksgiving as being “optional”).Cyber Monday is now cyber week…anyhow, my point is, stores are competing for your dollars. If you are considering buying a home or are currently pre-approved to buy a home, I thought I’d share some tips for you on how to make sure your “pre-approved” status is not jeopardized during the holiday season.

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How to Leverage your Lender when Making an Offer [Video] #SeattleREchat

In our most recent Seattle Real Estate Chat, Jim Reppond and I discuss how to leverage our lender when making an offer.

Tune in for our next Seattle Real Estate Chat on Tuesday, 10:00 am Seattle time where we talk about lenders or agents who wear two hats - such as agents who represent both the buyer and seller (dual agency) or an agent who’s also the loan originator.

Seattle Real Estate Chat is a weekly show that Jim Reppond and I host on a Google/YouTube – join us!  We are also on Twitter @SeattleREchat or search #SeattleREchat.

 

Updating your Preapproval Letter

j0403639_2I’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.

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What is the difference between a Preapproval Letter and a Loan Commitment Letter?

j0403639_2Last week I shared how it’s pretty much mandatory that if you are a home buyer making an offer on a home located in the greater Seattle area, you better be equipped with a strong preapproval letter from a reputable lender.

Some home buyers are taking this a step further and requesting a Loan Commitment Letter from their lender. What’s the difference?

There are actually three levels of qualifications that a potential home buyer may have after contacting a lender. Please keep in mind that not all lenders may have the same standards or definitions as what I’m posting here.

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Is it necessary in Seattle to get preapproved to make an offer on a home?

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.

The biggest issue with buying a home today in Seattle

Yesterday I met for coffee with one of my clients who is hoping to buy a home in a Seattle area neighborhood for around $600,000. They have already taken one of the most important steps in the home buying process by getting preapproved for a mortgage.

The preapproval process required they complete a loan application and provide me with documentation that supports the information provided on the loan application (such as W2s, paystubs and bank statements). After having a complete application, I am able to run their credit reports and run the scenario through automated underwriting, which provides us with an approval and conditions to that approval.

Here’s a bit from our conversation with a few of their questions.

Is it challenging to qualify for a home in Seattle?

It’s really not that hard to qualify. Presently our underwriting guidelines will allow:

  • a low-mid credit score of 640 for FHA
  • a minimum down payment of 3.5%, which can be gifted by a family member. NOTE: FHA Jumbo’s will soon have a minimum down payment of 5%. In the greater Seattle area, FHA Jumbo’s are loan amounts from $417,001 to $567,500
  • VA home buyers can have a low-mid credit score of 620 with zero down payment up to $500,000. A $600,000 sales price would have a down payment of $25,000 with a VA Jumbo.
  • Home buyers need a two year employment history (sometimes your college education may count as an employment history)
  • Income must be documented and consistent. NOTE: if your self-employed, paid commission or hourly (vs. salary), you will need a two year history and income will be averaged.  NOTE: If you are planning on using your 2012 income, you may want to consider filing your income taxes as soon as possible.
  • Down payment and funds for closing must be documented with complete asset account statements. 

What are the biggest “hiccups” in a transaction?

  • borrowers need to continue providing paystubs and bank statements. Do not toss or shred anything that has to do with your assets or income.
  • large deposits (typically this is anything over $1000) must be documented…so if your Great Aunt Nelly is giving a wad a cash or a check for a birthday present at the time you’re getting ready to buy a home, keep documentation or proof of where the cash came from.
  • if you are planning on using 2012 income for qualifying, you need to file your 2012 tax returns as soon as possible. Lenders re-verify income (beyond W2s or 1040 – tax returns) with tax transcripts from the IRS via Form 4506. As we near “tax season” it takes the IRS longer to process and provide this information.
  • days prior to closing, employment is re-verified. If there are changes to employment or the employer is difficult to reach, this may cause a delay.
  • a “soft” credit pull is done prior to closing as well to make sure no new debts have been acquired by the buyer. If there are new debts, the buyer will need to be re-approved factoring in the debt payments.
  • If the credit report is getting ready to expire prior to closing, a new credit report will be obtained. This may have additional impacts to the transaction if there are changes to debts or credit scores. 

What is the BIGGEST issue with buying a home today in Seattle?  INVENTORY!  

This probably comes to no surprise to Seattle area home buyers in the $300,000 – $700,000 price range hoping to find a non-distressed home to make an offer on. 

If you have been considering selling your home, NOW could be an excellent time to consult with a real estate agent…and I’m happy to recommend one to you! 

As always, if you’re looking to buy a home or refinance your mortgage on a home located anywhere in Washington state, please contact me. I have been originating mortgages at Mortgage Master Service Corporation since April 2000 and I’m happy to help you!